New business models are emerging to aggregate and manage behind-the-meter investments, writes energy expert Fereidoon Sioshansi. One example: storage-as-a-service. In Vermont in the U.S. Green Mountain Power offers its customers a Tesla Powerwall battery for $15 a month. Courtesy EEinformer.
The age of everything-as-a-service is upon us (see below). So why not storage-as-a-service?
That is precisely what one innovative US utility, Green Mountain Power (GMP), in Vermont has come up with. The company offers customers a Tesla Powerwall 2.0 battery for $15 a month so long as the customer allows GMP to manage when and how the battery is charged and discharged.
Alternatively, customers can buy one for $1,500 – which is roughly a fifth of the actual cost of the battery. In either case, substantial subsidies, approved by the Vermont’s Public Utilities Commission, are offered. The regulator has been convinced that the scheme will more than pay for itself in the sense that all customers, not just those participating, will benefit from the program.
This allows GMP to rate-base the investment in batteries just as investments in the poles and wires are treated, allowing it to make better use of the distributed solar that has been rapidly rising across its distribution network.
While in its infancy, the subscription service business model is beginning to find applications in the utility space.
According to Josh Castonguay, VP and lead innovation officer at GMP, the distributed storage paid off handsomely during a heat wave in early July 2018. The company was able to discharge stored energy out of about 500 Tesla Powerwall batteries installed in the homes of some 400 customers and feed it into the grid when it was sorely needed.
Forget products: focus on services
In his book Subscribed: Why subscription model will be your company’s future – and what to do about it, author Tien Tzuo points out that “The world is moving from products to services. Subscriptions are exploding because billions of digital customers are increasingly favoring access over ownership, but most companies are still built to sell products.”
While electricity has traditionally been sold as a service, albeit an undifferentiated, unexciting commodity, digitalization offers opportunities to redefine how the service will be delivered, increasingly customized and/or personalized, and how it will be priced.
In the case of prosumers and posumagers, in particular, who may not be buying very many, if any, net kWhs, the subscription business model, where they are charged a flat monthly fee, makes good sense. Amazon Prime, Netflix, iTunes or Spotify, for example, charge their members a flat monthly fee for the privilege of being able to order and/or download services to which they are entitled. In the process, these companies get to know their customers much better by following their shopping/buying habits – which in turn – allows them to offer more targeted and personalized services. And that is the holy grail of any business.
In his book, Tzuo explains that many industries historically focused on manufacturing and selling products need to fundamentally rethink their business models. His suggestion is to move towards innovative business models based on leasing and services – rather than selling products or goods – whether through a basic and mostly fixed subscription service or a pay-as-you-go fee. For example, automakers may move to a mostly lease option where all costs including maintenance, insurance, taxes – perhaps even the gas or electricity to power the car – may be included in a fixed monthly fee.
SolarCity, now part of Tesla, was among the pioneers in introducing the concept of leasing, rather than selling, solar panels and was enormously successful for a while. Similar models are beginning to emerge in the electricity sector.
It saved roughly half a million dollars by avoiding the need to buy expensive power from suppliers at the time of peak demand. GMP, which serves roughly a quarter-million customers in VT uses the batteries in customers’ premises as a virtual power plant (VPP).
Customers don’t have to have solar PV panels to participate in the scheme, although many apparently do. Many solar customers, however, like the batteries since it allows them to charge the output of the solar panels or charge them from the grid while relying on the stored energy during power failures. Batteries typically replace an emergency generator when power fails – which is not uncommon during storms in rural areas.
According to Castonguay, a single Powerwall 2.0 provides 13 kWhs of power, enough to supply an efficient house for a day. Some customers buy 2, stretching that even further. “We saw customers in recent storm events who went for a couple days on Powerwalls”, adding, they can go even longer if they have solar panels that can charge the batteries. That is a big plus if it is sunny.
GMP is using the pilot program to learn how to maximize the storage capacity of the batteries and, according to Castonguay, has been developing and fine-tuning a software that spreads-out the stored energy without depleting the customer’s battery at critical times. Using the software, GMP can monitor the performance of individual batteries, optimize when they are charged and discharged while making sure they are fully charged before the approach of major storms.
Distributed storage on the rise
With more homes and businesses investing in rooftop solar panels, interest in distributed storage is on the rise. It is a global phenomenon in places like Germany, Japan, Australia and parts of the US where distributed generation is popular. Moreover, the trend is likely to accelerate with the introduction of time-of-use (TOU) tariffs, expected in more places in the near future. This explains why Solar-plus-storage is emerging as a key driver in the growth of the distributed energy storage market.
According to Brett Simon of GTM Research, “More than 95% of all residential storage is solar-paired.” The same, he said, is happening in the rapidly growing commercial and industrial (C&I) sector and in the front-of-the-meter (FTM) markets. Some 36 MWhs of grid-connected residential storage was deployed in the first quarter of 2018, more than in the previous 3 quarters, according to the latest US Energy Storage Monitor report from GTM Research and the Energy Storage Association. While 36 MWhs is miniscule in the grand scheme of things, its rapid rise is noteworthy.
GTM attributes much of the increase in residential energy storage deployments to changing regulatory policies in two key states, California and Hawaii, which together accounted for 74% of the total US deployment. Both states have reduced net energy metering (NEM) compensation, which explains the increased interest in distributed energy storage.
As more states modify their NEM regulations to reduce payments for the excess energy – the net in the NEM, fed into the network – more consumers are incentivized to store the excess energy for use at later times. Add TOU tariffs on top of less generous NEM and the appeal of distributed storage paired with solar simply becomes irresistible. It makes more sense to store the energy for later use rather than sell it to the grid if the compensation is not adequate.
In 2015, following a surge of solar PV installations driven by the super-generous NEM regulations Hawaii, changed the rules and placed an export moratorium on consumer self-generation due to the flood of solar PVs driven by the high retail prices, which range in 40-50 cents/kWh in various parts of Hawaii.
In the case of California, the transition to time of use (TOU) rates plus the reduced number of pricing tiers – from an original 5 to the current 2 – explains the increased interest in customer demand for storage. The top tier in California’s 5-tiered retail tariffs once were approaching 50 cents/kWh, same as in Hawaii. The top tier in the current 2-tier system is under 30 cents/kWh.
At 50 cents/kWhs, both Californians and Hawaiians had strong incentives to oversize their solar PV installations for maximum export to the network since they were getting a premium for every kWhs fed into the grid. With the new regulations, they are better off storing the excess generation for use after the sun goes down. The next thing to happen will be to sell some of the excess stored energy back to the grid (see preceding article on GMP).
According to Simon, the combination of California’s TOU rates and changes in the NEM makes solar-plus-storage a better choice for homeowners going forward. Not surprisingly, residential storage systems accounted for 28% of the MWhs deployed in the first quarter, but the residential segment was second behind the FTM segment, which accounted for 51% of deployments.
GTM Research says the total energy storage market will approach the 1 GW mark in 2019 with BTM deployments accounting for 47% of the total by 2023.
This article was first published in Fereidoon Sioshansi’s monthly newsletter EEnergy Informer and is republished here with permission.