Benefits of Energy Storage
Energy storage will be a key component in the energy grid of the future. If renewable energy is going to be incorporated into the grid at significant levels, its drawbacks need to be dealt with. The biggest drawback of wind and solar is its intermittency. It fluctuates as the wind dies or clouds block the sun. Currently, this means utilities must build the same amount of natural gas generation capacity as they would have without renewable generation in order to keep the lights on in these moments. No infrastructure cost is saved, and not much fuel costs are save either, as these natural gas plants need to be kept running to be ready to go online at a moment’s notice. Storage can alleviate this problem by storing energy when renewables are generating and provide energy when renewable don’t.
The value that storage brings is easy enough to see, but difficult to define. In addition, it can’t be ignored that storage doesn’t actually generate any electricity. It simply keeps it for later, and in fact uses some energy if you take into account its inefficiencies. Its value is defined differently than the dollars per kWh that energy generation is measured in. The RMI outlines many of these services in their paper on The Economics of Energy Storage. The benefits range from back-up power to transmission congestion relief. They can be of varying impact depending on where they are placed on the grid from centralized to behind home meters. The graphic provided by this report outlines the benefits very nicely.
It can be difficult to make a business case for storage using only one of these economic benefits. There are much cheaper alternatives for nearly all of these. Most projects are done for their experimental benefit as a pilot project or for highly unique cases. However, the business case starts to make more sense when you start to combine these benefits. Layering the benefits while maintaining the costs creates an improved cost-benefit ratio. Being smart and strategic about how you do this makes storage more attractive. When looking into the rationale for energy storage, you have to evaluate specific use cases. Each application has different cash flows to determine whether it is beneficial or not. This includes how it is used, what amount, where, and in what policy climate.
Back-up Power Use Case
In past my previous blog post, I looked at using a battery to reduce the cost of peak electricity prices. In the scenario I evaluated, it’s tough to make an economic case for batteries. I want to extent this analysis to the use case of storage for back-up power. I’ll evaluate using a battery vs. using a generator for back-up power. Then, I’ll combine the two and evaluate using a battery for back-up and reducing the cost of peak electricity pricing.
I start with using how long a blackout is estimated to last to set the parameters for the system. According to the Blackout Tracker Report by Eaton, the average blackout in 2013 lasts over 3 hours. However, it is important to remember that this ranges up to a few days. Given that the average household power demand is 1.25 kW (10,932 kWh/year ÷ 8,760 hr/year) according to the EIA, a back-up system needs to be able to store 3.75 kWh worth of energy. Or in the case of generators, simply output the 1.25 kW of power needed. Obviously, this is a gross simplification of the changing power demands of a house and how long a power duration could last, but I’ll continue with these assumptions.
| General Assumptions | units | |
| Discount Rate | 6.67% | |
| Avg. Outage Duration | 3 | hrs |
| Household Demand | 10,932 | kWH/year |
| Power Demand | 1.25 | kWH/hour (kW) |
| Energy Storage needed | 3.74 | kWh |
| Hours of Sun | 4.8 | hrs |
| Solar Panel Cost per kW | $ (3,000.00) | per kW |
The two products I compare are the Tesla Powerwall and the Generac Powerpact. The Powerwall is a 6.4 kWh battery capable of delivering 3.3 kW of power. This is sufficient for the energy and power needed for this scenario. Costs include $3,000 for the battery and an estimated $1,000 for installation. The variable costs come out to $.43 per year calculated from 3.74 kWh of energy at $.10 per kWh with 92% roundtip efficiency and 95% inverter efficiency. This vriable cost is quite small, but I still wanted to include it to emphasize that the electricity that a battery uses is not free.
The Powerpact costs $2,199 plus $1,000 for installation. The estimation for installation is based off this article by fixr.com on back-up energy, and I used the same installation cost for both. The generator has a power rating of 7 kW with no applicable energy capacity. This is because you can keep it running as long as you want, as long as you keep supplying it fuel. Costs of fuel are estimated to be $2.23 per hour coming out to $6.69 per year for this scenario.
| Back-up Parameters | Tesla Powerwall | Generac Generator | units |
| Cost | $ (3,000.00) | $ (2,199.00) | |
| Installation | $ (1,000.00) | $ (1,000.00) | |
| Capacity | 6.4 | – | kWh |
| Duration | 5.13 | – | h |
| Power | 3.3 | $ 7.00 | kW |
| Electricity Price | $ (0.10) | $ (2.23) | per kWh |
| Roundtrip Battery Efficiency | 92% | – | |
| Inverter Efficiency | 95% | – | |
| Yearly Electricity Costs | ($0.43) | $(6.69) | |
| Lifetime | 10 | 10 | years |
I compared these two by taking the present value of all the costs using a discount rate of 6.67%. The total present value of the costs come out to $4,003.26 for the Powerwall and $3,249.90 for the generator. The generator wins out by $753 as the cheaper option in this specific scenario. There are two important consideration in the summary of this scenario. the first is that this $753 may for some be considered a small amount to pay for a clean source of back-up energy. This value is different for different for different people. The second consideration is the advantage the generator has in being able to supply a limitless amount of electricity. The battery is of no use after a few hours when its energy reserves are used.
| Back-up Present Value Analysis | Tesla Powerwall | Generac Generator |
| Initial Cost | $(4,000.00) | $(3,199.00) |
| PV of Electricity Costs | ($3.06) | $(47.72) |
| Total PV of Costs | $(4,003.06) | $(3,246.72) |
| Difference | $ 756.34 |
Back-up + Peak Power Cost Reduction
The second scenario combines using a battery for back-up with using a battery to reduce peak power costs. In order to take advantage of both these benefits, we have to operate the battery in a certain way that results in a trade-off with the between peak price cost reduction and how much energy we can have for back-up. This constraint is implemented as only drawing the battery down to 50% charge when being cycled for peak power pricing reduction. This leaves at least 50% of the battery capacity available for back-up. Other assumptions and parameters are the same as before.
