Energy Storage Value Propositions

(1)

Energy Storage Value Propositions

Applications & Use Cases

Giovanni Damato | Manager, StrateGen Consulting, LLC

(2)

Goals: Overview of Energy Storage Value Propositions

Explain Grid Storage Market Developments—Especially

in California

Demonstrate the Strength of the Value Propositions for

Several Storage Use Cases

Propose How the Industry Can Take Advantage of the

Storage Market

(3)

Outline of Today’s Discussion

»

Introduction to Strategen, CESA, & the California Context

»

Framework for Understanding Storage Use Cases

»

Examples of Storage Value Propositions

 Customer Sited Standalone Storage

 Customer Sited PV + Storage

 Peaker Plant Substitution

 Frequency Regulation

 Permanent Load Shifting

 T&D Deferral

»

Questions & Answers

(4)

Strategen Overview

We combine strategic thinking with deep industry expertise to create sustainable value

Strategen Core Team »Deep industry knowledge in clean

energy; core focus on solar & storage

»Analytical and financial capabilities

»Strategic management expertise

»Product development & project construction experience

»Project leadership and management

»Industry-leading regulatory strategies

Corporations Exploring Clean Energy Opportunities Clean Tech Manufacturers / Service Providers

Private Equity / VC Firms Investing in Clean Tech » What is the value proposition of our product /

service?

» How can we develop a new product to differentiate our company and generate additional profits?

» Where are our profitable opportunities for growth?

» How can we alter regulations/policies in our favor?

» How can we use our competitive strengths to take advantage of opportunities in clean energy?

» How can we minimize risk to our firm and customers?

» How should we plan for future market evolution?

» With whom should we partner, and under what terms?

» What are the most valuable sectors of clean tech?

» What are the likely impacts of future regulatory changes?

» What value does a company’s products and services generate for its customers and for itself?

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Sampling of Strategen Clients

(6)

Storage leaders founded CESA in January 2009

Steering Committee

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About CESA

»

Core principles



Technology neutral



Ownership/business model neutral

»

No advocacy for ‘advocacy sake’. We are seeking tangible market results

»

Explicit support of renewable energy in our mission

»

Philosophy of ‘coalition building’ with all stakeholders – strength in diversity

»

We have limited resources, and so must be very focused in our efforts



California Legislature



CPUC



CAISO



CEC



CARB



FERC

Our Mission: Expand the role of storage technology to promote the growth of renewable

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Source: Strategen Consulting, LLC research; thermal storage installed and announced capacity estimated by Ice Energy and Calmac. Note: Estimates include thermal energy storage for cooling only. Figures current as of April, 2010.

Estimated Global Installed Capacity of Energy Storage

(9)

Why California?

» Its BIG: 13% of US GDP, 8th_{largest economy in the world (if it were a country), ahead of Canada}

and Spain

» ‘Foundational’ Legislation

 Energy Storage Procurement Targets: (AB 2514)

 RPS Legislation (SB 722, introduced)

 Self-Generation Incentive Program: SGIP (SB 412)

 Smart Grid Systems (SB 17)

 Global Warming Solutions Act of 2006 (AB 32)

 Solar Energy System Incentives: CSI (SB 1)

» Pro-storage policy makers in Legislature and at key agencies: California Public Utility Commission, Energy Commission & California Air Resources Board

» Incentives available for customer sited applications via SGIP and possibly PLS too

» Non-Generator Participation in Ancillary Services Stakeholder Process—California Independent System Operator (CAISO)

» Many CA storage projects currently underway

Energy storage is fundamental to many key California policy initiatives

that are shaping the storage market today

(10)

»

Framework for Understanding Storage Use Cases

»

 T&D Deferral

»

Questions & Answers

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Customer

+

Utility

+

System Operator

• Reduced energy and demand costs

• Emergency back up

• Demand response

• Improved reliability

• Load leveling

• T&D relief / deferral

• Improved power quality

• Reduce peak gen. and spinning reserve needs

• Ancillary services

• Grid integration

• Improved grid

reliability & security

Society

+

• More renewables • Fewer emissions • Healthier climate • More jobs

Energy storage is a cost effective approach providing numerous benefits to

many stakeholders

Energy Storage Enables Multiple Value Streams

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Application Matrix: Value Streams

Storage can address a wide range of utility value streams…

»

Electric Supply

»

Electric Energy Time Shift

»

Electric Supply Capacity

»

Ancillary Services

»

Load Following

»

Frequency Regulation

»

Electric Supply Reserve

Capacity

»

Voltage Support

»

Grid Operations

»

Transmission Support

»

Transmission Congestion Relief

»

Reliability (15 min. - 1 hour)

»

Power Quality (10 Seconds)

»

T&D Upgrade Deferral

»

Stationary

»

Transportable

»

Renewable Integration (Solar and Wind)

»

Ramping

»

Firming

»

Overgeneration

»

Generation shifting

»

Frequency Regulation

»

Distribution upgrade deferral due to

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Application Matrix: Value Streams

...as well as Commercial, Industrial, and Residential value streams

»

Time-of-use energy cost management

»

Demand charge management

»

Demand response

»

Permanent load shifting

»

Onsite renewable integration

»

Onsite renewable generation shifting

»

Retail participation in ancillary services

»

UPS replacement

»

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Application Matrix: Use Cases

A use case might be composed of one value stream…

»

Demand response

»

Onsite renewable integration

»

