Energy Storage for Utilities: Is It Better to Own or Outsource a Battery Storage System?

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“The energy storage industry will begin significant multi-year growth in 2021, which will continue through 2030, as the technology begins to form a central part of power grids in developed markets.” George Hilton, IHS Markit

“Energy storage costs decreased by 72% between 2015 and 2019.” EIA

Just five years ago, utility-scale energy storage, also known as battery energy storage system (BESS), was beyond the reach of many utilities, especially electric cooperatives and municipal utilities due to a lack of familiarity with the technology and the high cost of the systems. But as is often the case with advanced technologies, familiarity increases and prices decrease over time (i.e. solar power). Today, battery storage offers utilities a proven way to reduce wholesale demand and energy costs, increase capacity, improve reliability, support renewable energy integration and defer transmission upgrades.

If you’re considering adding energy storage to your portfolio, you’re in good company. Energy storage is gaining momentum in the utility industry as a way to reduce costs and increase reliability for community members. Although the merits of energy storage for utilities are well documented, the benefits generally fall into the following four categories:

  1. Cost savings: Battery enable electricity to be deployed at the most strategic times, protecting utilities from rising wholesale demand and energy costs. Batteries can store electricity when it is cheapest and distribute it when it is most expensive, reducing costs for customers.
  2. Reliability: Batteries improve the reliability of electricity by “hardening” renewable resources on the grid, especially solar. Batteries can store excess electricity produced by solar energy and feed it back into the grid when there is a shortage or when it is economical to do so.
  3. Ability: Battery storage increases capacity by supplying stored electricity to the grid at times of greatest demand.
  4. Postponement of transmission upgrades: Energy storage can be used as a wireless alternative (NWA) using storage to increase capacity and defer the need for costly capital transmission and infrastructure upgrades.

Durability/ future proof: In some cases, battery storage can replace the need for peaking facilities by injecting power into the grid when it’s needed most, in less than seconds.

  1. Additionally, batteries can be coupled directly to solar (“solar plus storage”) and charged by solar PV or allow more solar to be deployed on the grid.

But you probably already know all of this. When considering a battery storage system, you are faced with an important decision: is it better clean a battery storage system, purchased from a manufacturer, or enter into an agreement Contract and partner with a developer who owns and maintains the system?

Both approaches have distinct benefits with their own risks and rewards.

Own or outsource

Battery energy storage systems are complex and require 24/7 monitoring and alerting. All systems require annual maintenance, and many require quarterly or monthly maintenance. To help you assess whether ownership or outsourcing is right for your utility, below is a checklist that compares roles and responsibilities under the two options:

Converge provides analytical support, but ultimate responsibility rests with usefulness

As you will see, the main advantage of buying and owning your battery storage system is that you can get the full economic benefit of the resource if the system is operated optimally. This requires trained personnel, not only to operate the system, but also to maintain it.

Unlike solar or wind power, a battery must be actively managed and monitored to deliver optimal performance (and value). If successful, however, it can add up to seven figures in savings for your utility and your customers. The downside is that the added value is not guaranteed and comes at a literal – and figurative – price in the form of additional risk, liability and capital.

If your utility chooses to purchase the battery storage system, you will need to need the initial capital to make the investment. For some utilities, it’s a no-start. For others, it is attractive. If your utility has earmarked funds for other projects, invest millions dollars today in a battery storage system may not be feasible. Purchasing the system also means waiting for a longer term payment (i.e. 10-20 years), whereas if you contract, you can save money from day one.

Key Takeaways from Purchasing and Owning the System: Although there is the potential for greater reward, that reward is not guaranteed and there is certainly greater risk involved.

For the majority of electric cooperatives or municipal utilities, with less capital or personnel available than IOUs, contracting out the management and maintenance of a battery storage system can be more logical. Economically, outsourcing provides an immediate benefit (realizing savings from day one) but, over time, may not yield the same savings if fully owned (note: whether you own or outsource process the system, you will save money). Here’s why:

When you hire a partner to contract the battery, the developer funds the system and assumes the financial risk. The utility pays nothing upfront for the storage system; the supplier absorbs these costs and insulates the utility from risks (construction, performance, maintenance, etc.)

The following graph highlights typical financial returns over time for the “ownership” and “contract” models.

Convergence energy + power

In some cases, such as a Massachusetts utility planning to use the battery for peak clipping capability and transmission peaks in ISO-NEmodeling showed greater total savings by contracting with Convergent than by purchasing the system directly. When system degradation was taken into account, this utility could achieve greater total savings under a contract model compared to ownership.

For utilities in a strong financial position to invest in owning a battery system, buying batteries outright might seem like a no-brainer after looking at this chart, but there is more to be said. Indeed, a battery that is not properly maintained and operated is just a giant paperweight!

Many utilities choose to ship systems in-house or coordinate with an expert advisor, such as their joint action agency or energy management company. When considering this option, utilities should also seek a partner who can also consult on battery storage operations and provide advice on optimal dispatch times.

Whether a utility chooses to ship direct or rely on a shipping partner, it’s important to consider expertise beyond when to charge and discharge a battery. An experienced energy storage provider should operate hundreds of megawatts of energy storage, which can lead to better pricing with preferred providers as well as greater expertise on design, operation and maintenance of the system. A good partner will also offer industry best practices and provide the best ideas for your project that you might not have considered.

The choice is yours (but now is the time)

Whether you’re an electric co-op, municipal utility, or IOU, energy storage is probably part of your strategic plan, or soon will be. In our experience as a leader in energy storage, the decision to purchase a battery storage system rather than partner with a vendor and outsource their services is one of you will face, but it is ultimately an individual decision that each utility will need to evaluate.

Do you have a large capital budget, available staff ready to learn new skills, a desire to support cost overruns associated with building and maintaining the storage system? battery, and existing expertise in battery storage and/or solar storage plus? If so, buying the system and assuming all the risk to maximize your long-term returns may make the most sense.

If now is not the right time for you to invest heavily in energy storage and/or if you do not have the internal resources to optimally manage and maintain the asset, you may want to to rely on the expertise of a partner who can guarantee your returns and ensure that your system always offers optimal performance.

In both cases, it is now for energy storage to provide your customers with cost savings, increased capacity and resiliency, and a greener way to power people in your community.

Waiting is the only bad decision.

To learn more and explore the benefits of energy storage for your utility, visit the Convergence website.


About Energy + Power Convergence

Convergent Energy + Power (Convergent) is the most trusted provider of energy storage solutions in North America. Convergent has over a decade of experience financing and managing all aspects of the energy storage development cycle to help customers reduce electricity costs and increase reliability. The company’s commercial, industrial and large-scale assets are delivering seven-figure savings from day one while advancing the clean energy transition. Convergent’s proprietary asset management platform, PEAK IQ®, leverages machine learning and deep market insight to optimize asset performance and maximize value. With over $350 million in committed capital, Convergent is the leading independent owner and operator of energy storage and solar storage plus solutions. For more information, visit convergentep.com or follow us on LinkedIn or Twitter.

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