| Back-up + Peak Power Cost Reduction Parameters | Tesla Powerwall | Generac Generator | units |
| Cost | $ (3,000.00) | $ (2,199.00) | |
| Installation | $ (1,000.00) | $ (1,000.00) | |
| Regular Use Electricity | $ (4.08) | $ (4.94) | per week |
| Capacity | 6.4 | kWh | |
| Duration | 5.13 | h | |
| Power | 3.3 | 7 | kW |
| Electricity Price | $ (0.10) | ($2.23) | per kWh |
| Roundtrip Battery Efficiency | 92% | ||
| Inverter Efficiency | 95% | ||
| Back-up Costs | ($0.43) | ($6.69) | |
| Yearly Costs | $ (212.59) | $ (263.57) | |
| Lifetime | 10 | 10 | years |
| Back-up + Peak Power Cost Reduction Present Value Analysis | Tesla Powerwall | Generac Generator |
| Initial Cost | $ (4,000.00) | $ (3,199.00) |
| PV of Electricty Costs | ($1,516.39) | ($1,880.04) |
| Total PV of Costs | $ (5,516.39) | $ (5,079.04) |
| Difference | $ 437.35 |
I run this analysis in python. It uses scipy’s optimize function in the same set-up as my previous post, but with the added constraint that the battery only cycles down to 50% of its capacity. Running this optimization problem gives the cost of all the electricity charges for that specified demand. That is $4.08 per week with a battery to reduce peak power charges. This is compared to the $4.94 a week of electricity costs with no battery calculated by taking the straight demand multiplied by price of electricity at that hour. This analysis I conducted in python and can be found on my github account. Adding in the cost to fuel the generator for outages, this amounts to a difference of $51 dollars per year. This gives a value boost for battery storage which adds up over multiple years when the present value calculation is analyzed. It comes out to a present value cost of $5,516.39 for the battery set-up vs. $5,079.04 for a generator. A mere difference of $437 dollars. You can start to see you even though there is a trade-off, the combination of benefits creates more value.
Back-up + Peak Power Cost Reduction + Solar
The third scenario is to combine a solar panel with this system. This brings about two major benefits of a longer lasting energy source and additional tax credits. These benefits were made clear to me after reading this Tesla Powerwall forum post. The major downside of using a battery for back-up is the limit to the energy it can supply. This is overcome with a solar panel which can continue to supply electricity after an outage. This is in addition to the free electricity it can supply in normal operation. The other main benefit it brings is a tax break. having a solar panel qualifies it under the Federal Tax Subsidy for Solar. This changes the economic of the entire system. The downside, of course is the additional cost of the solar panel.
The size of the solar panel is calculated to be 2.7 kW. This is the amount needed to fully charge the battery in the case of an outage (7 kWh/4.8 hrs of sun = 1.45kW) plus the amount needed to fulfill the demand (1.25 kW). The 4.8 hrs of sun is the average number of hours the sun shines per day according to this table. This is in the case of an outage. In normal operation, we are always saving 50% of the battery, so it only need to be charged 50% or 3.5 kWh over 4.8 hrs plus fulfilling demand of 1.25 kW totaling 1.975 kW of solar output needed. I take the larger 2.7 kW to be the solar panel size needed.
| Back-up + Peak Power Cost Reduction + Solar Parameters | Tesla Powerwall | Generac Generator | units |
| Cost | $(3,000.00) | $(2,199.00) | |
| Solar Panel Size | 2.58 | – | kW |
| Solar Panel Cost | $(7,743.84) | – | |
| Installation | $(1,000.00) | $(1,000.00) | |
| Regular Use Electricity | $(3.21) | $(4.94) | per week |
| Capacity | 6.4 | kWh | |
| Duration | 5.13 | h | |
| Power | 3.3 | 7 | kW |
| Electricity Price | $(0.10) | $(2.23) | per kWh |
| Roundtrip Battery Efficiency | 92% | ||
| Inverter Efficiency | 95% | ||
| Back-up Costs | $(0.43) | $(6.69) | |
| Yearly Costs | $(167.35) | $(263.57) | |
| Lifetime | 10 | 10 | years |
| Back-up + Peak Power Cost Reduction + Solar Present Value Analysis | Tesla Powerwall | Generac Generator |
| Initial Cost | $ (11,743.84) | $ (3,199.00) |
| PV of Electricty Costs | $ (1,193.69) | $ (1,880.04) |
| Total PV of Costs | $ (12,937.53) | $ (5,079.04) |
| Difference | $ 7,858.49 |
The difference ends up being $1.73 per week in regular use electricity savings. The all-in present value difference is $7,858.48 in favor of the generator. The effect is that the solar panel will charge the power and fulfill energy demands when the sun is out. The effect on the electricity bill is to provide free electricity during this time that the sun is out and provide free electricity for the amount the battery discharges when the sun is not out.
Conclusion
As battery back-up continues to become a more affordable option, there are many other factors which come into play. Battery capacity will improve. Technology will better be able to provide ways to reduce your demand during outages to make your battery last longer. There may be ways for the residential distributed systems to access the ancillary markets and make use of this additional compensation benefit. It is worth noting the commercial size battery storage may have a different cost benefit analysis because of economies of scale, different electricity pricing, and different demand patterns. It is also important to consider that tariff structures in different states vary making battery storage more or less affordable.
Python code is on my Github.
Energy Edger 