Onsite renewable generation shifting

»

Retail participation in ancillary services

»

UPS replacement

»

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…or many, using the same storage system…

»

Demand response

»

Onsite renewable integration

»

Onsite renewable generation shifting

»

Retail participation in ancillary services

»

UPS replacement

»

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In some cases, certain value streams may only be partially captured

Source: Jim Eyer and Garth Corey, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide, Sandia Report SAND2010-0815, February 2010

Benefit Type

Benefit Capture (% of Gross) Grid Operations

T&D Upgrade Deferral, 50th _{– 90}th _Percentile _100%

Transmission Congestion Relief 75% Power Quality (10 Seconds) 50%

Electric Supply

Electric Energy Time Shift 50% Electric Supply Capacity 100%

Ancillary Services

Electric Supply Reserve Capacity 75%

Voltage Support 50%

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Application Matrix: Ownership Models

There are multiple models for ownership, siting, and compensation,

each of which dictates a different storage project approach

Case Ownership Siting Compensation Mechanism

1 Utility Utility Rate Based 2 Customer 3 Merchant Utility

Rate Based/Service Contract 4

Customer

5 Site Host Service Contract

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Application Matrix: Technical Specifications

Use cases typically correspond to a set of technical specifications and

are eligible for certain rebates

»

Technical Specifications

»

Capacity (kW)

»

Duration

»

Cycle Life

»

Incentives

»

Federal: ITC, Utility

»

Federal: ITC, Customer

»

Self Generation Incentive Program (SGIP): CA

»

Permanent Load Shifting (PLS): Proposed, CA

»

Thermal/PLS

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Application Matrix: Overview

We have combined all of these factors onto a single grid

»

Value Streams

»

Use Cases

»

Ownership models

»

Technical Specifications

»

Storage Types

»

Incentive Eligibility

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Application Matrix: Exclusions

There are clearly a wide range of applications which are not covered

»

Off Grid (residential or commercial)

»

Military

»

Automotive

»

Delivery

»

Aviation

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Application Matrix: Work-in-Progress

The Application Matrix maps out and prioritizes potential use cases

Use Cases

Utility Commercial Residential

Sta tiona ry T&D Deferra l Sta tiona ry T&D Deferra l "Plus " Tra ns porta ble T&D Deferra l Tra ns porta ble T&D Deferra l "Plus " Centra lized Renewa ble Integra tion Dis tributed Renewa ble Integra tion Pea ker Pla nt Subs titutio n Frequency Regula tion CES

Off Grid/Microg rid Commercia l UPS /Ba ckup Commercia l PLS Commercia l PLS "Plus " Commercia l PLS "Plus " w/ Renewa ble s Off Grid/Microg rid Res identia l UPS /Ba ckup Res identia l PLS Res identia l PLS "Plus " Res identia l PLS "Plus " Renewa ble s

Value Streams (Benefit Capture % of Gross) Electric Supply

El ectri c Energy Ti me Shi ft 50% 50% 50% El ectri c Suppl y Ca pa ci ty 100% 100% 100% 100%

Ancillary Services

Loa d Fol l owi ng

Frequency Regul a ti on 50% 100%

El ectri c Suppl y Res erve Ca pa ci ty 75% 75% 75% 75%

Vol ta ge Support 50% 50% 50%

Grid Operations

Tra ns mi s s i on Support

Tra ns mi s s i on Conges ti on Rel i ef 75% 75% 75% Rel i a bi l i ty (15 mi n. - 1 hour)

Power Qua l i ty (10 Seconds ) 50% 50% 50%

T&D Upgrade Deferral

50th Percenti l e (Sta ti ona ry) 100% 100% 70th Percenti l e (Sta ti ona ry) 100% 100% 90th Percenti l e (Sta ti ona ry) 100% 100%

50th Percenti l e (Tra ns porta bl e) 100% 100% 70th Percenti l e (Tra ns porta bl e) 100% 100% 90th Percenti l e (Tra ns porta bl e) 100% 100%

Renewable Integration (Solar and Wind)

