Grid reliability and resilience are becoming critical elements as companies and countries work towards meeting global clean energy targets. According to recent EPRI research, these factors are increasing adoption of technologies like battery energy storage systems (BESS), and those same systems are being used by energy providers to manage grid impacts and support electric sector decarbonization.
In recent years, U.S. residential energy users have been impacted by several high-profile energy outages due to hurricanes, winter storms, Western wildfires, and other extreme weather events. As a result, some consumers are purchasing fuel-based backup generators and, increasingly, BESS products.Â
More than 1.5 GW of customer-sited BESS capacity had been installed in the United States through 2021, with the total forecast to grow to 12 GW by the end of 2026, according to Wood Mackenzie. As of July 2022, nearly 174,000 customer-sited battery systems have been installed; residential BESS deployments have grown rapidly, increasing by nearly 69% in the first quarter of 2022 from the first quarter of 2021.
The rapid growth in customer-sited BESS capacity could be used to address both primary energy customers and utility concerns. For customers, BESS deployments may provide backup power supply that can moderate the impact of outages and improve resilience. Customer-sited BESS also has the potential to help energy providers manage grid impacts and support movement toward electric grid decarbonization. For example, customer-sited BESS may be able to assist with the integration of additional renewables, provide greater capacity, distribution, and transmission deferral, as well as ancillary services.
Energy providers are including the growing customer adoption of BESS in future planning activities. Some energy providers are even providing incentives to customers to stimulate incremental customer-sited BESS adoption and deployment. In return for the incentives, energy providers can request energy from the BESS when it can provide value to the distribution, transmission, or even generation systems.Â
There are several factors likely to influence BESS adoption in specific locations, allowing providers to utilize customer-sited BESS for system benefits. These include:
- Resilience: Customer interest in BESS back-up for power outages. Energy users in certain U.S. regions—for example, hurricane-prone coastal areas or places where controlled outages occur to prevent powerline-linked fires—are likely to be more receptive to adopting BESS for resilience than those areas where outages are less frequent.Â
- Markets and Economics: Determining whether to incentivize, and by how much, customer-sited BESS will vary depending on an energy provider’s situation regarding the economics of using BESS for grid services, the ability to participate in wholesale energy markets, and/or capture other value streams.Â
- Utility Rates: An energy provider’s rate structure can impact whether its customers, particularly those considering purchase of a rooftop solar system, acquire BESS. Transitioning away from traditional net energy metering tariffs and adoption of alternative tariffs based on the value of DERs could encourage energy users to install BESS when installing customer-sited solar.  Some demand and time-of-use tariffs may also financially incentivize customers to acquire BESS.
- Flexible Interconnection Standards and Non-Export Rates:Â Flexible interconnection agreements enable grid operators to manage distributed energy resources (DER) so that adverse grid impacts can be avoided, and more DER can be more efficiently integrated into grid operations. For example, in exchange for grid connection, customers may agree to their energy provider curtailing the generation of their DER systems at something less than maximum capacity when the local grid is constrained. Non-export rates allow for DER to be installed, but the energy cannot be exported to the grid. Â These arrangements may increase the value of BESS, which are able to capture and store energy for use at another time, rather than needing to curtail or limit production. Â They also may allow energy providers to utilize BESS more readily as a grid resource while ensuring grid reliability and safety.Â
When BESS adoption occurs, there are several factors likely to influence how fast providers promote and utilize BESS for system benefits.
- Advanced Distribution Utility Management:Â Whether an energy provider has the requisite systems to aggregate and dispatch customer-sited equipment to provide utility benefits will impact its ability to take advantage of the services customer-sited BESS can provide. Having an operational DER Management System, for example, will provide a utility with greater capabilities to analyze market and reliability impacts, as well as the control, of dispatching BESS.Â
- Renewables Integration: Defined as the penetration of variable solar and wind power, including distributed solar, in an energy provider’s service area. A utility’s need for services from customer-sited BESS will be partly determined by how large a share variable renewables accounts for the company’s power supply, as well as the level of distributed solar impacting its distribution system.Â
- Energy Policy and Regulations -Â State Policy Measures:Â The industry will need to work through unique requirements throughout the United States focused on the level of state support for electric grid decarbonization efforts, as well as BESS deployment goals or mandates.Â
- Energy Policy and Regulations -Â Federal Policy Measures:Â At the national level, FERC Order 2222 implementation could have a significant role in how customer-sited BESS (and other DER) participate alongside traditional generation sources in wholesale power markets. FERC Order 2222 enables these distributed energy resources to participate in the regional organized wholesale capacity, energy, and ancillary services markets alongside traditional resources. Energy providers or third-party companies can aggregate these resources into fleets and receive compensation in energy markets for grid services. Separately, the Inflation Reduction Act that was signed into law in August 2022 extends the U.S. Investment Tax Credit (ITC) to stand-alone, customer-sited BESS starting in 2023.
Customer-sited BESS has growing potential as a resource for energy providers that economically supplements front-of-the meter BESS, meeting the goals of improved reliability and resilience for customers and decarbonization goals for the electric power sector.Â
This article was co-written by David Stevens, Nicholas Tumilowicz, and Nicholas Lenssen.