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Summary for Decision Makers

BTM energy storage systems, most commonly in the form of stationary electrochemical batteries, are connected behind the utility meter and typically located on the consumer’s premises. Commercial, industrial, and residential consumers may consider deploying BTM storage to minimize electricity bills, secure a continuous supply of electricity, and/or ensure power quality for critical equipment on-site. Unlike with systems interconnected at the transmission level or distribution level “in front of” the customer meter, BTM storage systems are typically owned and operated by customers themselves. Customers typically choose when and where to deploy BTM storage, not utilities. Due to the decentralized nature of decisions to invest in BTM storage, decision makers can instead focus their efforts on enabling customer deployment and potentially creating incentives to align the interest of consumers with the broader power system.

 

Options to Enable BTM Storage

Although the decision to install BTM storage is not centralized, decision makers can enable interconnection and potentially guide customer decisions in a way that can also support grid needs through appropriate policy design. As decision makers consider the level of institutional effort they wish to invest in creating participation frameworks for BTM storage, there are three sequential and increasingly complex undertakings that can be pursued. These are:

  1. Enable Interconnection: Decision makers can work to enable the safe and orderly interconnection of BTM storage resources in a systematic and “future-proof” manner. Decision makers will ultimately dictate whether a customer is allowed to deploy and interconnect BTM storage through the development of rules and regulations that allow the safe and orderly interconnection of BTM storage.
  2. Enable Implicit Service Provision: Decision makers can build on interconnection efforts by also designing economic signals for customers to adjust the operation of their BTM storage resources in a manner that benefits the power system. This is chiefly accomplished through DER compensation schemes and retail tariffs.
  3. Enable Active Service Provision: Decision makers can also pursue efforts to enable direct utility or third-party control over customer-sited BTM storage resources to enable active service provision to the power system. 

 

Drivers of BTM Storage Adoption

Understanding the major drivers of BTM storage can help decision makers design programs that facilitate the adoption and operation of BTM storage to provide services to customers and the grid and meet clean energy policy objectives.

  • Customer bill savings is a primary driver of investment in BTM storage, especially by commercial and industrial customers in earlier-stage markets. BTM storage is used to help lower customer utility bills, either by maximizing consumption from on-site generation sources, shifting demand to lower-priced periods, or reducing demand charges. The potential for a customer to lower their bills with energy storage depends on: (1) how the customer is allowed to operate the storage system; (2) the retail electricity tariff customers pay for consumption from the grid; and (3) how a customer is rewarded for energy exported back to the grid. Well-designed compensation mechanisms can help ensure that adopting customers neither negatively impact the utility nor nonadopting customers.
  • Customer reliability and resilience is important in areas with poor grid reliability and critical infrastructure facilities such as hospitals, or commercial and industrial consumers sensitive to power interruptions. These consumers may currently rely on uninterruptible power supply systems and diesel generators to meet their reliability and resilience needs, and it may be a policy objective to supplement or replace these systems with BTM energy storage.
  • Power quality is important, especially to some commercial and industrial customers for them to function and can be sensitive to even minor changes to grid voltage or frequency. Other consumers, such as manufacturing plants and industrial facilities, may be large enough to impact local power quality conditions and be subject to penalties for causing local grid issues. Energy storage is one option for these consumers to ensure power quality for their own purposes as well as minimizing the risk of penalties associated with causing local grid issues.

 

Building Blocks to Enable BTM Storage

To Enable Interconnection

  • Transparent Technical Interconnection Process: Creating a clear and transparent interconnection process not only makes it easier to integrate DERs, including BTM storage, to the electric distribution grid, but it can also help maintain the safety and reliability of the power system and help ensure defined standards are met. Defining rules that govern both the administrative and technical requirements for enabling the connection of DERs to the grid can provide valuable information to utilities and policymakers to support planning, while enabling DERs to connect safely and in a predictable manner. Conversely, poorly designed processes can lead to increased uncertainty for installers, dissatisfied customers, safety issues for customers and utility line workers, unnecessary administrative burdens for utilities, and/or negative impacts to clean energy goals.
  • Clearly Defined Grid Interconnection Codes: As BTM storage deployment grows, promulgating clearly defined grid interconnection codes for standalone storage and storage paired with distributed generation can help to ensure that BTM storage systems operate safely and reliably and also handles the complexity of these decisions for the customer. Grid interconnection codes are often based on model international interconnection standards, such as IEEE 1547-2018, which ensures regular, reliable responses from all DER interconnecting to the power system during both normal and abnormal grid conditions, and UL 1741 SA, which ensures that a particular inverter that interfaces between a DER and the power system is in compliance with IEEE 1547-2018.
  • Streamlined Local Siting and Permitting: Adhering to electrical, building, and fire safety codes and standards ensures the safe and reliable operation of BTM storage and can be part of the local or jurisdictional permitting authorities’ screening procedures. Providing guidance to building owners and developers about the approval process, permitting fees, siting, signage, equipment, and other certification requirements can help lower costs and reduce the timeline for interconnection. Standardized, streamlined permitting processes for the installation of stand-alone BTM storage or distributed PV coupled with BTM storage is critical, especially as battery prices continue to fall and more devices are installed.