Ra mpi ng 100% 100% 100%

Fi rmi ng 100% 100% 100%

Overgenera ti on 100% 100% 100%

Genera ti on s hi fti ng 50% 50% 100%

Frequency Regul a ti on 50% 50% 50%

Di s tri buti on upgra de deferra l due to renewa bl es or EVs 100% 100%

Ti me-of-us e energy cos t ma na gement 100% 100% 100%

Dema nd cha rge ma na gement 100% 100% 100%

Dema nd res pons e 100% 100% 100%

Perma nent l oa d s hi fti ng 100% 100% 100%

Ons i te renewa bl e i ntegra ti on 100%

Ons i te renewa bl e genera ti on s hi fti ng 100%

Reta i l pa rti ci pa ti on i n a nci l l a ry s ervi ces 50% 50%

UPS repl a cement 100% 100% 100%

Power Qua l i ty (10 Seconds ) 100% 100% 100%

Emergency ba ckup (i s l a ndi ng) 100% 100% 100%

Ti me-of-us e energy cos t ma na gement 100% 100% 100%

Dema nd cha rge ma na gement 100% 100% 100%

Dema nd res pons e 100% 100% 100%

Perma nent l oa d s hi fti ng 100% 100% 100%

Ons i te renewa bl e i ntegra ti on 100%

Ons i te renewa bl e genera ti on s hi fti ng 100%

Reta i l pa rti ci pa ti on i n a nci l l a ry s ervi ces 50% 50% 50%

UPS repl a cement 100% 100% 100% 100%

Power Qua l i ty (10 Seconds ) 100% 100% 100% 100%

Emergency ba ckup (i s l a ndi ng) 100% 100% 100% 100%

Technical Specifications

Storage Size Range

Low ra nge ca pa ci ty (kW) 250 250 250 250 1,000 25 1,000 250 5 5 5 5 5 5 1 1 1 1 1 Hi gh ra nge ca pa ci ty (kW) 10,000 10,000 10,000 10,000 100,000 5,000 50,000 5,000 100 5,000 5,000 5,000 5,000 5,000 20 20 20 20 20 Low ra nge dura ti on (h) 2 2 2 2 1 1 4 0.25 1 0.25 0.25 1 1 1 0.25 0.25 1 1 1 Hi gh ra nge dura ti on (h) 5 5 5 5 4 4 8 2 4 8 8 10 10 10 8 8 10 10 10

Storage Tecnologies

Ul tra /Super Ca pa ci tors Mid Mid Mid Mid High High Mid High High Low Low High High High Low Low High High High Fl ywheel s Mid Mid Mid Mid High High Mid High High Low Low High High High Low Low High High High Ba tteri es

Fl ow Ba tteri es Low Mid Low Low Mid Low Low Low Mid Mid Low Low Low Low Low Low Low Low Low Lea d Aci d Mid Mid Mid Mid High High Mid Mid Mid High High High High High High High High High High Adva nced Lea d Aci d Mid Mid Mid Mid High High Mid Mid Mid High High High High High High High High High High Li thi um I on Mid Mid Mid Mid High High Mid High High Low Low High High High Low Low High High High Sodi um Sul fur Mid Low Mid Low Mid Mid Mid Low Low Low Low Low Low Low Low Low Low Low Low Zi nc Ai r Low Low Low Low Low Low Mid Low Mid Mid Mid Mid Mid Mid Mid Mid Mid Mid Mid

Therma l Stora ge

Chi l l ed wa ter Low Low Low Low Low Low Low Low Low Mid Low Mid Mid Mid Mid Low Mid Mid Mid

Hot wa ter Low Low Low Low Low Low Low Low Low Low Low Mid Mid Mid Low Low Mid Mid Mid

I ce Low Low Low Low Low Low Low Low Low Low Low Mid Mid Mid Low Low Mid Mid Mid

Mol ten Sa l t Low Low Low Low High Mid Low Low Low Mid Low Low Low Low Low Low Low Low Low Therma l Ma s s Low Low Low Low Low Low Low Low Low Low Low Mid Mid Mid Low Low Mid Mid Mid

Compres s ed Ai r Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Low Modul a r compres s ed a i r Low Low Low Low Low Mid Mid Mid Low Mid Low Mid Mid Mid Low Low Low Low Low Centra l i zed Low Low Low Low High Mid Mid Mid Low Low Low Low Low Low Low Low Low Low Low Pumped Hydro

On-s trea m Low Low Low Low Mid Mid Low Low Low Low Low Low Low Low Low Low Low Low Low Off-s trea m/cl os ed l oop Low Low Low Low Mid Mid Low Low Low Low Low Low Low Low Low Low Low Low Low

Ownership & Financing

Compensation/Ownership Models

Uti l i ty owned, uti l i ty s i ted, ra te ba s ed Yes Yes Yes Yes Yes No Yes Yes Yes No No No No No No No No No No Uti l i ty owned, cus tomer s i ted, ra te ba s ed Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe No No Yes Yes Yes No No Yes Yes Yes Mercha nt owned, uti l i ty s i ted, ra te ba s ed/s ervi ce

contra ct Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes No No No Yes Yes No No No Mercha nt owned, cus tomer s i ted, ra te ba s ed/s ervi ce

contra ct Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Yes Yes Yes No No Yes Yes Yes Mercha nt owned, cus tomer s i ted, s i te hos t s ervi ce

contra ct No No No No No No No No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Cus tomer owned, cus tomer s i ted, cus tomer s i de of meter

va l ue s trea ms No No No No No Ma ybe No No No No No Yes Yes Yes No No Yes Yes Yes

Incentives

Federa l : I TC, Uti l i ty No No No No Ma ybe Ma ybe Ma ybe Ma ybe No No No No No No No No No No No Federa l : I TC, Cus tomer No No No No No Ma ybe No No No Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe Ma ybe

Co mm erc ial Ap pli cat ion s Re sid en tia l A pp lica tio ns Uti lity Ap pli cat ion s

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Outline of Today’s Discussion

»

 T&D Deferral

»

Questions & Answers

(23)

Modeling Overview

CESA and Strategen have done extensive project-level financial

modeling for several use cases

»

Commercial customer sited and owned energy storage

–

Standalone systems

–

Renewables + storage systems

»

Peaker plant substitution

»

Frequency regulation comparisons

»

Permanent Load Shifting

»

T&D deferral

–

T&D-only application

(24)

»

 T&D Deferral

»

Questions & Answers

(25)

Potential Sources of Value for Distributed Storage

Many value streams and ownership models are possible within the

distributed storage market

Customer-owned storage for peak shaving & energy cost

Application

Ownership Model

Storage Market

Segment

Distributed Storage Utility

Peak Shaving/Energy Cost Management

T&D Deferral/Flexibility Ancillary

Services/Regulation Customer

Power Quality & Reliability Third Party

S

T

A

C

K

A

B

L

E

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Load Before Storage

» Load shifted from high cost peak to low cost off peak

» High Energy Costs ($/kWh)

