Ryan Shea andÂ Madeline Tyson of Rocky Mountain Institute show why commercial customers paying demand charges and time-of-use rates should seriously consider an investment in solar plus storage, a common technology used in microgrids.
As shown in a recentÂ RMI report, battery energy storage costs are less than a fifth of what they were a decade ago. This is enabling batteries to become cost-effective in a growing list of locations and use cases, such as balancing the grid, reducing customer demand peaks, and providing backup power. In particular, behind-the-meter solar-plus-storage can often deliver bill savings for large commercial and industrial users that have high demand charges â€” typically greater than $10-15 per kilowatt (kW)â€“or have time-of-use (TOU) utility rates.
Our analysis shows that these investments have simple payback periods of less than eight years in places as diverse as Arizona, North Carolina, Ohio, and South Carolina â€” based just on reducing peak demand and shifting TOU. Behind-the-meter batteries can also deliver other services, but we did not model these values.
While solar-plus-storage is gaining market share in places with battery investment incentives, like California and New York, it is now also competitive in many less-obvious locations. To evaluate its cost-effectiveness, we modeled the optimal battery capacity to be paired with a 50-200 kW PV system for a typical commercial customer with peak monthly loads averaging around 300 kW and annual usage of 900 megawatt-hours â€” translating to around $150,000 per year.
We ran our model in four diverse locations â€” New Bern, NC; Piqua, OH; Bullhead City, AZ; and Charleston, SC â€“ based on geographic diversity, neither obvious political support nor antipathy toward solar-plus-storage, and typically high demand charges. We used NRELâ€™sÂ REopt LiteÂ online tool to quantify the customer cost savings from solar-plus-storage. We also examined, but did not quantify, other social values, such as resilience and GHG emissions reductions.
North Carolina has theÂ fourth-most installed solar per capitaÂ in the United States, despite having the fifth-cheapest commercial electricity rates, a moderate solar resource, and a fairly weak renewable portfolio standard (RPS), which mandates that utilities sourceÂ 12.5% of their electricityÂ from renewable sources by 2021.
In cities like New Bern, with high commercial demand charges (>$25/kW) coupled with TOU rate structures, solar-plus-storage can be a very attractive economic investment. The simple payback is just six years, faster even than a standalone solar PV system. For a typical medium-sized commercial customer in North Carolina spending $155,000 per year on electricity, these savings would correspond to a net present value (NPV) of $220,000.
Solar-plus-storage investments could also help New Bern adapt to and mitigate climate change. New Bern, a coastal city, has facedÂ 24 hurricanes and severe stormsÂ since 1950, with almost half occurring in just the past decade. During future disasters, resilient solar-plus-storage systems could help keep the lights on.
Moreover, solar-plus-storage systems controlled and dispatched by the utility could also supplant planned natural gas peaker plantsâ€”especially as part of a â€śclean energy portfolioâ€ť that also includes energy efficiency and demand-side flexibility measures. Thus, solar-plus-storage could displace some of theÂ 422 megawatts of natural gas plantsÂ planned over the next five years in North Carolina and help ratepayers avoid the associated risk of stranded costs.
Many facility operators need increased resiliency, efficiently, and sustainability. Distributed Energy Resources (DERs) like wind, PV and energy storage can address these needs. Yet also introduce many other challenges. To learn how microgrids can help you optimize the integration of these assets, download this white paper.
Ohio ranks near the bottom of the nation for installed solar per capita, with a poorer-than-average solar resource, relatively cheap electricity, and unfriendly policiesâ€”like the state legislature rolling back what was an already weak RPS ofÂ 12.5% by 2026. Battery energy storage could play an important role in jump-starting the solar industry here because it can increase solarâ€™s cost effectiveness.
In places like Piqua, with high commercial demand charges ($16/kW), investments in solar-plus-storage could pay back in less than 8 years, compared with the 14-year payback period for a typical standalone solar PV system. For a typical medium-sized commercial customer in Ohio spending $105,000 per year on electricity, these savings would correspond to an NPV of $14,000.
