Should Utilities Own Distributed Battery Storage?

Should Utilities Own Distributed Battery Storage?

Price declines in residential solar and battery systems like Teslas Powerwall mean solar-plus-battery systems will soon be found in homes and businesses at the grids edge around the country. But what role will utilities play in the fast-approaching storage shift?

While energy efficiency, demand response, and solar are still cheapest, storage prices have fallen 80 percent in five years, meaning utilities may soon have to consider batteries as an equal grid resource.

Like other distributed energy resources (DERs), customer-owned distributed storage puts competitive pressure on utilities by reducing customers grid reliance. As DER costs continue falling, customers can increasingly afford to rely less and less on the grid for electricity.

Storage in the context of load defection

This phenomenon, coined load defection by the Rocky Mountain Institute, is antithetical to traditional utility business models where increased electricity sales drive revenue growth. Some load defection is not necessarily a bad thing, as long as it does not progress to full grid disconnection.

Ideally, electricity system operators would be indifferent as to which types of resources meet system needs and policy goals, be they distributed, centralized, or traditional grid infrastructure.

Distributed and centralized resources should compete to serve customers. Storage should be deployed at the locations and scales that maximize its overall system value. This kind of system optimization necessitates a certain degree of load defection -- or at least load evolution.

But a future in which large numbers of customers disconnect from the grid entirely would be much worse than these kinds of changes to load dynamics, and it would be a raw deal for both utilities and consumers.  A collection of uncoordinated pockets would eliminate the resource-sharing benefits, resulting in an unnecessarily expensive and inequitable electricity system.

Avoiding this future is in the long-term interests of system operators and distribution utilities. To support optimized deployment of distributed energy resources, including storage, incumbent utilities should consider owning and operating some distributed resources (Australian utilities are already moving in this direction).  

On the one hand, utility ownership could facilitate an even bigger market for DER technologies in the most valuable locations, sharing benefits among all customers. But on the other hand, utility ownership could undermine competition and innovation.

The role of battery storage

Unlike other DER technologies, distributed battery storage is extremely versatile, functioning as generation, distribution infrastructure, load and demand response all at once. Some of those functions (like distribution infrastructure) clearly fall under the distribution utilitys natural monopoly franchise, while many other services have long been successfully subjected to competition without adverse effects. This versatility of storage makes the propriety of utility ownership a murky question.

Battery storage is still expensive, and system operators are quite capable of providing needed grid flexibility with cheaper resources (e.g., demand response) and distribution upgrades. But as the grid gets cleaner and more modern, the value of flexibility will increase, increasing the potential value of energy storage. Assuming markets are structured to pay for the full range of flexibility services, battery storage will begin to compete in many more applications.

 In the absence of a real-time distribution level market, distribution utilities are well positioned to identify high-value locations and times for certain services across the full fleet of resources. Customers (and DER aggregators) respond to the rate structure, and will act to optimize the system only when properly compensated. Under common rate structures, customers are more likely to operate storage and maximize on-site benefits, rather than optimize the grid.

Moreover, unpredictable customer-sited storage may even require distribution system upgrades, like rooftop solar has in some high-penetration areas. By contrast, distribution utilities with knowledge of the scale, timing and location of energy, ancillary service and future capacity needs could maximize the short- and long-term value of distributed storage through operational changes and rate reform.

Pros of utility-owned storage

Utilities can integrate storage into long-term system-wide planning, determining the most valuable way to operate storage in real time alongside other resources. If utilities were allowed to own storage as costs continue falling, they would gain a versatile new tool to help optimize the distribution system, increasing flexibility and enabling other cost-effective customer-sited resources.

Because utilities evaluate all resources to determine the lowest-cost way to maintain reliability, they are positioned to take advantage of storages ability to act like generation, transmission, load or demand response, depending on whats most valuable at the time.

Distributed battery storage operation and installation also benefits from economies of scale, meaning system costs may drop with larger or simultaneous projects. But more importantly, utility-owned and operated storage could operate in concert with other distribution infrastructure or other storage units -- imagine fleets of utility-owned distributed storage deployed and operated as an integrated part of the distribution infrastructure portfolio.

As a result, utility-owned storage may be the cheapest option to meet system needs if opened up to a competitive bidding process.

Finally, utility ownership of distributed storage could support access for low-income customers who otherwise lack the finances to buy a distributed storage unit, enabling them to access the grid-wide benefits of storage through the utility.

Source: Greentech Grid

Smart Grid Bulletin February 2019

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