» High Demand Charges ($/kW)

Load After Storage

Value Proposition for Behind-the-Meter Storage

Shifting load from peak to off peak is a primary source of value for

commercial customer-sited distributed storage

1 3 5 7 9 11 13 15 17 19 21 23

Baseline Load Post-Storage Load

Off Peak

Off Peak

1 3 5 7 9 11 13 15 17 19 21 23

Baseline Load

(27)

Commercial Load Profile

» Demand charges ($/kW)

 Season deviations (summer/winter)

 Peak demand

 Mid-peak demand

 All-hours demand

» Energy charges ($/kWh)

 Season deviations (summer/winter)

 Peak energy use

 Mid-peak energy use

 Off-peak energy use

» Other charges outside case study scope

 Power factor charges ($/kVAR)

 Critical peak pricing ($/kWh)

Commercial Electric Utility Tariff

Avoided Energy Cost Calculations

An optimized storage system balances two competing components:

customer load & electric utility tariff

1 3 5 7 9 11 13 15 17 19 21 23

Baseline Load Post-Storage Load

Off Peak

Off Peak

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Strategen’s Approach to Distributed Storage Modeling

1.

Select specific application and site details

2.

Define system specifications for the energy storage technology

3.

Optimize storage system size and operation to maximize avoided

energy cost and overall project IRR

4.

Model the project’s value proposition to the commercial customer

behind-the-meter

5.

Run sensitivities of key system specifications

Our approach is to model a specific application/project

at the system level for commercial-grade results

(29)

» Use: customer-sited 100kW, 4h duration storage system

» Ownership: All-equity turnkey purchase

» Battery round trip AC efficiency: 65%

» CAPEX: $700/kWh ($2,800/kW)

» O&M: $0.075/kWh discharged(2)

» Incentives: NONE

Case Study Value Proposition: General Overview

Storage Base Case: A 100kW, 4h battery system has an 8.2% IRR from

peak load shifting and avoided energy costs

Key Assumptions

(1)

Load Shape Impacts

Results

» After Tax IRR(3)_{: 8.2%}

» Annual Electric Bill Savings: $25,036

Storage Optimal Sizing

» Analyze net peak load

» SCE TOU8 Peak Period 12PM – 6PM

» Use storage to shave afternoon peak

1 3 5 7 9 11 13 15 17 19 21 23

August Peak Day Load Before & After Storage

(30)

Optimized Storage

Specifications

» Technology:

 Generic battery

 Reasonable assumptions

» Optimal Battery Size:

 Optimized for IRR

 100kW capacity  4h duration » Efficiency:  Round Trip AC to AC  65% » Tariff:

 SCE TOU8 Option B

 5% p.a. escalation rate

Year 1 Avoided Energy Costs with Storage

Case Study Optimized Avoided Energy Costs

First year avoided energy costs = $25,036 in savings

Tariff Component kW or kWh

Avoided Total Savings

Dem an d Sa vings ($/ kW ) All Hours 100 $14,673 On-Peak 100 $ 8,682 Mid-Peak 100 $1,757 En er gy Sa vings ($/ kW h ) On-Peak 22,168 $3,351 Mid-Peak 56,356 $5,270 Off-Peak (126,210) ($8,696) Total N/A $25,036

(31)

Expenses Incurred from Storage Systems

Capital Expenses (CAPEX)

» Planned vs. unplanned maintenance

» Annual variable O&M

 $/kWh discharged

 Cell stack replacement

» Annual fixed O&M

 Routine maintenance

» Periodic fixed O&M

 Inverter replacement

» Insurance costs

Operating Expenses (OPEX)

Installing and operating an energy storage system generates

capital and operating expenses

Case Study CAPEX

» $0.075/kWh discharged(1)

» 0.37%/yr Insurance cost (CAPEX basis)

» $700/kWh ($2,800/kW)

» All-in system installed price

Case Study OPEX

Cell Stack Controls Inverter

BOS (electrical, HVAC, Building) Design, PM, Permitting, etc. Installation

(32)

Value Proposition Drivers: CAPEX

0% 5% 10% 15% 20% 25% IR R CAPEX ($/kWh)

No Incentives SGIP 30% FITC SGIP + ITC

IRR vs. CAPEX for Various Incentive Regimes

CAPEX & Incentives have a significant impacts on customers’ returns

(33)

Value Proposition Drivers: Efficiency

IRR vs. Roundtrip Efficiency

Tariff Comparison (Summer)

Roundtrip efficiency for energy based electrical tariffs is a more

important driver than for demand + energy based tariffs

0% 2% 4% 6% 8% 10% 30% 50% 70% 90% IR R

Demand & Energy Charge Tariff Energy Only Tariff

Assumes $700/kWh CAPEX

_Tariff

Type

Demand & Energy

Energy Only

Tariff SCE TOU8

Option B SCE TOU8 Option A En er gy ($/ kW h ) On-Peak 0.1306 0.3110 Mid-Peak 0.0881 0.1276 Off-Peak 0.0613 0.0613 an d ( $/ kW ) All Hours 11.06 11.06 On-Peak 18.75 N/A

IRR Is Less Sensitive to Efficiencies >50%

(34)

