Energy storage has become a trending topic in the energy industry and there is a strong reason for that. Solar panels and wind turbines can now produce electricity at a lower cost than fossil fuels, but they depend on factors of production that cannot be controlled – sunlight and wind. These renewable sources can compete with fossil fuels on price, but not on reliability, since fossil fuels can produce electricity at any time. Energy storage systems are promising because they can eliminate key limitations of solar and wind energy systems.
There are many energy storage technologies, but lithium-ion batteries have gained popularity for several reasons:
- Lithium-ion batteries last longer than lead-acid batteries and some products now offer a nominal 10-year lifespan.
- Lithium-ion batteries have modular designs that adapt to all project sizes. This was a key factor contributing to the success of solar panels.
- Tesla products use this battery technology, which has contributed to their popularity.
As with most energy storage technologies, initial cost is the main limitation of lithium-ion batteries. Achieving an installation price below $400 per kilowatt-hour of storage is difficult, even with large-scale systems. For smaller residential battery systems, the price often exceeds $800 per kilowatt-hour. However, the International Renewable Energy Agency (IRENA) has determined that electricity storage could become 66% cheaper by 2030.
Reduce your energy bills with renewable generation and energy storage.
Energy Storage: Costs, Benefits and Incentives
In general, energy storage makes economic sense for building owners when the savings exceed the costs of ownership. Local electricity prices and government incentives are also important factors influencing energy storage cost performance. Project location is also important as it affects shipping and installation costs.
According to an IEEE Spectrum article, energy storage costs must drop to $20/kWh to operate an electrical grid with just solar panels and wind turbines. Achieving such a low cost is a major challenge for the industry and is unlikely in the short term. However, a power grid could rely on renewable energy more than 90% of the time, with an energy storage cost of $150/kWh, which is less difficult to achieve.
In buildings, there are two main ways that energy storage can reduce electricity bills. In both cases, a low-cost power source is required to charge the system:
- In buildings that are charged according to peak demand, energy storage can reduce this load by “trimming” consumption peaks.
- In buildings with time-of-use tariffs, energy storage can be configured to reduce consumption when higher kWh prices are charged. In this case, energy storage systems can also be charged when the lowest kWh prices are applied.
As of 2020, the US offers a 26% federal tax credit for renewable energy systems, including solar panels and small-scale wind turbines. Energy storage systems can also get the tax credit if they receive at least 75% of their load from an eligible renewable generation system.
Reducing Energy Bill Burdens with Energy Storage
Demand charging buildings can set up an energy storage system to keep total energy consumption below a specified value. For example, if a building charges $40 per kW of demand, a peak demand of 500 kW will result in a monthly charge of $20,000. In this case, an energy storage system that reduces peak demand by 150 kW saves $6,000 per month. This concept is called peak shaving.
Buildings with time-of-use tariffs can also save on energy storage, but by taking a different approach. In this case, the energy storage system must be charged with a cheap electricity source, and there are two main options for building owners:
- Low-cost on-site electricity generation.
- Use grid electricity when the lowest kWh prices apply.
If low-cost electricity is stored in batteries, it can be used when energy companies charge the highest rates of the day. This typically occurs when the network is experiencing peak demand.
Electric companies often give credit if they sell excess production, but they typically pay the wholesale kWh price rather than the retail price. For this reason, a kWh stored and used later typically yields a greater benefit than a kWh sold. For example, 1,000 kWh surplus generation is worth just $120 with a feed-in tariff of 12 cents/kWh. However, this same energy is worth $400 when used to avoid a peak rate of 40 cents/kWh.
Consider that the federal tax credit only covers storage if at least 75% of the electricity comes from an on-site renewable energy system.
Conclusion
The electricity consumption of each building is unique and energy companies apply different rates depending on the type of property. For this reason, the potential savings from energy storage can vary greatly from building to building. The best recommendation is to contact an energy consultancy company to obtain a professional energy storage feasibility study for your building.
Energy storage achieves the best results when it can be used to reduce peak demand or to avoid spikes in electricity rates. Incentives from governments and energy companies can reduce upfront costs when available. Additionally, some energy companies around the world are testing demand response programs – owners of energy storage systems are rewarded for allowing the energy company to use their storage capacity.
