Surging demand for electricity, soaring electricity prices, and risks to supply chains are creating an imperative for innovative ways to control energy costs, and increase resilience by diversifying commercial and industrial power sources.
U.S. electricity prices are soaring amid growing demand, extreme temperatures, gas price volatility, inflation, and the cost of new grid infrastructure and upgrades. Inflation, including rising energy costs, was a factor in the recent U.S. election, and it is unclear whether the President-elect Trump will be able to keep his promise to lower energy bills by boosting energy production, because production rates are at the mercy of producers.
COMMENTARY
Meanwhile, recent power disruptions in the wake of Hurricane Milton offer a powerful illustration of the growing grid reliability challenges caused by severe weather events. Despite gains in energy efficiency, overall demand for electricity will increase over the coming decade with the accelerating electrification of sectors from heating to transport. Combined with increased demand from accelerating reindustrialization and electrification of industry, this could increase costs and energy supply risks for key US industries ranging from semiconductors to electric vehicle manufacturing.
There is a need for more diverse solutions including onsite solar generation and storage to provide more affordable, secure power for commercial and industrial buildings, and simultaneously offer more flexible capacity for grids. Commercial and industrial building owners adding energy storage will maintain their connection to utilities, because the economic returns are realized during on-grid operation. Even though energy storage is typically purchased for the economic benefits to the building owner, battery energy storage systems, or BESS, can also become an asset to the wider community, including increasing grid reliability and flexibility while reducing the need for expensive transmission upgrades.
The Energy Challenge for U.S. Industry
There has been an estimated 28% rise in U.S. electricity prices since 2019, driven by a potent cocktail of inflation, surging demand, volatile gas prices, and the costs of adapting grids to higher temperatures. Energy-intensive industries face high demand charges, in addition to rising rates per kilowatt hour. There is a correlation between a higher proportion of renewable generation and more fluctuating, complex tariffs, and energy storage is well-suited to monetize these complex rate structures.
This comes amid a projected 13% to 15% annual increase in energy demand driven by resurgent U.S. manufacturing and the digitalization and electrification of the economy, jeopardizing power supplies to industries such as manufacturing. The U.S. is already facing power grid congestion, worsened by the estimated 2,600 gigawatts of new energy and storage capacity currently stuck in interconnection queues. To compound the problem, increasing extreme weather events are undermining grid reliability.
As U.S. industries increasingly switch to electric power, they are exposed to increasing prices and supply risks. At the same time, America’s accelerating reindustrialization and industrial electrification is putting extra strain on power grids. Increasing electricity supply risks and costs are creating an urgent need to diversify commercial and industrial power sources, ensuring more resilient and affordable supplies.
Pioneering Industries Adopt Storage and Generation
Pioneering energy-intensive industries are now reducing their energy costs by adopting smart onsite BESS that reduce costs and provide backup power. These technologies strategically store surplus energy, often from on-site solar energy during times of the day with lower time-of-use (TOU) rates, and discharge during times with higher time-of-use rates, simultaneously reducing energy costs and relieving the burden on the grid.
In addition, utilities in California and other states charge customers based on their highest monthly consumption, typically in 15-minute intervals. Some U.S. industrial facilities have been using BESS for demand charge management, where power is discharged when high demand is forecast, to reduce the demand charges. Another revenue stream is time-of-use management, where batteries can be discharged during the time of day with the highest TOU rates. For example, California’s TOU rates are lowest during peak times for solar generation at midday. Battery energy storage systems enable this solar power to be stored and discharged in the evening when TOU rates are at their highest, both reducing energy costs and relieving demand on the grid. Modular BESS can now be rapidly assembled onsite and scaled up in line with demand, ensuring it can also adapt to increased commercial and industrial energy needs.
With extreme weather events creating more grid reliability challenges, onsite battery energy storage also provides backup power for critical industrial facilities in the event of power grid outages. Intelligent software is required to enable batteries to strategically discharge energy to flatten out frequency or voltage fluctuations, preserving power quality as well as continuity.
Crucially, onsite storage can convert energy from net cost to net revenue by enabling commercial and industrial buildings to reduce consumption when it would most benefit the grid. There are also a range of additional revenue streams for commercial and industrial buildings from providing frequency and voltage regulation to demand response services for grids. Adopting these technologies could transform commercial and industrial facilities from a drain on electricity supplies into a potential distributed energy resource for power grids.
Market Opportunity in Distributed Energy Resources
Increasing recognition of the returns that may be earned is fueling a growing market for commercial and industrial energy storage. Analysts predict the U.S. distributed energy resource (DER) market could grow to a $68-billion-a-year industry by 2027, with distributed storage alone set to grow by 460%. Industrial and manufacturing flexibility could reach 45 GW over that timeline, creating a major revenue opportunity for industrial facilities with onsite generation and storage capacity. In this way, BESS can be mutually beneficial for utilities and their customers, simultaneously reducing energy costs and generating extra revenues for building owners while relieving demand and providing flexible capacity for the grid during peak periods.
At state level, New York has been pioneering a policy that aims to get 70% of its electricity from renewable sources by 2030, and also plans to draw a significant share from DERs. This model has seen everything from small-scale to community-scale battery installations providing a diverse range of power sources to ensure flexibility and resilience during peak periods such as heat waves. High-powered BESS can support community-scale storage projects co-located with renewable energy production that provide front-of-the-meter flexibility for power grids. For example, Socomec has helped roll out microgrids for the Corrèze rural community in southern France, harnessing solar photovoltaic installations and battery storage to provide continuous power in the event of outages.
These examples point the way forward to a more flexible and multi-faceted clean electricity network based on a complimentary relationship between utilities and customers with onsite energy storage and generation.
A New Model of Distributed Power
As the Inflation Reduction Act (IRA) and CHIPS and Science Act spur a reindustrialization and manufacturing renaissance and surging demand for power, this could create new costs and risks for U.S. manufacturers and industrial facilities. As rising extreme weather events, surging demand, and the transition to intermittent energy sources creates more volatile electricity costs and supplies, there is a growing need for commercial and industrial facilities to diversify power sources to create more resilient, affordable electricity supplies.
There are also growing financial incentives with the IRA including a 30% tax credit for battery energy storage installations, and the Modified Accelerated Cost Recovery System income tax deduction allowing businesses to recover some of the cost of battery energy storage systems over time. Utilities are also increasingly paying customers with BESS to provide flexible capacity.
Just as edge computing helped provide secure, low-cost distributed data processing and relieve demand on remote data centers, DERs can provide more reliable, affordable onsite energy and relieve demand on grids. Ultimately, these can also provide essential flexibility and resilience for power grids as demand increases and the transition to renewable energy accelerates.
—Chuck Rames is Business Development Director, Energy Storage, North America at Socomec Group.