Outline of Today’s Discussion

»

 T&D Deferral

»

Questions & Answers

(35)

Conceptual Overview of Storage + PV

Distributed Solar + Storage

Potential Value Streams

Base load

Load & Solar Generation

Net Load is Still Coincident with Peak Demand Charges

Storage to Shift Net Peak Load to

» Charge during off-peak and discharge during peak to reduce demand charges (similar to the standalone storage base case)

» Potential to capture new incentives in California: SGIP ($2/W)

» Potential to leverage 30% FITC for both technologies

» Firm up additional demand savings from renewables

» Can share inverter / power conditioning equipment with solar or other renewables

» Potential to provide emergency back up capabilities

(36)

» Use: customer-sited 100kW, 4h duration storage system coupled with 350kW of PV

» PV & storage share inverter

» Ownership: all-equity turnkey purchase

» Battery round trip AC efficiency: 65%

» CAPEX: $700/kWh ($2,800/kW)

» O&M: $0.075/kWh discharged(2)

» Incentives: $2/W SGIP

Value Proposition: PV + Storage Case

Storage + 350 kW PV system has an 18% IRR compared to the

Storage Only Base Case IRR of 8.2%

Key Assumptions

(1)

Load Shape Impacts

Results

(3)

» After Tax IRR: 18% (10% without SGIP)

» Annual Electric Bill Savings: $26,365

(1) SCE TOU8 tariff, CA high school load profile, PV assumptions the same as PV Only Case (2) This cost accounts for replacement costs of battery cells, parasitic loads, and consumables (3) Incremental value of storage only; PV savings netted out

Storage Optimal Sizing

» Analyze net peak load with PV system

» SCE TOU8 Peak Period 12PM – 6PM

» Use storage to shave afternoon peak

» 100kW, 4h battery

1 3 5 7 9 11 13 15 17 19 21 23

August Peak Day Load Before & After Storage

(37)

Outline of Today’s Discussion

»

 T&D Deferral

»

Questions & Answers

(38)

Energy storage is a cleaner alternative to natural gas

peakers

1) Assumptions from CEC Cost of Generation Model for simple cycle peaker and standard combined cycle for off-peak base load; generation mix based on annual report of actual electricity purchases for Pacific Gas and Electric in 2008 55% 85% 96% 77% 84% 0.00 0.25 0.50 0.75 1.00 1.25

CO2 NOx CO SOx PM10

lb s/M Wh ( lb s/G WH f o r C O 2 )

GHG & Air Quality Comparison

(39)

Storage is Cheaper & Cleaner than CT Peaker Plants

Gas-Fired Turbine Peaker Plant

Energy Storage Peaker Substitution

Costs Assumptions LCOG

($/MWh)

LCOG ($/kW-yr)

Installed Cost $1,394/kW $265 $109

Grand Total $492 $203

Costs Assumptions LCOG

($/MWh) LCOG ($/kW-yr) Installed Cost $1,351/kW ($338/kWh) $256 $105 Grand Total $377 $155

(40)

Confidential

Peaker Plant Substitution: Analysis Assumptions

39

Gas-Fired Peaker Plant1 Energy Storage Peaker Substitution2

General Assumptions

Technology: Simple Cycle Combustion Turbine

Plant Size 49.9MW

Efficiency 37% (9,266 Btu/kWh Heat Rate)

Ownership POU Owned/Financed

Project Life 20 years

Capacity Factor 5%

Plant, T&D Losses 6% (Centralized Plant)

General Assumptions

Technology: Lead-Acid Battery

Plant Size 49.9MW (4h duration)

Efficiency 84% (AC to AC Roundtrip)

Ownership POU Owned/Financed

Project Life 20 years

Capacity Factor 5%

Plant, T&D Losses 6% (Centralized Plant)

Costs Assumptions LCOG ($/MWh)

LCOG ($/kW-yr) Fixed O&M $24/kW/yr $69 $29

Corp. Taxes 0% $0 $0

Insurance 0.6% of CAPEX $23 $10

Property Tax 1.1% of CAPEX $29 $12

Natural Gas Fuel

$61/MWh $100 $41

Variable O&M $0.04/kWh $5 $2

Subtotal $227 $93

Costs Assumptions LCOG ($/MWh)

LCOG ($/kW-yr) Fixed O&M $6/kW/yr $17 $7

Corp. Taxes 0% $0 $0

Insurance 0.6% of CAPEX $22 $9

Property Tax 1.1% of CAPEX $28 $12

Off-Peak Grid Charging

$24/MWh3 $48 $20

Variable O&M $0.04/kWh $5 $2

Subtotal $121 $50

Costs Assumptions LCOG ($/MWh)

LCOG ($/kW-yr) Installed Cost $1,394/kW $265 $109

Grand Total $492 $203

Costs Assumptions LCOG ($/MWh) LCOG ($/kW-yr) Installed Cost $1,351/kW4 ($338/kWh) $256 $105 Grand Total $377 $155

Levelized Cost of Generation for Energy Storage is Less Than a Simple Cycle Gas-Fired Peaker

1

Source: CEC 2009 Comparative Cost of California Central Station Electricity Generation Technologies (CEC_COG_Model_Version_2.02-4-5-10)