As with North Carolina, solar-plus-storage investments also represent a significant emissions reduction opportunity. Ohio is third only to Pennsylvania and Texas in terms of planned gas generation capacity, withÂ 2,250 megawattsÂ expected to come online in the next five years. Showcasing the cost effectiveness of solar-plus-storage could play an important role in shifting investments away from new natural gas plants and towardÂ clean energy portfolios.
Additionally, solar-plus-storage on critical facilities could serve as a resilient resource during grid outages. Piqua has experiencedÂ 12 federally declared disastersÂ since 1950, including an EF4 tornado that hit just south of the town in May 2019. This resulted in overÂ 50,000 residents losing power, some for multiple days.
Despite having experienced some of the countryâ€™sÂ biggest battles over net meteringÂ and having a fairly weak RPS ofÂ 15% by 2025, Arizona is about on par with its California and Nevada neighbors inÂ installed solar per capita. This is due in large part to the state having the best solar resource in the United States.
Battery storage is rapidly becoming economic as well, especially for residents in cities like Bullhead City with its high commercial demand charges ($15/kW) coupled with TOU rate structures. For these customers, solar-plus-storage systems would pay back in less than seven years. For a typical medium-sized commercial customer in Arizona spending $120,000 per year on electricity, these savings would correspond to an NPV of $90,000.
Arizona is primed to become a leader in storage. Its utility regulator, the Arizona Corporation Commission, recently placed aÂ moratorium on the constructionÂ of new gas plants, emphasizing the importance of battery storage in balancing a grid with a high portion of renewable energy.
Climate change is also a critical factor for Arizona, which recently experienced increased wildfires, extreme temperatures, and drought. Bullhead City has experiencedÂ 13 federally declared disastersÂ since 1950, including recent wildfires in 2013 and 2015. As with other cities feeling the heat from climate change, resilient solar-plus-storage systems could alleviate some of the impacts from grid outages.
Even though South Carolina has a better solar resource and higher electricity prices than North Carolina, a combination of unfriendly solar policies has resulted in it having less than a third of the installed solar per capita of its northern neighbor. This includes a practically nonexistent RPS ofÂ 2% by 2021, a recently liftedÂ 2% aggregate capÂ on net metering, and the Public Service Commission settingÂ abnormallyÂ lowÂ ratesÂ for solar projects through PURPA.
Despite these regulator headwinds, solar-plus-storage systems can pay back in less than seven years in cities like Charleston, which is subject to Coastal Electric Cooperativeâ€™s high demand charges (>$16/kW) and TOU rate structures. For a typical medium-sized commercial customer in South Carolina spending $150,000 per year on electricity, these savings would correspond to an NPV of $82,000.
Similarly to New Bern, NC, Charleston has experiencedÂ 17 disastersÂ from hurricanes and severe storms since 1950, including 12 in just the last six years. Resilient solar-plus-storage systems can help Charleston deal with the effects of these increasingly frequent natural disasters. And asÂ nuclear powers continue to falterÂ in the state, costing rate payers billions of dollarssolar-plus-storage is well-positioned to become a critical part of a more distributed, cleaner, and lower-cost electricity system for South Carolina.
It no longer makes any sense to say that batteries are too expensive. Solar-plus-storage could be a significant missed investment opportunity for places that donâ€™t properly evaluate the many benefits described aboveâ€”especially those with high commercial demand charges or TOU rates.
Cities can play a unique role in helping to build the industry by developing goals, policies, and siting and safety guidelines for battery energy storage.Â New York CityÂ has taken a great first step, developing useful tools that other cities could use to develop best practices in these areas.
In addition to cities, corporate and institutional energy customers should take the lead by assessing solar-plus-storage on their buildings to evaluate the direct bill savings and their ability to adapt to and mitigate the effects of climate change. Collectively, the buying power of these customers could help significantly move the needle on battery storage deployment and be an important accelerant of our transition to a cleaner grid
Â©2020 Rocky Mountain Institute. Published with permission. Originally posted onÂ RMI.org Outlet.