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Solar Grid Storage: Finding Value In Grid Frequency Regulation

Jan 17 2014, 9:21am CST | by

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Solar Grid Storage: Finding Value In Grid Frequency Regulation
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Solar Grid Storage: Finding Value In Grid Frequency Regulation

Many observers feel that energy storage has the potential to be one of the ‘next big things.’ A number of companies are working hard at developing and deploying storage technologies, and raising money as well.  Stem – a company that has created and implemented an on-site storage solution that switches between the grid and on-site batteries – recently completed a $15 million funding round.  Aqueon Energy, another storage company, announced a successful $55 million round for grid-scale battery applications in the first week of January. Meanwhile, Ambri – also focusing on grid scale storage, launched a $15 million funding round late last year. And these companies are by no means the only ones playing in that arena.

One interesting aspect of storage is that it can be potentially deployed at many different levels, depending on how much energy you need at a specific point in time and long you need it for. As a consequence, one will see storage companies building business plans aimed at various market niches and applications.

Power markets are volatile, and the increasing levels of intermittent renewables further reinforce that dynamic. Some storage companies are specifically striving to address the renewables challenge. So when I was introduced to Tom Leyden, the CEO of Solar Grid Storage LLC, I was under the impression they were going to deal with the intermittency of solar, and help integrate solar power into the grid. It turns out their business model employs a more subtle and less obvious approach. They essentially piggyback on solar installations, through provision of an inverter and battery package to provide an essential and highly valuable short-term balancing function to the grid.

Here’s how they do it:

Solar Grid Storage takes a soon-to-be-developed project and offers to displace the standard inverter (the inverter is the device that takes the DC output from the solar panels and converts it into AC, so that it can be fed into the local power grid) with their own device, coupled with a battery.  Solar Grid Storage then performs the normal inverter function but also charges and discharges the battery, and maintains ownership of the inverter/battery system.  This allows the solar developer to put together a project at a lower overall price. Leyden notes, “We come in and say ‘we will put an inverter in place for you, and you get to use it for a small fee, five cents per watt.’ So instead of them paying twenty to twenty five cents per watt for the inverter they pay only five.”

The Solar Grid Storage team comes from a solar background, so they were looking for a way to take what they knew and create a new business model. “Our DNA is solar-as-a-service and making the numbers work.  The technology was always the easiest part, and the hardest part was getting the numbers to work and developing the financial structures.”

For the technology, they developed a modular plug-and-play approach based on the standard shipping container.

The inverter, the battery control and safety system all come in a container box.  They just wire up to the box – they pour a concrete pad and we put a 10’x20’ container on it.  In terms of the developer, their life is made easier – they don’t have to worry about all that.  And since the developer doesn’t pay for the inverter, they can offer a lower cost to the customer.

Creating the business model was more of a challenge. Leyden commented that they needed to find the right revenue stream, so they looked well beyond their expertise in solar to the fundamentals of energy policy and power markets.

One unique and critical characteristic of electricity is that supply must always meet demand in order to maintain system stability (and provide high quality power). This means that grid operators are always playing a highly sophisticated balancing act between the supply and demand resources. Some power plants and other assets are paid to be ready to generate or consumer power in less than ten minutes to keep the system roughly in balance.  But for the constant fine-tuning of the grid, the grid needs faster acting frequency resources that perform almost instantaneously, like a flywheel or battery. And these resources are paid a premium. That’s where Solar Grid Storage comes into play.

Their four existing projects – located in Pennsylvania. Maryland, and New Jersey – sell into the PJM (the power pool that covers 13 states and DC from Chicago to North Carolina) ancillary services market. Leyden comments,

What the PJM program does is create a new revenue stream that can help pay for these assets.  Our value proposition is that we will pay for the inverter/battery assets with other revenue streams that do not affect your production or costs, and we will help provide stability to the grid.  Those are powerful motivators for solar developers to work with us.

Leyden believes they are on the right side of a growing trend driven by regulatory policy.

This is all driven by FERC (the Federal Energy Regulatory Commission), who created Order 755 requiring all grid operators to value fast reacting power. FERC has required all grid operators in the country to create programs to value what fast reacting power can do versus other frequency regulation assets.  Most of those assets take 5 seconds to minutes to ramp up or down, but batteries provide an instantaneous response. We can follow load within mili-seconds.  We bid into an hourly market and we have a Network Operating Center connected to PJM which ramps up and down our inverter.

For Leyden, the New York and New England Power Pools are the next logical markets since they also have frequency regulation markets. Island economies such as Puerto Rico and Hawaii have high electric rates, small systems, and problems with intermittency, so they are enticing as well.

Leyden notes that there are other winds at the company’s back.

Battery prices have come down, and the batteries are more robust. Second, because of extreme climate events, such as Sandy, there is a real desire to have back-up power and there is a lot of pressure to create a more resilient grid.  In New Jersey there are 23,000 solar systems in place.  Those could be retrofitted and new PV systems developed to provide emergency power for critical loads.  The critical load panel could power lights, security, computers, pumps and fans – all of  which represent a fraction of your total load. It’s not just the battery we enable – unlike most current systems PV power will still operate when power goes out.

Numerous owners of solar were surprised after Hurricane Sandy that they had no access to electricity, despite the panels on their rooftops.  Leyden’s new inverter/battery systems change all that.

The company’s CEO concedes that their business model is a bit unusual for the investment community.

Big banks are not likely ready to invest in this yet. They see it as perhaps too risky because it’s new.  We don’t have enough track record, but that will change over time.  We are focusing more on boutique investors.  We have the support of a sustainability fund, and we are talking to utilities who understand the technology better and are interested.

Looking out towards the future, Leyden is optimistic about the prospects for his company, as the world and the power grid evolve.

The key thing is that the classic utility model is changing and it’s moving towards more distributed generation. In order to get the highest value (for these resources) you should add storage. Nobody looks quite like us or has the background we have.  Though we do expect competitors we believe we are at least two years ahead of the competition.

Source: Forbes


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