2

Source: StrateGen Consulting, Levelized Cost of Generation Model

3

1) Source: CEC 2009 Comparative Cost of California Central Station Electricity Generation Technologies(CEC_COG_Model_Version_2.02-4-5-10) 2) Source: Strategen Consulting, Levelized Cost of Generation Model

3) Assumes most recent sample of average summer off-peak wholesale price from CAISO OASIS database

(41)

Additional System Benefits of Energy Storage

Energy storage provides multiple value streams above and beyond

peaker substitution, making the economic case for energy storage

even stronger

0 400 800 1200 1600 Le ve liz ed $/MW h Be n ef it Frequency Regulation

Transmission Congestion Relief

Electric Supply Reserve Capacity

Voltage Support

Electric Energy Time-Shift

(42)

Confidential

Additional System Benefits of Energy Storage

41

Fossil Fuel Societal, Grid, and Peaking Costs vs. Energy Storage Costs1,2 Avoided Costs Realized

Societal Level:

- GHG & Air Quality - Renewables Integration - Smart Grid Implementation - Streamlined Permitting

Grid System Level:

- Electric Energy Time-Shift

- Voltage Support

- Electric Supply Reserve Capacity

- Transmission Congestion Relief

- Frequency Regulation

Peaker Level:

- Peaker Plant Substitution

1

Assumptions: All energy storage technology costs shown are normalized for a four-hour duration; Technology comparison is for modern energy storage systems only, but does not include pumped hydro or high-speed flywheels which are not designed for long-duration peaking applications

2

Source: Average estimated total installed cost estimate from: Sandia Report SAND2008-0978, Susan M. Schoenung and Jim Eyer, Benefit/Cost Framework

0 500 1000 1500 2000 2500 In st al le d C o st ( $ /k W h )

High Estimated Total Installed Cost by Technology Average Estimated Total Installed Cost by Technology

Societal Costs

Grid System Level Costs

Peaker Substitution Costs

1) Assumptions: All energy storage technology costs shown are normalized for a four-hour duration; Technology comparison is for modern energy storage systems only, but does not include pumped hydro or high-speed flywheels which are not designed for long-duration peaking applications

(43)

Outline of Today’s Discussion

»

 T&D Deferral

»

Questions & Answers

(44)

Slow Ramping of

Conventional Generator

Flywheel Energy

Storage Example

1. Q1: Flywheels are more capable of following a faster, frequently changing Regulation signal

Sources Kirby, B. “Ancillary Services: Technical and Commercial Insights.” Wartsilla, July, 2007. pg. 13

Storage is more capable of following a faster,

frequently changing regulation signal

Fast-response energy storage provides near instantaneous response to a control signal

(45)

Frequency Regulation: Energy Storage is Cheaper,

Faster, & Cleaner than a Conventional CCGT

CESA compared a flywheel to a CCGT for the frequency regulation use

case with the flywheel outperforming a CCGT in all aspects

Base Case Results Flywheel1 CCGT Baseload

IRR 25.7% 7.0%

Payback Period (yr) 3.9 13.6

Lifetime Carbon Emissions (tons) 69,975 986,595

Flywheels have a >3.0x performance factor when

compared to traditional generators engaged in

(46)

Frequency Regulation: Analysis Assumptions

Project Specifications Flywheel CCGT Baseload

Plant Ownership Model Merchant Merchant

Project Tenor (yr) 20 20

System Capacity Dedicated to Regulation (MW) 20 20

Plant Heat Rate (Btu/kWh) N/A 7,050.0

Heat Rate Degradation N/A 0.0

Capacity Degradation 0.00% 0.24%

Plant Parasitic Losses 2.00% 2.90%

Efficiency 87.00% N/A

Efficiency Degradation 0.00% N/A

Installed Cost ($/MW) 1,900,000 1,021,000

Operation and Maintenance Costs

Fuel Cost - Conventional ($/MMBtu) N/A 4.31

Fuel Cost - Storage ($/MWh) 50.00 N/A

Fuel Cost Escalation Rate 1.53% 1.53%

Carbon Price ($/ton) 0.00 0.00

Carbon Price Escalation Rate 0.00% 0.00%

Revenue Assumptions Flywheel CCGT Baseload

Average Regulation Clearing Price ($/MW/h) 33.41 33.41

Regulation Clearing Price Escalation Rate 3.5% 3.5%

(47)

Sensitivities: Carbon Price and Performance Factor

Carbon Pricing

Performance Factor Effects

Carbon pricing will significantly affect conventional frequency

regulation, while the higher performing storage systems will surpass

conventional methods

0 50,000 100,000 150,000 200,000 0.0% 10.0% 20.0% 30.0% 40.0% 1.0x 1.5x 2.0x 2.5x 3.0x Li fetim e C ar b o n E m issi o n s (To n s o f C02) IRR Performance Factor $0.00 $17.00 CCGT 7.0% 3.1% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% IRR

(48)

»

Framework for Understanding Storage Use Cases

»

 T&D Deferral

»

Questions & Answers

(49)

Permanent Load Shifting Incentives are coming…

Via D.09-08-027, the CPUC ordered California utilities to study use of

a ‘standard offer program’ for permanent load shifting (PLS)

Utility study of PLS was completed 12/1/10:

What is PLS?

