The global market for energy storage systems is rapidly growing and evolving. Global energy storage deployments nearly tripled in 2021 compared to 2020 and reached 12 GW / 28 GWh, according to a new report from Wood Mackenzie. This blog explains several factors that are driving this growth as well as how Stem is on the leading edge of opening new, local markets and supporting revenue delivery to third-party asset owners and independent power producers (IPPs).
The Need for Storage
There are many leading drivers of the high demand for energy storage. The incredible growth of renewable energy deployments over the past decade has changed the paradigm for utilities and independent system operators (ISOs) that manage the electric grid. Power no longer flows one way from large, predictable, and easily controllable centralized plants. Large and small renewable energy projects are distributed and interconnected throughout the grid, producing power only when the sun shines or the wind blows. Energy storage is an integral part of addressing this new complexity and ensures that renewable energy can be used when needed without negatively impacting the grid. Additionally, energy storage can instantaneously provide other services to the grid, keeping supply and demand in balance with the required electrical characteristics like frequency, voltage, etc. And beyond benefits to the grid, many utility customers can utilize on-site energy storage to reduce the demand charge portion of their electric bills or to participate in utility demand reduction programs.
Engines of Growth
While the need for energy storage is clear, it was only in the past few years that it began to make sense economically to deploy systems. The average cost of lithium-ion battery cells has declined by 82% since 2012, according to IHS Markit. Despite a recent price spike caused by a supply and demand imbalance (driven by EVs and pandemic-related supply chain issues), the trend of decreasing costs is expected to continue. The combination of state and utility incentive programs, utility bill savings opportunities, and the ability for storage systems to receive revenue from services in wholesale markets coupled with the trend of decreasing battery costs have coalesced to viable economic cases for energy storage projects across the country.
The Opportunity for Asset Owners and IPPs
Just as they have been instrumental in the growth of wind and solar projects, third-party asset owners and IPPs have an enormous opportunity in energy storage. Asset owners can claim the investment tax credit (ITC) on storage systems co-located with solar and structure financing for projects that fit their preferred scale, offtaker, or risk profile. For example, a utility may sign a solar + storage PPA for a project that delivers power 16 hours a day / 7 days a week or that helps fulfill its mandated resource adequacy requirements. A business or commercial property owner will be interested in financed projects that use storage to further reduce its electricity bills and potentially provide backup power. An electric cooperative may contract for a storage project that reduces its demand charges with no upfront cost. Or a fully merchant project can be built that captures revenues from wholesale energy market grid services and energy arbitrage. There is opportunity in storage for all categories of traditional renewable project developers and asset owners. However, the projects will only be successful if deployment goes smoothly (on time and under budget) and if the projected revenues are actually captured over the project life.
The Complexity of Storage
Obtaining revenues from a battery energy storage project can be an order of magnitude more complex than a solar or wind project, where power is only produced when the sun is shining or the wind is blowing. In storage projects, revenue can be greatly impacted by charging or discharging the battery on specific days and within specific time windows, often with little foresight into the timing requirements. If paired with solar, the battery needs to be charged in accordance with ITC requirements. The revenue and regulatory operations of the battery must be balanced with the parameters of the battery manufacturer’s warranty. High risk goes hand-in-hand with the high potential rewards and returns for an energy storage project. Project owners must have sound strategies and use appropriate technology to manage the complexities and nuances of battery operations.
Why Partner with Stem?
Stem’s best-in-class AI-driven energy optimization software, Athena®, maximizes value for asset owners via industry-leading forecasting, controls, and optimization of performance and revenue. Athena easily adapts to changing conditions, enabling projects to access future value streams. Athena’s ability to orchestrate ideal dispatch operations at all times both maximizes revenue and reduces risk for asset owners. We also leverage our vast experience to provide solutions and end-to-end support to C&I project developers, solar EPCs, utilities, public power entities, electric cooperatives, and more to ensure successful projects and the continued growth of the industry across all market segments.
Stem has been a pioneer in smart energy storage services and software for over a decade. Since 2008, Stem has gained firsthand experience by being involved in the deployment or operations of 950+ sites operating or contracted across North America and beyond. Stem’s earliest projects are located on customer sites and are delivering utility bill savings, with many aggregated to participate in utility demand response programs. While this is still a core part of our business, Stem has added significant capabilities in supporting development and operations of larger, front-of-the-meter systems that participate in wholesale energy markets or have utility offtake contracts.
For more information, download Stem’s Energy Storage for Asset Owners and IPPs Solution Overview (PDF).
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