C&I Energy Storage: Revenue Streams & Overcoming Barriers
Recently, we have seen an increasing number of commercial and industrial (C&I) energy consumers installing energy storage systems. These systems make use of behind-the-meter (BTM) batteries to store and discharge renewable energy as and when it is needed. This allows businesses to maximise energy efficiency, minimise power interruptions and access new value streams.
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The value streams available for C&I customers to tap into include reduced network demand charges by reducing peak power consumption, retail and network price arbitrage, potential network support opportunities with the local distributor and possible participation in ancillary services markets. With so many revenue streams to take advantage of, which ones do C&I customers find most attractive? We asked Warwick Forster (APOGEE), Mike Longson (IHS MARKIT) and Ilja Pawel (PAWEL) to share learning points from their experience working in the C&I energy storage sector. Catch Mr. Longson and Mr. Pawel will share further insights live at the 14th Energy Storage World Forum, 19 – 21 May 2021.
According to Mike Longson, Research Analyst at IHS Markit, the wider opportunity for C&I organisations is in their interaction with the grid. During the day, offices will be full and the power produced will need to be used. Whereas overnight, the storage assets will be able to access capacity markets as well as potentially wholesale markets through virtual power plants. Mr Longson will be presenting the latest BTM energy storage product trends and changes in the supplier landscape at the 14th Energy Storage World Forum in May.
Warwick Forster, Sales Director at Redflow and Managing Director of his own consulting firm Apogee thinks that C&I customers are “unsurprisingly focused on services that realise the largest savings in the shortest amount of time”. Usually, demand charge reduction is of the highest value to C&I end-users, but no single revenue stream is likely to be sufficient to carry the business case in isolation. C&I customers are also generally more risk averse and tend to prefer services with a known and consistent value over those with a more speculative opportunity.
Despite the obvious benefits that energy storage can bring to commercial operations, there are still some factors impeding the mass adoption of BTM energy storage systems in the C&I sector. Both Mr. Pawel and Mr. Forster concurred that the most significant barrier to deployment remains the high capital cost and long payback periods associated with it. The difficulty in estimating and explaining potential savings, and the uncertainties in financial models presented to prospective customers further deters investment in C&I energy storage. Although shorter payback periods are technically less risky, Mr. Pawel believes that it is possible to maximise returns on investment in the long run by optimising operation and maintenance protocols.
Ilja Pawel, Founder and CEO of his own consulting firm called PAWEL, will be evaluating real-life business cases and value-stacks built around the most commercially viable energy storage solutions currently available in the market during his speaking position at the upcoming 14th Energy Storage World Forum.
As with any energy storage opportunity, larger and more certain savings combined with a reduced total installation cost will attract customers. Besides the constant industry drive to reduce the cost of storage, Mr Forster anticipates that a fee-for-service model rather than a sizable capital outlay would be more appealing to customers. This would transfer the performance risk back to the battery manufacturers but would allow those technologies that allow capacity replacement or have longer lifetimes to be fully factored into the business case.
Mr. Pawel noted that an increased standardisation of product offerings could potentially play a big role in lowering initial investment costs of energy storage systems. Currently, it is still possible for manufacturers to be ambiguous about specifications such as degradations rates and long-term performance. With more product standardisation, there will be greater transparency which will make it far easier for customers to compare different energy storage technologies and manufacturers in the market and choose the most suitable system to address their needs. This increased competitiveness in the energy storage space will naturally result in lower initial capital requirements.
Mr. Longson added that the COVID-19 pandemic has highlighted employees’ ability to work remotely. Therefore as businesses move towards a more digital workspace over a centralised hub, the total addressable market opportunity may be set to reduce. Although the C&I energy storage market has been impacted by the COVID-19 pandemic, this sector is still ripe for growth in the long-term as increased competition and technological advancements make it easier and more affordable for C&I organisations to be part of the global energy transition.
Developing the right business model for C&I energy storage systems can be especially challenging because different organisations have varying energy needs. Each application of energy storage systems has its own unique set of technological and maintenance requirements. There is no “one size fits all” solution. However, as battery prices continue falling and more technical studies are conducted, more proven use cases and more informed decisions can be made in terms of the applications and optimal business models of C&I energy storage.
If you want to know more about this and other topics directly from end users of energy storage technologies join us at one of these annual events: The Energy Storage World Forum (Grid Scale Applications), or The Residential Energy Storage Forum, or one of our Training Courses.