» PLS is not dispatched on a day-ahead or day-of basis

» PLS doesn’t respond to short term price fluctuations

» Eligible Storage Examples:

» Battery storage

» Thermal energy storage

» Shifting energy usage by one or more customers from one time period to another on a recurring basis

» Storing energy generated off peak and using it to support electric load on peak

» Value is captured for ratepayers through energy arbitrage and demand charge capture … and, potentially, incentives

(50)

Permanent Load Shifting Incentives are coming…

Avoided cost benefits range from $500 to over $2,500/kW peak

capacity depending on the shift’s duration and timing

1,2

1) The avoided cost benefits provided by PLS include electrical energy, losses, ancillary services, system (generation) capacity, transmission and distribution capacity, environmental costs, avoided renewable energy purchases. and integration benefits of load following and over-generation. These figures are calculated based on the kW value of the load shift and are ‘technology neutral’, and do not include benefits from other value streams. They assume the ‘best case’ operational profile in that they assume the maximum load shift every day of the year, and off-peak usage at the least cost period during the night.

2) The avoided cost benefits assume a 15 year equipment life. Many PLS technologies have longer life spans. At a 30 year life, the avoided cost benefits increase by approximately 30% $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 7 8 9 10 11 12 13 14 15 16 17 A vo id e d Co st B e n e fi ts $ /k W Pe ak Ca p ac it y R e d u ct io n

Shift Start Hour

1 Hour 2 Hours 4 Hours 6 Hours 8 Hours 10 Hours

(51)

PLS Business Model Overview: Customer Owned

» Return on investment

» Utility tariff(s) may change

» O&M Costs and

Performance risk

» What technologies are

available and viable?

» Customer must manage

any capital investment

» Utility can’t monitor or

» Utility does not need to

get involved

» Customer can choose

“any” equipment and control it for their

Benefits

Key Issues

Risks

Mitigants

» Program incentives

» Warranties

» End user owns and operates a PLS system

» End user benefits from any utility incentives, capital buy-downs, and potential electric bill savings

» Program marketed and administered by any 3rd party PLS Project Owned by Customer Utility •Provide Rebates or other incentives

•Set TOU Rates •Standard Billing to

reflect any savings

3rd Party

•Markets/Sells

EPC Contractor

(52)

PLS Business Model Overview: Utility Owned

» Host contract/easement

requires interaction with the property owner/lessee

» Unit Performance

» Liability of Utility

equipment on the customer premise

» Explaining to the host sites

that they may get marginal rate savings benefits from the utility equipment which operates invisibly

» Rapid rollout

» High volume pricing

benefits

» Utility can finance the

systems

» Utility can monitor,

dispatch and control units

Benefits

Key Issues

Risks

Mitigants

» Strategic site locations &

targeted feeders don’t require 100% saturation

» O&M Contract/

Warranties

» Standard Terms and

Easements

» Utility owns and operates PLS system (similar to having a transformer on a customer site under easement)

» End user is able to participate as a “host,” advertize their actions as “green initiatives” and obtain electric bill savings

» Program is controlled and directed by the local Utility (a reliable entity)

PLS Project

Customer is Host

Municipal Utility

•Set TOU Rates •Standard billing to

reflect any savings •Dispatch Control SCPPA •Site selection •Host contractual agreements •Conducts M&V EPC Contractor •Installs system •Ongoing O&M contract

(53)

Permanent Load Shifting Incentives are coming…

Many dimensions must be considered when designing PLS incentive

programs

(54)

»

 T&D Deferral

»

Questions & Answers

(55)

Utility Market: T&D Deferral + Other Value Streams

T&D deferral couple with multiple other viable benefits introduces

relatively lucrative use cases

Benefit Type Gross Benefit ($/kW-year) Benefit Capture (% of Gross) Net Benefit ($/kW-year) Grid Operations

T&D Upgrade Deferral, 50th _{– 90}th _Percentile _584-919 _100% _584-919

Transmission Congestion Relief 12 75% 9 Power Quality (10 Seconds) 93 50% 47

Electric Supply

Electric Energy Time Shift 77 50% 39

Electric Supply Capacity 75 100% 75

Electric Supply Reserve Capacity 20 75% 15

Voltage Support 56 50% 28

(56)

Utility Market Size Estimate

10 Year market projections range from 1GW to over 30GW depending

on the benefit targeted

Benefit $/kW-year

Potential MW 2008 Projection

Potential MW 2016 Projection

Benefit Type Low Mid High 10 years 10 years

Electric Supply

Electric Energy Time Shift 56 77 98 18,417 19,540

Electric Supply Capacity 50 75 99 18,417 19,540

Load Following 84 112 139 36,000 38,196

Area Regulation 109 195 280 1,012 1,074

Electric Supply Reserve Capacity 8 20 31 5,986 6,351

Voltage Support 56 56 56 9,209 9,771

Grid Operations

Transmission Support 27 27 27 13,813 14,656

Transmission Congestion Relief 4.3 12 20 36,834 39,081

T&D Upgrade Deferral, 50th Percentile 481 584 687 4,986 5,290

T&D Upgrade Deferral, 90th Percentile 759 919 1079 997 1,058

Reliability (15 min. - 1 hour) 50 93 136 9,209 9,771

Power Quality (10 Seconds) 50 93 136 9,209 9,771

(57)

Outline of Today’s Discussion

»

 T&D Deferral

»

Questions & Answers

(58)

Questions?

