Technology & Design Considerations

On the technology side of storage assets, things are evolving rapidly, which directly impacts related business models. Batteries are following the innovation curve, as pointed out by Kenneth, and, as such, OEMs have a role to play in the operations of the batteries, by taking accountability for a share of the risk.During the design phase, it is important to involve all relevant stakeholders that play a role over the storage asset’s lifetime. As Stefanie put it: “Everyone should be in the room when closing the contract for the battery”. Given the quick innovations, an important question to ask is how long the asset should be able to navigate the variability. The timeline depends on the application, as mentioned by Kenneth. In the end, there are classic trade-offs in cost-benefits of different operating functionalities and related choices in the design.

“I believe stationary batteries will provide more capacity to the market in both the short and long term.”

Q: Do you anticipate stationary batteries or EV batteries will provide the most energy to the grid, for the short and long term?

• Steve: “I believe stationary batteries will provide more capacity to the market in both the short and long term for the following reasons. (1) as new regulation and bi-lateral agreements open up additional profitable market prices, developers will quickly meet market demand and scale economies will favor larger projects. (2) EV supply to the market is mostly from consumers who (a) will likely be reluctant to have their vehicles supply the grid, since their primary use case for the device is transportation, not supplemental income, and (b) consumers will be concerned that when they are ready to leave to work in the morning their EV will be depleted and not able to conveniently travel. This will discourage many from making their battery system available in a VPP scheme.”

Q: Based on results from operating solar + storage assets, do you see AC Coupled or DC coupled systems better for grid-scale applications?

• Kenneth: “Very few DC-coupled systems are deployed at grid-scale so far. The benefit of DC-coupled systems, when compared to AC-coupled systems, depends on the use case, site limitations and interconnection requirements. While DC-coupled systems typically have a higher system efficiency when charging from the solar, the advantage goes away when charging from the grid. DC-coupled systems will typically have the batteries distributed along the solar inverters and could take up more space, depending on the site layout.  Depending on the jurisdiction, the AC-coupled system can lead to a higher capacity limit for the interconnect approval.  Some regional authorities will count all the inverter capacities (both solar and BESS) as the capacity at the POI while others will allow EMS to control the limit at the POI regardless of inverter capacity.”

“I think Tesla will continue to dominate the residential market, but will get priced out of large-scale utility applications unless they change their pricing strategy.”

Can you speak to the market dominance of Tesla and why that is happening?

• Steve: “Tesla was early to the market and delivers high-quality equipment. However, they also tend to be the most expensive alternative. I think Tesla will continue to dominate the residential market, but will get priced out of large-scale utility applications unless they change their pricing strategy.”

If grid-forming BESS systems (e.g. Tesla’s) are used, instead of simply grid-following, will that reduce battery and/or PCS life due to greater cycling?

• Steve: “Grid-forming systems will by definition be regulating their own voltage and frequency, and hence, will cycle more than grid-following systems. High cycling of the battery (and PCS) will, all else being equal, stress components more than a less-cycled system and therefore reduce equipment life. A battery only has so many cycles and throughput in it before it is depleted below its useful life.”

When is augmentation good to purchase? In ERCOT, ancillaries are forecast to drop over the next 3 years due to the influx of 8GW of BESS. Should owners consider augmentation to keep energy constant to capture the maximum amount of energy and ancillary revenue?

• Stefanie: “I definitely think this should be part of your design and system configuration. This market is changing so rapidly that these types of considerations need to be considered in the design phase.”
• Michael: “At this time it is fairly unclear how the ancillary services market will evolve as more BESS comes onto the grid in ERCOT or any ISO for that matter. That said, I think a thoughtful approach to operating BESS such that you optimize revenue from an arbitrage perspective and still keep a sufficient resource available to also monetize the ancillary services will be key. Yes, I think adding BESS resources is a good idea purely for the arbitrage of the intermittent generation from the renewables, which will ultimately result in some leveling of the resource and pricing. “

Policy Considerations

Regulatory risk is still quoted as one of the major risks for storage applications. Policies are still uncertain, and there is a lack of standardization across the industry.For future applications, where battery integration will enable renewables to move to a spinning reserve, policy comes into play as well. Steve: “It’s a policy issue. Reserve margins, spinning reserves come from regulators by setting a price and then the market fulfills that by building capacity.“

“At a minimum, the transmission system needs significant upgrades to align with the benefits of BESS, while increasing security and reliability of the system. I think the federal government should play a large role in the interregional transmission infrastructure requirements.”

Q: What kind of role – if any – should the federal government play to help expedite the evolution to power-grid-based, largely on battery storage technology, to meet customer demand?