To Enable Implicit Service Provision

  • DER Compensation Mechanisms to Support Grid-Friendly Behavior: DER compensation mechanisms are a key policy and regulatory tool that can help facilitate the deployment of grid-friendly BTM storage and enable implicit service provision. Well-designed compensation mechanisms are market and context-specific, can drive customer behavior to shift load or adjust the timing of their exports to provide grid services, and can help support the objectives of various stakeholders, including regulators, utilities, system owners, and other ratepayers.
  • Metering and Billing Arrangements: Metering and billing arrangements outline how consumption and on-site generation are measured and compensated. Net energy metering does not incentivize the deployment of BTM storage with distributed generation, as it effectively treats the grid as a form of financial storage, allowing customers to “bank” generation in one hour for use in another hour. In comparison, a net billing policy typically features a sell rate lower than the volumetric retail energy rate, and thus incentivizes customers to self-consume on-site generation. As customer demand is often noncoincident with distributed PV production, a net billing scheme can incentivize the installation of BTM storage to maximize on-site consumption of distributed generation.
  • Cost-Reflective Retail Tariffs: Retail tariff structure plays an important role for BTM storage applications, as it creates opportunities for customers to reduce their bills by managing their load to create value to the power system. Two common elements for cost-reflective retail tariffs are demand charges and time-of-use rates. Retail tariff design is an important consideration for BTM storage-plus-distributed PV systems for the same reasons, as it represents a cost-avoidance opportunity for the system owner if they self-consume on-site generation.
  • Cost Reflective Sell Rates: Cost-reflective sell rates set the compensation that an exporting DER system owner receives for the electricity exported from their system to the grid. Sell rates can be static, staying fixed over the length of the compensation agreement or more dynamic and granular, varying by time and location.
  • New Metering Infrastructure. Promoting the installation of additional enabling infrastructure, such as smart meters and smart thermostats, may help alleviate some of the complexity for the customer from cost-reflective retail tariffs and sell rates by automating responses to changes in electricity prices.
  • Additional Metering and Communications Infrastructure. Additional communications technology infrastructure will be needed under active grid service provision approaches to monitor the state-of-charge of BTM storage devices, to send signals to systems to charge or discharge, and to ensure system operators and utilities can verify the response of these distributed systems to inform compensation.
  • Clarifying Roles for BTM Storage on the Grid. Providing system services with assets located on the distribution system and behind a customer’s meter represents a shift in traditional power system operation. Additional clarification from regulators on the types of services these systems can provide, and under what circumstances, can help developers and utilities better plan for the deployment of BTM storage services.
  • Regulations to Enable Business Model Innovation. Many customers lack access to the affordable upfront capital necessary to invest in energy storage systems. Additionally, many customers who install energy storage may lack the technical expertise needed to fully utilize the capabilities of their storage system, which is often dispatched to provide services in a relatively small number of hours, or as a small share of the total system capacity. Utilities and developers, conversely, do not have direct access to a customer’s premises but have access to capital and often have the sophistication and interest to dispatch BTM storage systems to provide additional grid services. Novel ownership models can help share the costs and benefits of BTM energy storage systems but may need regulatory approval or encouragement to mature.
  • Coordination Between the Transmission System, Distribution System, and Developer. Without proper coordination, it is possible that service provision to one set of stakeholders may interfere with service provision to another set of stakeholders. Actors at various levels of the power system can work together to ensure local power system conditions are considered when dispatching customer-sited resources. Better coordination also helps ensure that BTM resources are not double compensated for services they provide to the power system.

To Enable Active Service Provision 

  • Additional Metering and Communications Infrastructure. Additional communications technology infrastructure will be needed under active grid service provision approaches to monitor the state-of-charge of BTM storage devices, to send signals to systems to charge or discharge, and to ensure system operators and utilities can verify the response of these distributed systems to inform compensation.
  • Clarifying Roles for BTM Storage on the Grid. Providing system services with assets located on the distribution system and behind a customer’s meter represents a shift in traditional power system operation. Additional clarification from regulators on the types of services these systems can provide, and under what circumstances, can help developers and utilities better plan for the deployment of BTM storage services.
  • Regulations to Enable Business Model Innovation. Many customers lack access to the affordable upfront capital necessary to invest in energy storage systems. Additionally, many customers who install energy storage may lack the technical expertise needed to fully utilize the capabilities of their storage system, which is often dispatched to provide services in a relatively small number of hours, or as a small share of the total system capacity. Utilities and developers, conversely, do not have direct access to a customer’s premises but have access to capital and often have the sophistication and interest to dispatch BTM storage systems to provide additional grid services. Novel ownership models can help share the costs and benefits of BTM energy storage systems but may need regulatory approval or encouragement to mature.
  • Coordination Between the Transmission System, Distribution System, and Developer. Without proper coordination, it is possible that service provision to one set of stakeholders may interfere with service provision to another set of stakeholders. Actors at various levels of the power system can work together to ensure local power system conditions are considered when dispatching customer-sited resources. Better coordination also helps ensure that BTM resources are not double compensated for services they provide to the power system.
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