Giovanni Damato

Manager

2150 Allston Way, Suite 210 Berkeley, CA 94704 www.strategen.com O 510 665 7811 M 805 415 7354 F 888 453 0018 [email protected]

(59)

Appendix

»

Strategen Team

(60)

Strategen Team

Janice Lin, Managing Partner

» Founded Strategen in 2005. Also co-founded the California Energy Storage Alliance

» Has more than a decade of clean energy strategy and market development experience

» Prior to Strategen, served as VP of Product Strategy and VP of Business Development

at PowerLight. Former strategy consultant with Booz Allen and Hamilton

» MBA from Stanford GSB, BS from Wharton at the University of Pennsylvania

Chris Edgette, Director

» Extensive solar product development, engineering and field installation experience

» Prior to Strategen, founded and managed the Commercial Projects Division for

SolarCity. Prior to that, served as SolarCity’s Director of Field Engineering

» Led Construction Management for PowerLight, directed worldwide installations of

over 25MW and brought to market a successful non-penetrating rooftop solar system

Giovanni Damato, Manager

» Focused on developing the value proposition and strategic implications of Solar PV, Solar

Thermal, and Advanced Energy Storage for a wide range of key stakeholders

» Prior to Strategen, was Field Engineer for Granite Construction on Las Vegas Monorail

project. Also founded home construction business and certified CA Class B General Contractor

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Cash Flow Pro Forma: Base Case

Year 2011 2012 2013 2014 2015 2016 2026 2036 Period 0 1 2 3 4 5 15 25 REVENUE Demand Savings All-Hours 14,673 15,406 16,177 16,985 17,835 29,051 47,320 On-Peak 8,682 9,116 9,572 10,051 10,553 17,190 28,001 Mid-Peak 1,757 1,845 1,937 2,034 2,136 3,479 5,667 Energy Savings On-Peak 3,351 3,518 3,694 3,879 4,073 6,634 10,806 Mid-Peak 5,270 5,534 5,810 6,101 6,406 10,435 16,997 Off-Peak (8,696) (9,131) (9,588) (10,067) (10,571) (17,218) (28,047) Capacity Based Incentives (SGIP)

-EXPENSES

Annual Variable O&M (5,889) (6,007) (6,127) (6,250) (6,375) (7,771) (9,473) Insurance (1,036) (1,057) (1,078) (1,099) (1,121) (1,367) (1,666)

DEPRECIATION (40,012) (68,572) (48,972) (34,972) (25,004) -

-Earnings Before Taxes (21,901) (49,348) (28,575) (13,339) (2,068) 40,432 69,606

TAXES

State Tax (liability) / benefit at 8.84% 2,524 1,738 1,062 475 (38) (3,574) (6,153) Federal Tax (liability) / benefit at 35.00% 6,782 16,663 9,630 4,502 737 (12,900) (22,208) Total State & Federal Taxes 9,306 18,402 10,691 4,977 699 (16,475) (28,362)

Net Income (12,595) (30,946) (17,883) (8,361) (1,369) 23,958 41,244

FREE CASH FLOW TO EQUITY

Storage CAPEX (280,000)

Inverter Cost Reduction

-Net Storage CAPEX (280,000) Federal Investment Tax Credit -Adjustments to Net Income

PLUS: Depreciation 40,012 68,572 48,972 34,972 25,004 -

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-Detailed Avoided Energy Costs

Commercial electric tariff structures are complex!

Finding the optimal dispatch strategy for the storage system

requires attention to detail:

Annual Month

Avoided Energy Cost ($) Total 1 2 3 4 5 6 7 8 9 10 11 12

Storage Only Demand Savings All Hours 14,673 1,088 1,152 1,280 1,280 1,280 1,280 973 1,280 1,280 1,280 1,280 1,216 On-Peak 8,682 - - - 2,171 2,171 2,171 2,171 - - -Mid-Peak 1,757 - - - 611 306 489 351 - - -Energy Savings On-Peak 3,351 - - - 754 862 922 813 - - -Mid-Peak 5,270 679 666 418 233 584 255 211 216 228 433 643 702 Off-Peak (8,696) (792) (775) (571) (290) (670) (876) (856) (902) (843) (558) (750) (815) Annual Month

Avoided Energy & Demand Total/Max 1 2 3 4 5 6 7 8 9 10 11 12

Storage Only

Demand Savings (Max kW)

All Hours 100 85 90 100 100 100 100 76 100 100 100 100 95

On-Peak 100 - - - 100 100 100 100 - -

-Mid-Peak 100 85 90 100 100 100 100 50 80 58 100 100 95

Energy Savings (Total kWh)

On-Peak 22,168 - - - 4,989 5,701 6,103 5,376 - -

-Mid-Peak 56,356 7,384 7,248 4,551 2,540 6,349 2,502 2,069 2,121 2,235 4,715 6,998 7,642

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Modeling Storage Value Propositions is a Challenge

Collect Site/Project Specs

Optimize Avoided Energy Cost with or without

Storage Model Value Proposition

Generate Results & Iterate

Storage Sizing/Specs Peak Demand Shifting Energy Cost Management Avoided Energy Costs from DG and Storage Avoided Energy Costs Baseline Load Profile

Distributed Generation

Utility Tariff

Ownership Model (Turnkey Purchase or

Third Party PPA)

Financial Assumptions (Discount Rate, Taxes, etc.) Federal Investment Tax Credit

State Incentives & Utility Rebates Pro Forma Output

(Cash Flows, NPV, IRR) Storage and DG CAPEX & OPEX

Standard Financial Results

Customized Results Fuel Cell

Generation (Electric & Heat)