The size of the energy storage market for residential customers and industrial and commercial customers has been growing steadily over the past few years, driven by falling battery prices, the need for reliable backup power, and the potential for lower electricity bills. However, the use of residential battery storage systems has been uneven due to geographic regions or customer types. Residential customers with high incomes are driving the sales and deployment of residential energy storage systems, while large energy users with high energy demand are leading the development of energy storage systems in the commercial sector. For low-income residential customers and small commercial users (e.g., community nonprofits), deployed residential battery energy storage systems may face challenges in terms of cost.
Massachusetts initially launched the ConnectedSolutions program to promote the deployment of battery storage systems, which is now in place in Rhode Island, Connecticut, and New Hampshire, and which is beginning to change the deployment landscape for battery storage systems in residential, business, and nonprofit organizations. Unlike most battery storage deployment programs and incentives, the program is designed to focus on supporting regional grid energy needs, rather than just deploying energy storage systems to generate revenue.
A study released in 2017 by the National Renewable Energy Laboratory and the Clean Energy Group found that the deployment of residential battery storage systems has been a major driver of the commercial market due to the high cost of electricity for 28 percent of commercial customers, making it more economical to deploy. There are approximately 5 million commercial customers in the U.S., and this represents the upper limit of potential customers.
Industrial customers also face peak power demand (e.g., when power-intensive equipment such as water pumps are operating, there will be a spike in power demand), and deploying battery storage systems can cost-effectively manage and reduce on-site demand. Many customers have periods of peak power demand that often last several hours, necessitating the use of battery storage systems.
The ConnectedSolutions program model addresses this issue by providing economic compensation for battery storage systems to reduce peak power demand. A key benefit of this approach is that it creates a revenue stream for battery storage projects that is not dependent on the customer's electricity rate structure or how and when the customer uses the electricity. In U.S. states that have adopted programs such as ConnectedSolutions, utility customers can participate and receive the same economic benefits regardless of whether their customers are plants, small community centers or residential customers.
A survey conducted by Clean Energy Group, U.S. Microgrid Solutions and muGrid Analytics focused on how participation in the ConnectedSolutions program would affect the economics of residential solar and storage systems. The survey evaluated six affordable housing communities in Massachusetts, looking at two utilities and four different rates. The survey found that some homes have high for electricity costs, with summertime prices topping $40/kW, while some residential communities have year-round electricity costs of less than $10/kW.
Given the rate structure and incentives in Massachusetts, only two of these residential communities could economically deploy residential solar and battery storage systems. The electricity rates for these residential communities include high demand charges. For the remaining four residential communities, deploying battery storage systems is not economically feasible, and in some cases, solar-only generation facilities are difficult to justify.
The survey indicated that significant improvements could be made if enrolled in the ConnectedSolutions program. When customers join the Connected Solutions program, the deployment of residential solar in tandem with battery storage systems may generate more revenue. The economic benefits of participating in the ConnectedSolutions program are much better than relying only on on-demand savings to offset the cost of the deployed storage system.
Overall, the ConnectedSolutions program, which introduces solar and energy storage to affordable residential communities, is expected to increase revenues from their residential solar+storage projects by an average of 30 percent, increase net present value by tens of thousands of dollars, and reduce payback periods by three years.
The main takeaway from this study isn't that a program like ConnectedSolutions makes every battery storage project possible in affordable housing communities. The benefit of the program is that it provides an equal opportunity for customers to improve the economic viability of deploying battery storage systems, while providing cost savings to ratepayers by meeting critical needs of the regional grid.
In addition, the program can be structured to incentivize the deployment of larger-scale battery storage systems rather than reducing electricity costs through demand-based rate management. These larger scale battery storage systems can provide a greater economic return and can be designed to provide critical backup power for essential services during grid outages. Without a program structure like ConnectedSolutions, offsetting the cost of deploying battery storage systems to provide power resiliency is a very challenging issue.
Of course, the ConnectedSolutions program proposed in Massachusetts is not perfect. Ideally, it would require a five-year long-term contract with the utility and would include other mechanisms that prioritize social benefits, such as programs that benefit low-income communities and people of color, and programs designed to maintain and improve community service levels.
Thus, even without these improvements, the ConnectedSolutions program marks an important shift in the residential battery storage sector. the ConnectedSolutions model can accelerate the deployment and use of battery storage systems and improve grid operational reliability, ultimately building a more reliable and resilient electric system and lowering electricity bills.
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