While battery innovators have continued to tweak their products’ chemistries in search of the perfect, safe and affordable companion to rooftop photovoltaic (PV) panels, a number of energy-storage entrepreneurs have made an end-run around this technology conundrum. Instead of seeking to supply a facility’s complete energy needs, their business models are based on sophisticated software. By solving a problem that barely existed a few years ago, these companies may have created a new market for energy-storage products, with a return on investment that actually makes sense for commercial customers.
Kilowatts, not kilowatt-hours
Cost-effective energy-storage has been called the keystone in renewable-energy circles for at least a decade. For example, being able to store solar energy to use at night would enable many electric utility customers to disconnect from the grid. However, general kilowatt-hour costs still remain low enough that expensive battery systems to replace grid-supplied power simply haven’t made sense. As a result, a new generation of on-site-storage marketers is targeting software-dependent solutions for the separate—and rapidly rising—demand charges commercial and industrial customers pay, and they are attracting some big money for their efforts.
In effect, demand charges can undo much of the energy-bill savings an owner can gain through such efficiency-boosting retrofits as light-emitting diode (LED) lighting upgrades and cooling-system improvements. Those efforts will reduce consumption charges, which are based on the total number of kilowatt-hours (kWh) of electricity a customer uses in a month. However, demand charges are based on the highest 15-minutes of peak use—for example, the point in a month when a supermarket’s compressors are maxed out to keep both customers and dairy cases cool. In other words, if the meter were a speedometer, it’s that time when the needle is as far to the right as it can go.
“The whole idea was that a lot of companies have a portion of their electric bill in demand charges,” said Leesa Lee, senior marketing director for Stem, a Millbrae, Calif., start-up, and a leader in this new approach to battery-based on-site storage. “The challenge with these charges is they’re substantial, and they’re difficult to tackle. All it takes is one spike, and that dictates energy charges for an entire month.”
Demand charges reaching new peaks
Energy-efficiency efforts have made big strides in reducing overall consumption. In fact, according to the U.S. Energy Information Administration (EIA), total U.S. electricity use fell in four of the five years from 2007 to 2012. The economic downturn certainly played a role in these figures, but the EIA sees a strong possibility that consumption could grow less than 1 percent per year between 2014 and 2040, even if no new efficiency standards are put into place beyond regulations already in effect.
With growth rates for electricity use remaining flat, or even declining, the difference between baseline use and peak-use periods becomes more significant. Electric utilities and power-system operators can’t just design generation and transmission capacity only for the average day; instead, regulatory authorities require them to design their systems to support operations during periods of highest demand, even if those periods might only last a couple hours during one day of the year. The demand charges billed to commercial and industrial customers are intended to pay for especially expensive peak generation and to incentivize users to reduce their peak demand.
With demand charges now comprising up to 70 percent of a facility’s electricity bill in some regions, managers see a strong financial incentive for reducing demand peaks. This motivation is growing stronger as these tariffs continue a fast-moving upward trend, especially in California and the Northeast. For example, demand charges for customers of California’s Pacific Gas & Electric increased 31 percent between 2010 and 2013.
New, very smart battery systems can play a role. Unlike applications in which batteries would be used to support facility operations for an extended period, batteries used to reduce usage spikes would only be needed for short—sometimes extremely short—periods. As a result, not as many batteries would be required. However, these systems would need to almost be fortune tellers in their ability to predict when the usage might be about to spike higher to switch enough of the facility’s supply to the battery to maintain a relatively flat profile with the grid-connected utility company.
“The software makes the hardware smaller,” said Vic Shao, chief executive officer of Green Charge Networks, another Silicon Valley start-up. “The software is needed to selectively tackle the tips. It requires a much smaller battery to do that.”
Green Charge Networks developed its software in collaboration with New York’s Con Ed utility, with research and development support from the U.S. Department of Energy’s stimulus funding program. In part, the software was intended to help Con Ed deploy energy-storage on the customer side of the electric meter as a less-expensive alternative to the grid-scale systems now being used to help provide voltage support. Shao said the demand charge results from a very real expense utilities face in supporting generation, transmission and distribution capacity that may only be fully used for a few hours a year.
“They realize that, at the end of the day, they’re spending several billion dollars per year to upgrade the grid,” he said. “They realize that’s not sustainable.”
Gain without pain
The kind of responsiveness Stem and Green Charge Networks offer might not have been available even a few years ago. The companies’ respective software is capable of reading building loads on a second-by-second basis and switching on battery supplies just as quickly when, for instance, conference attendees start hitting a hotel’s elevators en masse during the hottest part of a summer day.
Unlike traditional demand-side management programs, which set back lighting and air conditioning during peak periods, these battery systems allow building operations to continue uninterrupted, which makes them more appealing to building owners. This advantage has proven especially helpful at a couple of signature Stem installations at San Francisco’s high-end Mark Hopkins and Intercontinental hotels. Two 54-kilowatt (kW) battery systems at the Mark Hopkins are anticipated to provide up to 20 percent of that hotel’s demand during expensive peak periods.
Similarly, Green Charge Networks installed a pilot 100-kW GreenStation system at a Queens, N.Y., 7-Eleven store in 2011, where owners were facing $25-per-kilowatt demand charges during peak summer periods. During a heat wave last summer, the system reduced the store’s demand by 56 percent, for significant bill savings, and, as a testament to its sturdiness, it made it through Hurricane Sandy unscathed.
Finding the right fit
High-end hotels and neighborhood minimarkets share a characteristic. Both types of facilities have “spiky” load profiles, which makes these otherwise dissimilar operations such ideal prospects for this new style of storage. Both Lee and Shao noted their company’s lack of interest in data center applications. While data centers can consume massive amounts of electricity, their demand remains fairly constant. Hotels, on the other hand, can see peaks rise and fall throughout the day.
“There are so many different loads that are unpredictable and difficult to control,” Lee said. “To change your load profile means changing your business, and that’s not acceptable.”
The systems don’t come cheap. The 54-kW packages used at the Mark Hopkins have been estimated to cost $100,000, but they are modular and easy to install. Like many solar panel companies today, Stem and Green Charge Networks offer no-money-down terms, similar to those an energy services company would offer; the companies and their customers split bill savings down the middle. Both start-ups have received outside funding to help with these financing packages.
As the difference between average and peak demand becomes a more important issue for the grid, it wouldn’t be surprising to see public utility commissions begin urging utilities to offer incentives for peak-shaving batteries just as they do for other demand-side management programs. Regardless, Shao is bullish for the technology’s future.
“I think the headline is just the savings,” he said. “The savings are much better than solar. There are no roof issues, there are no shading issues, and it takes up very little real estate.”