Energy Storage

Report examines rate design impact on BTM storage economics

Behind-the-meter energy storage can save customers money on their electricity bills, but the extent of the savings ranges widely depending on how rates are structured, according to a report by the Lawrence Berkeley National Laboratory.

Demand charges and arbitrage — storing energy when electricity is cheapest and using it when it is most expensive — lead to savings, but other rate design features are key to understanding the customer-economics of BTM storage, the Energy Department lab said in the report released this month.

Previous studies looking at the economics of energy storage mainly focused on demand charge savings, while the latest report also considers peak-period demand charge designs, demand charge averaging intervals, and time-of-use and critical peak pricing peak-to-off-peak energy price differentials, LBNL said in the report,“Implications of Rate Design for the Customer-Economics of Behind-the-Meter Storage.”

“The details of these rate design features can have a significant impact on bill savings – and the payback time – for BTM storage,” the national lab said.

Regulators can use the report when they consider how rate designs can affect the economics of BTM energy storage, according to the research lab. The report comes amid growth in customer-sited energy storage.

When considering various rate design features, LBNL found that demand charge savings range from $8 per kilowatt to $143/kW of storage capacity a year while arbitrage savings range from $4/kW to $112/kW of storage capacity per year for a 2-hour storage system.

With longer duration storage, energy arbitrage savings can be larger, and sometimes significantly larger, than demand charge savings, according to the research lab.

BTM storage is generally most effective at lowering demand charges when the charges are based on peak period demand, which create skinnier demand peaks, LBNL said.

In its analysis of demand charges, LBNL focused on the commercial sector and used three representative customer loads: a shopping center, a shopping center with a photovoltaic system and a manufacturing plant.

The research lab found that storage is most effective at reducing demand charges for customers with narrow, peaky loads, such as the mall with solar. For flatter load profiles, such as a manufacturing plant, storage can’t discharge long enough to reduce peak demand, LBNL said.

For the shopping mall example, the demand charge rate is the most important rate design feature in determining potential demand charge savings, according to the report.

Peak period demand charges, if based on relatively narrow windows, are the next most important feature in determining potential savings for the mall, LBNL found.

The payback period for a 2-hour energy storage facility for the shopping mall example ranges from five to 39 years, depending on the rate structure, according to the report.

A previous study found the demand charge rates of $10/kW to $15/kW is the typical threshold for BTM storage cost-effectiveness, a level that occurs in most states, LBNL noted.

The report is set to be discussed during a Sept. 5 webinar.  

LBNL said it plans to develop a follow up report looking at the alignment between the customer economics and utility value of BTM energy storage.