Ready, Set, Wait: Ongoing Obstacles in Energy Storage Market Perception and Value

Reflections from ESA 2017

As marketers, we subscribe to the maxim that value is in the eye of the beholder. At the 27th Energy Storage Association conference in Denver this past week, it struck me that this very maxim is what’s holding the market back. The problem is not only one of different perspectives of value; it’s also the nature of storage solution use-cases, often based on a combination of factors or “benefit stacks” to assert their real value or impact. Yet these lack standards, transparency, and a proven market reference and regulatory framework that is widely accepted and acknowledged.

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“The energy storage industry is primed to really take off.” This has been the buzz for many years. But where are the big utility deals? At MG we’ve worked in the storage market for almost a decade. The more things change, in some cases unfortunately, the more they stay the same. Like that picture of the woman who looks beautiful from one angle and like a witch from another, perspectives on energy storage value remain fractured and often hypothetically still in practical reality.

Perspective

Without regulatory leadership and further support for research and development, this is not likely to change much. I’m not buying the “this market is moving forward no matter what” talk I hear today. That’s not how the regulated utility market works. If things don’t accelerate, (and I would suggest that even if they do) there will be many less grid-scale energy storage solution companies in the market in 24 months than there are today. Some will be consolidated, but a good number are just going to flop.  

Many talk about how “storage as a service” or third party funding, a mini collateralized debt portfolio market, might now drive the market, just as it did for PV. If it can be bundled up and financed in a securitized cash flow, the capital will just flow. The problem is that, unlike PV, distributed energy storage generally requires integration to the grid in the vast majority of cases to provide maximum value. This is the fly in the market growth ointment.

As I walked the exhibit floor and spoke with dozens of market participants, it seemed our definition of success is still limited. Even “leaders” in the segment “boast” of installations that are only single-digit in scope (or double-digit at best when defining “storage solution” as widely as possible). As do players who integrate these storage facilities to the grid. Right now people are burning cash all over the place trying to spur the development of this market.

We’ve heard about how renewables and storage go together like peanut butter and jelly. And yet today, for the most part, as massive wind capacity is deployed throughout the Midwest in large sequential 100MW wind farm chunks, for the most part, that pre-engineered wind plant storage is still absent. What’s holding back growth?

When I ask wind developers why they say, ‘it just doesn’t pencil.’ This is simple code for, “we don’t have incentives and market rules in place to capture all of the value streams we can deliver.” Granted, the capacity factors for wind in the Midwest are very strong, making the case for firming up for variability less potent.      

Sometimes the utility value case for storage screams out loud. A few weeks ago I was in California visiting for dinner with an old friend who works for a west coast utility. We don’t usually talk shop, but at the end of the night he said to me, “I am about to put into production one of the largest stacked Lithium ion storage sites in the market, 30MWs pretty cool huh?”

So why did this project move forward? Was it just as simple as the CA energy storage mandate? It helped greatly, but the two projects totaling 38 MW were really about system reliability first and foremost. The utility had the green light to earn. It had guidance from regulators. It had a reliability value case. Voila, the storage rolls out in no time flat. Consider the growth of wind in Texas for another example here. Texas provided the physical system in the form of new transmission for wind interconnection, the incentives via the market, and the coordination from a central value clearing house in ERCOT. Put these things in place: physical systems and standards, incentives and market signals, and a coordinating arbiter of value across stakeholders. If value perspectives on storage remain fractured, it’s up to regulators to correct this in rules and in ratemaking.

Reliability is not just a slogan, it’s really how utility people think. It is what makes the services that they provide “utility” services, because they think about it, so that their customers do not have to think about it. So there is a good chance that if the value of storage is indeed rooted in system reliability needs, which span market segments and all utility sizes and voltage levels, then it will get fair shake even by skeptical utility system engineers and planners. The only thing more important to utility executives than reliability is risk avoidance. They are two sides of the same coin. Due to the extreme value placed on risk avoidance by utilities already struggling to keep up with existing infrastructure and system demands, the energy storage vendors and the largest potential energy storage buyers today are very often not on the same page.  

Federal and state policy makers must redouble efforts to better align perspectives of value between various stakeholders and document the ROI of projects already out there. There remains an opportunity to cultivate and accelerate the growth of the energy storage market here in the USA so that we don’t end up high cost consumers, “takers” of other countries energy storage innovations down the line. An American first energy policy should place a more strategic value on cultivating energy storage.

Preview: Next week this blog will feature the “top ten” wish list from 20 energy storage marketers surveyed live at the ESA event.

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