Demand Management, Energy Efficiency, Energy Storage  -  March 14, 2018 - By Michael Robinson, EDF Renewable Energy

The Next Generation of Energy Cost Reductions

What was once perceived as an uncontrollable and perpetually increasing expense that dominated overhead costs, operational energy costs are now an opportunity to gain a competitive operating advantage. Managing, forecasting, and reducing energy costs has become a corporate level priority for many organizations that recognize the opportunity to take advantage of evolving energy technologies and market to create a competitive operating advantage.

How do organizations take advantage of changes in the power market to create opportunities to reduce costs? Onsite, behind-the-meter (BTM), storage. BTM Battery Solutions and energy management systems are quickly becoming one of the most sophisticated and holistic solutions to manage energy costs. However, recent changes in the rapidly developing market actually create the opportunity to not only reduce energy costs, but also generate revenue.

Utility bill cost reduction through demand charge management is currently the most cost-effective application for behind-the-meter battery solutions in California where demand charges are some of the highest in the country, and projected to rise. However, utility battery programs, such as the Southern California Edison’s Local Capacity Resource Program and Pacific Gas and Electric’s Behind-the-Meter Contract with EDF Renewable Energy, along with recent announcements from the California Public Utility Commission (PUC) are presenting new potential revenue generating opportunities from BTM storage solutions.

Demand Charge Management

A facility’s demand charge is determined by multiplying its maximum power consumption, measured in kilowatts (kW), by the utility’s demand rates (expressed as dollars per kW) in each of those periods. As a result, a 15-minute period will set the monthly demand charges that can be as much as 50% of a facility’s energy bill each month. California demand charges are some of the highest in the country, with an average of $19.66 across the three major utilities.[1] Meanwhile, these demand charges have been increasing between 5-11% over the last 7 years, a trend that is anticipated to continue.

Energy storage solutions are optimized to discharge to reduce the 15-minute period of peak consumption according to each facility’s unique load profile and tariff structure. By discharging and lowering peak demand from the grid during on-peak periods, energy storage solutions reduce utility demand charges, resulting in dramatically lower utility bills. As demand charges continue to increase, savings will increase accordingly, creating a financial hedge and competitive advantage for the energy manager’s business.

Utility Battery Programs

Leading organizations, utilities, and regulatory authorities are now recognizing the value in the flexibility that storage provides by having the ability to both generate and consume power. As far back as 2015, Southern California Edison contracted with multiple energy storage companies to provide grid support in the Local Capacity Resources Contract. More recently, Pacific Gas and Electric contracted with EDF Renewable Energy to provide 10MW (40MWh) of grid services from behind-the-meter locations across their entire service territory. These battery solutions will provide the grid services by discharging power during periods of peak consumption on the grid, reducing the demand on the grid and alleviating capacity constraints. These services are essentially a demand response type programs, but can only be provided by the Utility contract awardees.

The utility programs provide facilities and organizations the opportunity to use behind-the-meter battery solutions to not only reduce demand charges, but also generate revenue by providing resources to the local utility. Companies can now realize additional revenue streams from the battery storage solution, which will allow for improved pricing, reduced demand charges, and an increase in operational energy savings.

Emerging Open Market Battery Programs

Previously, Utility regulations and rules in California have not allowed energy resource to “stack” more than one application or service when participating in the grid. As a result, batteries have not been able to receive revenue for the incremental value that they can realize providing services such as wholesale market participation, distribution and transmission grid services, and utility resource adequacy requirements. On January 11^th, 2018 the California Public Utilities Commission (CPUC) approved rulemaking 15-03-011 that will reduce, if not eliminate, these barriers.

As a part of the new rulemaking, the CPUC unanimously adopted 11 interim rules, which included the critical phrase that "resources interconnected in the customer domain may provide services in any domain." By domain, the CPUC indicates that customer-sited behind-the-meter batteries can participate in customer, distribution, and transmission domains. The single statement reflects that the CPUC intends to change current rules and regulations that prohibit batteries from participating in and generating revenue in transmission and distribution markets, such as frequency regulation and wholesale market generation. When the CPUC formalizes the 11 interim rules, facilities in California will not only be able to reduce costs of energy consumption with batteries, but will also be able to more widely generate revenue in the wholesale energy market and other developing markets.

Meanwhile, a similar trend is quickly emerging on the national level with the recent Notice of Proposed Rule (NOPR) marking by the Federal Energy Regulatory Commission (FERC) which is seeking to more effectively integrate battery energy storage into the wholesale markets. The NOPR is a result of the multiple barriers in regulations that limit Utility scale battery systems from participating wholesale markets. The FERC is proposing to not only change the rules to recognize the physical and operational capabilities and characteristics of battery energy storage to allow for their participation in wholesale markets, but also is proposing to make changes to the rules that define distributed energy resources, such as solar and batteries, that will allow aggregators, such as renewable energy developers, to participate in the wholesale energy markets across the country.

Both the FERC and the CPUC regulations will present the opportunity for holistic system integrators,  to work with facilities to not only reduce energy costs through demand charge management, participate in utility programs, but also participate in wide wholesale markets in the future, most likely in the 2020 time frame, turning the uncontrollable overhead liability of an organization’s energy costs into a revenue-generating asset that can be managed, forecasted, hedged, and reduced over the long term.

[1] Based on PG&E E-20-P, SCE TOU-8-B and SDG&E ALTOU-P Tariffs

This case study was written by Michael Robinson, Business Development Manager –   EDF Renewable Energy, who has been working with EDF since 2013, developing relationships and renewable energy solutions with clients in the public and private sectors. After receiving an International MBA from University of San Diego, Michael joined EDF RE’s Government Energy Solutions group where he worked primarily with the Department of Defense (DoD) developing holistic energy solutions to increase renewable penetration and energy resilience on base. Now as part of the Distributed Solutions group, Michael provides onsite energy storage and solar solutions for corporate and industrial customers looking to take control of their energy costs. Michael’s passion for the energy sector goes outside of the office where he is a founding board member and acting Co-President of Young Professionals in Energy’s (YPE) San Diego chapter.

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