Cost Analysis: Making Hybrid Systems Pencil

The expectation going forward is that as PV and storage costs fall further and performance improves over the next several years, and as developers further enhance system software, solar-plus-battery investments will pencil in more states, and likewise for a broader roster of corporate and multi-tenant property types, configurations and locations.

Solar-plus-battery energy systems remain expensive. However, as photovoltaic and energy storage costs fall further and performance improves over the next several years, and as developers further enhance system software, the investments is expected to pencil in more states, and likewise for a broader roster of corporate and multi-tenant property types, configurations and locations.

Indeed, according to a just-published analysis by the Rocky Mountain Institute, Homer Energy and Reznick Think Energy, solar-plus-battery systems over the coming decade or so might even become a cheaper overall electricity source than the local grid for many commercial customers paying high utility rates. “Solar-plus-batteries enable customers to cut the cord to their utility entirely,” the authors concluded.

And indeed, experts fully expect that the costs of adding distributed storage capabilities to PV and other distributed generation assets will decline notably over the coming decade. In a recent webinar, Navigant Research senior analyst Sam Jaffe projected that costs of stationary Lithium-ion storage batteries will fall 60 percent or more by the early 2020s, presumably boosting market penetration.

Those costs are now in the vicinity of $500 per kilowatt-hour of storage capacity, compared to $200 to $250 for Li-ion batteries installed in smartphones and other smaller electronic devices. But Jaffe said he expects stationary costs to continue falling steadily in coming years, possibly ending up below $200 per by 2020 or so. “The chance we’ll see (pricing) go significantly below $200 per kilowatt-hour is definitely there,” he said, predicting that would likely spawn wider adoption around the turn of the decade.

Furthermore, given the ever-advancing effectiveness of the underlying system software, properties do not need a lot of storage capacity in order to significantly reduce exposure to peak-rate pricing and hence make these systems attractively cost effective in high-rate territory, explained Steve Kelley, senior vice president with solutions developer Green Charge Networks, who co-hosted the webinar with Jaffe.

Total installation costs of complete enclosed storage/inverter units with 10-year warranties (including permitting) are typically beyond $1,600 per kWh today, Kelley noted. But he is likewise anticipating further declines of perhaps 15 to 20 percent next year alone, as production and distribution processes and technology efficiencies all continue to improve.

Meanwhile, in high-rate locations, investments in storage systems alone are typically paid back through savings in no longer than five years, and often well below three years. And combining batteries with solar PV generation capabilities should generally cut the payback by another year or more: to three to four years generally, but as little as 18 months under the most punitive tariff structures, Kelley specified.

Cost-benefit analyses should also take into account that solar-plus-battery systems can offer valuable additional attractions. Logically, a charged battery system can act as an emergency backup power supply when grid transmission is disrupted, even when the sun isn’t shining. These systems also allow for efficient participation in money-saving “demand response” programs, through which utilities signal customers with pre-planned procedures for temporarily cutting back loads when aggregate demand is expected to be exceptionally high.

And owners of some battery storage systems can generate meaningful revenues by providing frequency regulation services to utilities and grid operators, which can help these investments pencil out. But as Kelley pointed out, battery storage technologies that most effectively shave peak-rate expenditures do not necessarily operate efficiently in the frequency regulation arena, and vice versa.

Meanwhile, as is so often the case in applying emerging technologies, the solar-plus-battery combination faces what GTM Research senior smart grid analyst Zach Pollack characterized as a “Catch -22” for systems developers as well as their commercial customers. “It’s hard to get financing until they’re proven to be effective, and it’s hard to prove them effective until financing is more available.”

Hence, along with developers’ ability to devise “repeatable and scalable” models, he pointed out, near-term growth in market penetration becomes a matter of finding customers willing to “take the plunge first and take the risk on their balance sheet in order to start setting a precedent for some of these projects.”

But predictably during these early years, specialty players are offering an array of financial model alternatives to outright ownership by the property owner, including equipment leasing, third-party (investor) ownership, no-down-payment plans, performance-based payment structures and savings guarantees.

For more on the emerging combination solar-plus-battery energy alternative, see “Dual-Pronged Attack” in the May 2014 issue of Commercial Property Executive.