The State of the Behind-the-Meter "Battery" Market
The energy storage revolution was off and running well before Tesla announced its much-lauded Powerwall and the monolithic GigaFactory, promising to drive down lithium battery costs and make battery storage more widely available. The prospect of low-cost batteries powering our cars, buildings and extending the reach of renewables has triggered a tidal wave of investment and entrepreneurial focus.
So, what exactly is a “battery”? In many instances (including in this post), “battery” is a term that is used to describe any form of energy storage. When you ask most people what they think about when you say “batteries for buildings,” undoubtedly they describe a bigger version of the battery that is in their phone or hybrid car. They’re not sure how it’s used or what other needs exist for energy storage beyond consumer electronics and electric cars. The reality is that there is a wide variety of radically different energy-storage technologies, each with unique characteristics that are better suited for certain use cases. Today, the market doesn’t make it easy for potential buyers to determine which energy storage technology is the right fit for their specific application.
Let’s focus on battery systems for buildings that are located behind the meter. Batteries intended for buildings typically fall into two technology categories: electrochemical and thermal. Both types of battery systems can be used to generate valuable services for both the electricity grid and the host site:
Benefits to the Host Site
Defer major investments in transmission and distribution lines and substations in constrained areas of the grid via peak load reduction
Reduce the need for peaker plants and spinning reserves by providing a “buffer” of on-demand energy storage at customer sites
Buffer grid imbalance: storage helps stabilize the grid, enabling more intermittent users & suppliers of electricity (e.g., EVs, solar PV, etc.) to safely interconnect
Provide ancillary grid services such as frequency regulation and demand response
Achieve compliance with mandatory energy storage targets (in MW)
Benefits to the Electric Utility
Lower peak demand charges through peak load shaving
Lower energy charges by storing inexpensive electricity (at night) and offsetting the consumption of expensive electricity (during the afternoon)
Reduce operational risk: back-up services allow hosts to maintain critical services during power outages, reducing business interruption and perishable inventory loss
Increase the value of solar PV by smoothing fluctuation in production (increasing demand savings)
Increase equipment lifespans (thermal batteries only) by decreasing the number of start/stop cycles and operating at more optimal conditions
Many people assume that electrochemical batteries (most commonly lithium-ion, or li-ion) can perform all these functions for every building type. While Li-ion batteries are an incredibly useful technology that is revolutionizing industries (personal electronics, electric vehicles, etc.), li-ion batteries have inherent limitations that can severely limit their applicability in many building categories. The good news is that other innovative energy storage technologies are now available to fill this gap in the rapidly developing behind-the-meter energy storage market.
Given the focus on lithium batteries, let’s take a closer look at their optimal application and limitations. One thing that li-ion batteries do very well in a grid setting, is “peak shaving,” or smoothing sudden spikes in electricity demand that can drive up electricity bills. This function is valuable in facilities such as manufacturing facilities or hotels that experience short periods of intense electricity usage. Li-ion batteries perform well for short, high-intensity bursts — typically 15–30 minutes in duration and their software leverages utility rate information to “shave” the most expensive energy spikes by rapidly charging and discharging the batteries many times a day. Many state and utility energy storage incentives (such as SGIP in California) are tailored for this sub-two-hour shaving application primarily because of its value to grid operators (mentioned above).
However, Li-ion batteries have some key limitations, namely: cost, performance, and lifespan. These limitations make li-ion batteries unsuitable for many building categories, such as office buildings or supermarkets, that do not experience short, intense “spikes” in electricity demand.
Key Li-ion Limitations
The prices of li-ion cells are high, but they are falling quickly. However, the true cost of a behind-the-meter li-ion battery system is substantially more than the cost of the cells alone. A complete system requires an inverter, a long list of balance-of-systems components, installation labor/markup, and a time-consuming (and often arduous) utility interconnection process.
Typically, Li-ion battery systems can only use ~60% of their nameplate capacity on a repeatable basis without degrading the cells. In other words, li-ion batteries typically only charge to 80% capacity and discharge to 20% capacity on a regular basis, and thus do not lend themselves to shifting large energy loads for long durations. In addition, li-ion batteries require many energy conversions: AC -> DC -> chemical potential -> DC -> AC. Losses are incurred at each of these energy conversions, further impacting system performance. These poor performance characteristics cause manufacturers to substantially overbuild battery systems, contributing to high system prices.
Li-ion cells can only be charged and discharged a limited number of times, meaning that cells must be replaced every 4-10 years (depending on usage and cell chemistry). Inverters typically have lifespans of 15 years. While these factors do not impact up-front pricing, replacing the two most expensive system components substantially increases lifecycle cost.
Because of these limitations, most behind-the-meter li-ion battery systems in operation today are small and can only be installed in a small number of facilities with very specific load profiles. In addition, most behind the meter li-ion energy storage providers are limited to California and Hawaii (in the US) due to their dependence on incentives.
There is no doubt that there is an enormous global market for li-ion systems. However, even when their cell costs decrease significantly, they still won’t be able to address the needs of facilities that have smoother load curves and require cost-effective, long-duration energy storage technologies that can shift large loads from two to eight hours.
For many facilities with smoother load curves, behind-the-meter li-ion battery systems are NOT the answer, nor will they be in the foreseeable future. Is it possible for these facilities to get all of the benefits of behind-the-meter energy storage without the drawbacks of li-ion systems? Will utilities be able to meet their needs with only short and medium-duration behind-the-meter energy storage resources? In our next blog post, we’ll take a closer look…
Amrit is co-founder and CEO of Axiom Exergy.