Deploying battery storage in commercial buildings: opportunities and challenges

By Amir Kavousian, Justin Ho, Larry Win, and Heming Yip

According to the US Energy Information Administration, buildings consume 41 percent of total energy and 71 percent of the electricity in the US, and up to 40 percent of this energy is consumed during peak hours. To satisfy demand during these peak hours, electric utilities mostly use thermal resources, such as natural gas, since the availability of renewable energy resources does not usually align with peak demand (Figure 1). With more “peaky” load profiles, there is greater demand for natural gas-fired power plants, which are expensive to operate and emit CO2 and other harmful products while generating electricity.

Figure 1 – Total electricity demand and availability of wind and solar for California on Thursday January 31, 2013 (Source: California Independent System Operator). Demand is the highest in the afternoon hours when solar and wind are not at their highest production capacity. These profiles are typical of a winter day in California.

Up to 70 percent of the electricity bill of a commercial building is determined by its highest power demand in the span of a month. In other words, how peaky the load profile is has a larger impact on the electricity bill of large commercial buildings than how much electricity they actually use. This is in part  due to the steep increase in the wholesale price of electricity for utilities during peak hours.

If we could dispatch wind, solar or other clean renewable resources to offset peak demand, then we not only reduce cost to the utilities and prices to consumers, but also reduce emissions associated with fossil fuel-fired power generation. In sum, a smooth electricity load shape has immediate financial and environmental benefits for customers, utilities, and society as a whole.

The traditional approach to shift electricity load away from the peak is to change consumer behavior, either through differential pricing mechanisms or by other financial incentive programs such as Demand Response. However, research has shown that consumer behavior in the long-term is inelastic to pricing, causing diminishing returns for financial incentives. Energy storage solutions, such as distributed battery systems, enable smoothing of the demand curve and integration of renewables by storing energy from renewable resources whenever they are available, and dispatching the stored energy during peak hours (Figure 2). Most common battery systems consist of a chemical energy storage medium (usually lead-acid cells or lithium-ion), a control device that dispatches electrical energy when needed, and a control algorithm that optimizes the dispatch schedule.

Figure 2 – Energy storage systems such as batteries can reduce the need for building peaking power plants (plot source: Energy Storage Association, 2012). By storing energy during off-peak hours (usually after midnight) and releasing the stored energy during peak hours (usually afternoon), battery storage systems help distribute the load more evenly throughout the day and to reduce peak power demand of buildings.

Depending on the capacity, loss factor (charging efficiency), and discharge rate, batteries can be used for energy storage or to supplement power demand. There are several battery types that can meet one or both of these needs. The most common are summarized in Table 1.

Analysis

Using a top-down integrated assessment model of the US economy (GCAM), and a bottom-up technological model of the US commercial building stock, we demonstrate that deploying Battery Storage Systems (BSS) is economically viable for building owners, energy utilities, and the US economy. By achieving 80 percent adoption rate of BSS, which shaves 15 percent of daily peak load, we estimate that US commercial buildings can save $9 billion annually on their utility bills. Utilities could also save $6.5 billion annually on their wholesale electricity purchases by reducing expensive peak hour energy purchases. This adoption level also results in a 10 GW reduction in electricity grid’s peak power demand, eliminating the need for operating twenty five typical (400MW) closed-cycle gas turbines. Finally, we estimate that deploying BSS would help increase solar and wind production by 48 and 40 percent respectively, compared to their reference cases. The excess solar and wind production due to deploying BSS is equivalent to electricity generated by 30 coal-fired power plants in the US. Our projections indicate that the 80 percent adoption rate and 15 percent peak shaving is achievable by 2030.

Policy Recommendations

Despite favorable economic and environmental impacts, market penetration of BSS is still low. For example, global installed capacity of stationary Li-ion batteries in 2013 was only 27MW, equivalent to peak demand of about 70 medium-large commercial buildings (assuming summer peak demand of 400kW). Part of this slow adoption is due to transactional costs of adopting new technologies, including search costs, information processing, and perceived risk. To remove this barrier, Battery Service Companies (BSCO’s) can absorb the hidden costs of installing BSS, and share in the bill savings with the building owners. If 50 percent of US commercial buildings hire BSCO’s, and share 50 percent of their bill savings with them, the size of the BSCO’s market could reach $2.3 billion annually.

More advanced battery technologies such as lithium-ion batteries are still not economically competitive against lead-acid batteries. These advanced batteries have relatively less environmental impact and considerably higher performance characteristics compared to lead-acid. Some other advantages include: longer lifetime, lower operation & maintenance costs, better performance in hot or cold climates, less weight (a third) and less volume (a sixth), and ability to provide high power with high depth of discharge. Therefore, policies and incentives are needed to help make advanced battery systems competitive with lead-acid.

A number of policies already support battery systems development and dissemination. For example, in California, the Self-Generation Incentive Program continues to support energy storage along with other sources of distributed generation. The Advance Research Agency in Energy (ARPA-E) awardees have doubled the world-record energy density for a rechargeable lithium-ion battery. Argonne National Lab, a national hub for battery storage is also doing research for finding new battery technologies.

To accelerate this process, we recommend that the government continues the support for R&D projects for development of advanced battery technologies. Furthermore, policy makers on the state level should increase the support for self-generation and storage projects through tax credits and other monetary incentives. We also recommend that utilities design incentive programs to reduce the entrance costs for building owners to install BSS. Finally, Battery Service Companies (BSCO’s) should tap into the $2.3B market for BSS

Acknowledgements

Part of the research for this article was done during Stanford’s MS&E 295 Energy Policy Analysis course. The authors would like to thank the teaching staff, especially Jordan Wilkerson, John Bistline, Benjamin Leibowicz, and Professor John Weyant for their helpful comments during the project. We also thank the reviewers for their helpful comments during the review process.