How Do Energy Storage Systems Save Money And Reduce Energy Bills

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Ever since the discovery of electricity, storing energy for on-demand purposes has always be a sought-out method. Over the last several decades, industries have evolved and adapted innovations to meet the changing energy requirements. Due to the growing concerns regarding energy consumption and environmental impact, solar panels and wind turbines became a popular way for generating energy. However, fossil fuels continue to overshadow these renewables in various industries. Solar panels and wind turbines are capable of generating energy at a much lower cost that fossil fuels, but renewables are highly dependent on availability of sunlight or wind to produce energy. Fossil fuels, on the other hand, can produce electricity at any time, thus making them more reliable than renewables.

Energy storage systems show promise due to their ability to eliminate the limitations of solar panels and wind power systems. Among the wide range of energy storage technologies, Lithium-ion batteries have gained a lot of popularity due to many reasons like:

Li-ion batteries last longer than lead-acid batteries, and can even offer a rated service life of 10 years.
Li-ion batteries can adapt to all project sizes due to their modular designs. This was the key factor which led to the tremendous success of solar panels.
Considering the versatility, companies like Tesla use Li-ion batteries, which contributed to the rising popularity of batteries.

One of the major hurdles for energy storing technologies is the upfront cost. Like other technologies, the upfront cost is the main limitation for Li-ion batteries. Even for smaller residential battery systems, the cost exceeds $800/kWh. However, the International Renewable Energy Agency (IRENA) had forecasted that energy storage could become 66% cheaper by 2030.

One of the biggest news that would greatly benefit the energy storing industry is when Elon Musk announced the Tesla Battery Day on September 2020. Tesla announced a cost reduction of 56% for batteries within 3 years. A 56% reduction in cost would translate into the ROI going up by twice and the payback period going down by half.

Energy Storage: Costs, Benefits and Incentives

Energy storage systems is viable and makes sense for building owners when the savings are higher than the ownership costs. The cost performance of energy storage is greatly influenced by the local electricity prices and government incentives, and also the project location considering the shipping and installation costs.

Based on an IEEE Spectrum article, the energy storage costs must drop to $20/kWh for operating the electricity grid with only solar panels and wind turbines. This is a major challenge for the industry and highly unlikely in the near future. However, an easier option would be a power grid that relies on renewables for over 90% of the time and has an energy storage cost of $150/kWh.

For buildings, there are 2 main ways of reducing electricity bills with energy storage. A low-cost power source is required for both the cases.

Trimming the peaks in consumption by storing energy for buildings that are charged for peak demand.
In buildings with time-of-use tariffs, energy storage can be configured for reducing energy consumption during high-cost periods. In such cases, energy stored during low-cost periods can be utilized at high-cost periods.

The US offers a federal tax credit of 26% for renewable energy systems including solar panels and small-scale wind turbines as of 2020. Energy storage systems can also help getting tax credits, if they get at least 75% of their charge from a renewable generation system.

Reducing Power Bill Charges with Energy Storage

Buildings with demand charges can configure an energy storage system to keep the total power consumption below a specified value. For example, if a building is charged $40 per kW of demand, a peak demand of 500 kW leads to a $20,000 monthly charge. In this case, an energy storage system that reduces peak demand by 150 kW saves $6,000 per month. This concept is called peak shaving.

Buildings with time-of-use tariffs can also save with energy storage, but following a different approach. In this case, the energy storage system must be charged with a cheap source of electricity:

Generating electricity on-site at a low cost.
Using electricity from the grid when the lowest kWh prices apply.

If low-cost electricity is stored in batteries, it can be used when power companies are charging the highest tariffs of the day. This typically occurs when the grid is experiencing peak demand.

Electric companies often give credit if you sell surplus generation, but they normally pay the wholesale kWh price instead of the retail price. For this reason, a kWh that is stored and used later normally yields a higher benefit than a kWh sold. For example, a surplus generation of 1,000 kWh is only worth $120 with a feed-in tariff of 12 cents/kWh. However, this same energy is worth $400 when used to avoid a peak tariff of 40 cents/kWh.