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Advantages of Energy Storage at the Point of Consumption

Updated: Feb 27, 2019

With the rise of variable renewable energy (VRE) sources, such as solar PV arrays and wind turbines, utility companies have an ever-increasing need for energy storage to balance supply and demand. The growth of VREs is not stopping anytime soon: according to Goldman Sachs, the global market share of solar PV and wind power increased from 12% to 20% between 2010 and 2015, and is expected to exceed 50% by 2025.

Of course, the growth of renewables will continue to create opportunities for energy storage technologies, especially if they can also provide ancillary services such as:

  • Maintaining voltage and frequency stability at the power grid level when VREs show output fluctuations.

  • Power grid decongestion when there is peak production from VREs or peak demand.

There is, however, one key question that utility companies have to address: Where on the power grid is the optimal location for energy storage?

  • The development of energy storage capacity could follow the same approach as power plants: utility companies can build their own bulk storage facilities, or they can sign contracts with private investors to provide the required storage capacity and ancillary services.

  • The growth of energy storage could also be driven by customers, where utilities take a hands-off approach with respect to direct investment, and instead provide incentives for their customers to develop the required storage capacity. Large scale storage and ancillary services are achieved with data aggregation and control systems, which manage distributed storage capacity as a single virtual power plant.

Both approaches are being attempted by various utility companies throughout the world, and there is ongoing debate regarding which of them is superior. However, the results of research indicate that more value is created as storage is moved closer to the point of consumption. A project carried out by the Rocky Mountain Institute in Colorado, USA, points out the advantages of storing energy at customer premises.

Only Energy Storage at the Point of Consumption Can Reduce Peak Demand

Peak demand occurs when multiple consumers are using large amounts of electric devices simultaneously. In northern Europe, it typically occurs in the evening of cold winter days, when most of the population is returning home and using lighting, heating systems and home appliances at once.

  • If multiple homes and businesses are equipped with energy storage systems, they can be configured to provide all of their energy when total grid demand is at its highest point. This alleviates the transmission and distribution load on the grid operator, while also reducing the amount of energy that must be generated with expensive peaking power plants.

  • Power grid decongestion is not possible if energy storage is concentrated at a few large-scale facilities. Although the energy for peak demand can be generated beforehand, at power plants with a lower cost of operation, it is still necessary to distribute it when peak demand occurs, taking the power grid’s capacity to its limit.

In a few words, bulk energy storage only provides a partial benefit in terms of peak demand mitigation: it allows energy to be generated at different hours and at a lower cost. On the other hand, distributed storage allows this and it reduces the maximum load on the power grid. Considering that transmission and distribution costs are proportional to the square of current, there are significant savings to achieve – reducing the current carried by a power line by 50% reduces losses by around 75%.

Demand reduction with distributed storage provides benefits for energy consumers as well:

  • Typically, the highest electricity rates are charged during peak demand.

  • If homes and businesses shift their consumption to off-peak hours with demand-side management measures, they can pay lower power bills even if total energy consumption stays the same.

Figure 1. If a utility company applies hourly rates, for example as shown in the image above, clients can reduce their power bills by shifting their consumption to low-demand hours (blue).

Some electric rate structures include an extra charge for each client’s highest individual peak in consumption. This normally applies for commercial and industrial customers, and the maximum demand is measured even if it does not coincide with peak demand at the power grid scale.

Distributed Energy Storage Can Enhance the Adoption of Renewables

When an electric utility company has plenty of customers with distributed VRE sources, an operating issue for can arise:

  • Renewable sources can display peaks in generation when consumption is low. For example, this happens with solar power during the hours around noon, when most home occupants are away due to work or academic activities. It can also happen with wind power in the early hours of the morning, when most of the population is asleep.

  • In the absence of distributed energy storage, the power grid is forced to absorb these peaks in generation from VREs – it may be necessary to ramp down production at other power plants to prevent power grid instability.

  • If VREs make up a significant portion of the power generation mix, there may even be cases when turning off all other power plants is not enough to compensate for surplus production. If this happens, the only viable solutions are exporting or storing energy.

  • When multiple VRE systems are generating power simultaneously, without enough local demand to consume their output, the transmission and distribution capacity of the power grid may be saturated.

When VREs are complemented with energy storage at the point of consumption, surplus production can be absorbed locally. Then the stored energy can be used to mitigate peaks in demand, individually or at the power grid scale.

Distributed Energy Storage Serves as Backup Power for Power Grid Clients

Another significant limitation of bulk storage facilities is that they rely on the power grid to deliver energy to the point of consumption. Therefore, their energy becomes inaccessible during a blackout, just like that from conventional power plants. Distributed storage, on the other hand, can provide backup energy during blackouts for the simple reason that it’s located at client premises; there’s no power grid in between.

All Services Provided by Bulk Storage Are Available with Distributed Storage

Distributed storage offers services that bulk storage can’t provide, but the opposite does not apply: everything that bulk storage can do is possible with distributed storage. All that is needed is a data aggregation and control system to operate distributed capacity like a single bulk storage plant – the required technology already exists.

When aggregated, distributed storage can offer the following services, which are normally associated with bulk storage:

  • Energy arbitrage

  • Voltage regulation

  • Frequency regulation

  • Operating reserve

  • Transmission and distribution capacity decongestion

To summarize, energy storage becomes more valuable as it moves closer to the point of consumption. Managing the available capacity becomes more data-intensive when energy storage is distributed, but this is compensated by the demand-side management services that become available.

igure 2. Added Value of Distributed Storage when Compared with Bulk Storage

There is another important factor to consider: distributed and bulk storage compete against each other, and the market will likely favor distributed storage thanks to its extra benefits. The value of bulk storage facilities can be expected to decline as more homes and businesses deploy distributed storage.

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