By any measure, 2019 was a breakout year for energy storage in the U.S. Fueled by improved economics, growing demand for resilience, and the ever-increasing integration of intermittent renewable generation, energy storage installations hit an all-time high of 522 megawatts/1,113 megawatt-hours last year.
Though coronavirus-related supply chain disruptions, macroeconomic damage and uncertainty have lowered 2020 installation forecasts, analysts remain bullish on the longer-term prospects of storage. According to Wood Mackenzie Power & Renewables, global installations will reach 15 gigawatts per year by 2024.
The explosive growth of storage is reminiscent of solar and wind, both of which have become mainstream generation sources thanks to dramatically improved economics, expanded manufacturing scale, policy support and customer demand. However, like solar and wind, battery storage’s future growth depends on innovations that go beyond improved technologies and manufacturing-related economies of scale.
For example, project financing and business models are in dire need of innovation in order to both lower the costs of storage and make it more readily available to the commercial and industrial (C&I) space, developers and other customers that could directly benefit from its implementation. Addressing these often-overlooked areas will be a critical component of unlocking the transformational potential of storage.
Deconstruction leads to innovation
A close examination of North American battery storage costs led to the launch of Prisma Energy Solutions in 2017. “We noticed that the all-in cost of projects didn’t compute with what we understood,” said Matt Whitaker, Prisma’s head of technology and procurement, who has decades of experience in energy, finance and technology. “So we started to deconstruct what those were.”
Whitaker and his colleagues discovered that project costs were unnecessarily high because they relied on a combination of expensive batteries, integration and financing. “Financing of the projects was very [costly],” Whitaker said. “A majority of costs were built into the availability of balance sheets to guarantee the performance of projects to their lenders.”
In response, Prisma investigated ways to deliver storage solutions at a lower price and with less risk. Initially, this involved a deep dive into battery technologies and supply chains, as well as the cultivation of relationships with Chinese manufacturers. It was a process that helped Prisma secure access to high-quality, low-cost batteries and to begin financing projects in a more efficient manner. It is an approach that the company has continued to develop and refine over time, and today it is unlike anything else available in the North American storage market.
“We work through what the right technical solution is for specific applications, but we’re not exactly an integrator or a technology provider or a capital provider,” said Rob Cauthen, president of Prisma Energy Solutions, who previously led JPMorgan’s North American power business and held a variety of positions at distributed energy provider Enchanted Rock. “We’re a project partner that doesn’t take an equity position in the project, so we can leave the upside of energy storage for our customers.”
Expanding access to the benefits of storage
According to a WoodMac report, the price of non-residential storage systems dropped 15 percent between 2014 and 2019. The report projected that those price declines will accelerate over the next five years, with all-in storage system costs falling by another 27 percent by 2024.
While this is significant, substantial hurdles still prevent C&I customers, merchant developers, municipalities and cooperatives from pursuing the benefits of storage. The biggest challenges are still high upfront capital costs, procurement headaches, a lack of familiarity with storage technologies, rapidly changing technologies, and the complexity of participating in new wholesale market opportunities in places such as California, New York, New England and Texas.
One novel solution that addresses these challenges and delivers the benefits of peak energy management, independent system operator market participation, lower demand charges and improved resilience that storage can provide comes from Prisma Energy Solution’s five-year lease program. By combining the company’s technology expertise and access to high-quality, low-cost equipment, Prisma’s lease offering allows C&I customers to benefit from a customized storage system with minimal upfront capital and operating expenses, and no technology-selection risk.
The five-year lease is also potentially attractive to municipalities, co-ops and merchant developers. “A lot of developers look at battery storage as a tool to grab a short-term opportunity, like a congestion play that may only last a few years,” said Cauthen. “A shorter-term contract that has an option to be extended or become a purchase can be far more attractive than purchasing an asset with a 10- to 20-year life.”
Municipalities and co-ops seeking to take advantage of the non-wires alternatives that front-of-the-meter storage provides can also benefit from a short-term lease that doesn’t require going through the complicated and time-intensive approval process typically required for capital expenditures.
Besides its five-year lease, Prisma also offers C&I customers a guaranteed savings program under which Prisma designs, installs, owns and operates a storage system for a minimum of five years. In exchange for providing access to their facilities, C&I customers receive a guaranteed financial savings on their utility costs. If those savings are not realized, Prisma compensates customers for any shortfall.
The ability to improve resilience and economics was always going to make storage attractive to the companies, developers and utilities able to access it in a simplified and financially attractive way. But the realities of a post-COVID-19 economy in which companies need to lower costs in order to rebound could increase demand for storage. “There has been a lot of capital lost, and businesses have been severely impacted,” said Cauthen. “Storage with guaranteed savings or a short-term lease can lower...overall energy spend and help people cut costs, which is so important as they move forward.”
