US energy storage will spread when better market design meets falling costs, says GTM analyst

According to GTM’s findings, two markets pinpointed by the report as leaders in the US for storage, the state of California and the area served by regional transmission operator (RTO) PJM, have installed 88% of the total 156MW of storage deployed in the US in the last 10 quarters. That includes both in front of the meter (utility or centrally controlled) and behind the meter (customer sited or distributed) segments.

Ravi Manghani, the report’s author, told PV Tech that the relative success of the two regions can be attributed to very different circumstances, specific to each.

PJM Interconnection is responsible for electricity transmission in and across more than a dozen states. PJM has shot to prominence in energy storage reporting, due to its introduction of a market structure that recognises the ability of battery-based energy storage to efficiently and quickly provide power to keep the grid running at the right frequency to keep it stable.

“The contributing factor to that is PJM’s adoption of Federal Energy Regulation Committee (FERC) Orders 755 and 784 that require independent system operators (ISOs) and RTOs to make rules for storage to participate in frequency regulation market,” Manghani said.

“…So this particular premium payment has made the economics of storage in PJM attractive.”

California, Manghani said, is dominating the US market for behind the meter residential and non-residential segments by deployment. At present this is being driven by the state’s self-generation incentive plan (SGIP), which subsidises the cost of deploying distributed resources, including solar and storage by about 60%. There is also an overlay of other drivers, including the use of storage to reduce demand charges, applied to commercial and industrial customers.

Turning point

According to the report, the storage market over the next five years will grow across the US until reaching 858MW by 2019, which GTM points out is 13 times bigger than the sector was in 2014 and around four times bigger than the analysis firm is expecting it to be worth over the course of this year.

Manghani said that since the drivers in California and the PJM service area are very specific to the same areas, it will not be a question of replicating the market conditions in each to foster deployment across the country. Instead, the combination of two general trends, firstly towards more distributed energy networks in many states – resulting in market design to accommodate flexibility resources such as storage – and the falling costs of storage, will converge, the analyst said. Along with California, New York is also already redesigning its energy networks at present to make the leap to integrating distributed platforms with its Reforming the Energy Vision (REV) initiative, for example.

“California and New York are probably leading that trend, we are definitely moving to an environment where the grid will be more distributed,” Manghani said.

“…We are seeing a lot of innovation happening around the edge of the grid which has opened up room for storage and other distributed resources, such as demand response, which in itself is a type of DER (distributed energy resource) asset.

“Other states are looking at behind the meter assets to participate in grid services today, but in the end if we see the growth in the way solar has grown, taking off in California, Hawaii, and we have solar installation in 40-plus states – so I hate to give this analogy – but as costs fall and the services storage can provide are recognised and we set up the right market conditions to enable monetisation of those value streams, we could see storage deployment across the US and not just in one or two states.”

For an in depth look at the drivers behind PJM and California's leading position for US storage installations and more insights from GTM's Ravi Manghani, visit PV Tech Storage.