• Stefanie: “At a minimum, the transmission system needs significant upgrades to align with the benefits of BESS, while increasing security and reliability of the system. I think the federal government should play a large role in the interregional transmission infrastructure requirements. FERC should have the authority to designate transmission corridors to ensure that this infrastructure is developed quickly and effectively. The government needs to revisit the rulemaking process for RTO/ISO to ensure that energy and capacity market rules are being developed with clean energy plus storage in mind, and that all stakeholders are considered and no burdens exist that prevent renewables and storage from participating.”
• Michael: “Beyond having tax incentives for storage, both associated with renewables but also throughout the grid to provide for resiliency, the Federal government needs to develop and put in place regulations that ensure consistency in the operating parameters, safety requirements, etc, so that we have a consistent and redundant roll-out of storage facilities across the grid.  If a well-thought out regulatory infrastructure is not put in place, we will have very different technologies with very different risk profiles, getting installed somewhat haphazardly across our distribution systems.“

Q: Standards will restrict innovation in my opinion. What do the panelists think of this?

• Steve: “Standards are difficult to develop and promulgate because vendors are at risk of losing their competitive advantage when a standard is implemented and owners are reluctant to share data that they think is proprietary. So though there are natural forces in a free market that tend to oppose or limit standards, some standards will emerge to make market transactions more efficient and satisfy regulators. Reliability and reporting standards will emerge for the BESS asset class as they have for other energy asset classes that participate in the grid.”

Operating Considerations

The operations of storage assets bring about their own set of unique challenges, on which the panelists started to elaborate by emphasizing warranty management. Asset managers need to keep a close eye on how the market is evolving to see if operating strategies need to be updated and if warranties are still covering what is needed. Other things to look out for are the interactivity between warranties and the number of players involved in managing the asset.Given the relative immaturity of storage as an asset class, there are still questions to be answered regarding the management of uncertainty: how to contract around variability and standardize communication? Who should take on which share of the asset and risk? In the future, the panel agrees in expecting consolidation between operator, asset manager and energy manager to capture the value of these assets.Data management is key: having real-time data to validate models. As Steve put it: “BESS systems need real-time and historical operating data, collected at high frequencies and volumes, which needs to be pulled in, aggregated, normalized, cleansed and understood and categorized for its economic performance and reliability and backpassed into what-if models.”

“Bring together all stakeholders and project participants into the design and modeling phase. The more we work together at this stage of the market the more successful these systems will be.”

Q: In the webinar, you mention quick response times.  How do you look at managing a BESS where you can have to respond in the middle of the night compared to PV where you are usually just responding during sun hours?

• Steve: “Field service rate schedules will need to either be based on time-of-use, e.g., regular time, night time, over time, or limit the amount of night-time response hours per year with all other nighttime hours of service at cost, plus some agreed-upon markup.”

Q: Have any of the panel members had to address (energy) system losses as a contractual matter?

• Kenneth: “The supply agreement with the battery OEM includes the requirement for the roundtrip efficiencies of batteries.”

Q: Michael, do you see Origis and other operators actively participating in the capacity & balancing markets themselves?

• Michael: “I think this is fairly unlikely at this point, but we shall see! For now, you must use a scheduling entity to participate directly and I don’t see that changing.”

Q: What would be your #1 piece of advice for asset owners getting started with storage?

• Stefanie: “More seats at the table. Bring together all stakeholders and project participants into the design and modeling phase. The more we work together at this stage of the market the more successful these systems will be.”
• Michael: “Focus and figure out the financing of storage assets.  The rest will follow.”

Q: How would you recommend a system owner to bring the O&M, EPC, and MFG to the table to agree on who has what liability and what data will define the performance of the system?

• Steve: “Start with the scope of each supplier; what deliverables they are responsible for and what they can control. If, for example, you attempt to put equipment failure liability during the warranty period on the O&M, they may be forced to sign up for it, but they really can’t control the outcome so the transfer of risk to the O&M is really fictitious and not going to benefit the owner. In terms of defining performance and the data and metrics that define performance and warranty violations, they all need to agree on those terms in the warranties and guarantees or the owner will never be able to support their warranty claims and arrive at a positive outcome.”

Q: How can we distinguish the BESS performance between different integrators when they all say their software is the best, and what should we prepare for contractually if we believe we may need to change the software/operations provider within the life of the BESS?

• Kenneth: “The technical due diligence of the software is an essential step in selecting the right integrator. If the buyer does not have internal resources for the technical deep dive of the software, third-party consultants can provide the services. The buyer can future-proof the software by selecting the right software integrator. The software platform should be built to expand the new applications. Think of the Windows operating environment that can run your PowerPoint, Excel, Word, and in the future, who knows? If the expandability of the platform is important to the project, this must be identified during the software technical due diligence. The contract with the integrator should also include a clause for the future support of software modifications and upgrades.”