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Massachusetts Incentivizes Batteries as an Energy Efficiency Measure

About the Author:

Headshot of Yolanda Duperret, General Manager and Chief Financial Officer at Independent Power Systems

Yolanda Duperret

Yolanda is the CFO and General Manager of Independent Power Systems and operates out of the Boulder, Colorado office. She holds a Master’s Degree in Finance/Accounting from Thunderbird School of Global Management and is fluent in Spanish, French, and Portuguese. She enjoys spending time with her four children (two of them are furry), beekeeping, and aligning herself with organizations such as CO Rising and 350.org to support common-sense measures that protect the health and safety of our communities and transition them sustainably towards a renewable economy.

For the first time ever, behind-the-meter (distributed) battery storage in Massachusetts has been included in a state Energy Efficiency Plan. Program details and implications were unveiled on April 4, 2019 (see full CEG report).

This is a significant direction forward in recognizing the value of stored energy. Why is this significant?

Historically, the value of energy efficiency has been measured by the overall load, or energy reduction. For example, LEDs are a known efficiency reduction measure that has been incentivized for years to replace existing incandescent light bulbs. LEDs are three times more efficient, which means you will use 75% less energy than with incandescent lighting. Similar new technologies, especially those rated by Energy Star, are designed and incentivized to reduce energy consumption in one’s home or business.  

Battery storage as an efficiency measure, however, is unique in that it does not reduce overall energy consumption. Instead, an energy storage system is capable of peak demand reduction (peak shaving or peak shifting) and can shift consumption to non-peak times to reduce expense.

Think of batteries in terms of storing excess energy for a “rainy day” (literally speaking if it’s an off-grid application). As a utility, dealing with peak demand is very challenging and costly to both utilities and consumers alike. The fundamental requirement of the utility is to be able to provide reliable power to all of their customers at all times of day which is an immense responsibility. The most challenging part is providing constant power quality 24/7…no vacation, holidays, or sick days.

Utilities rely fundamentally on two types of power plants to achieve this: baseload plants which operate continuously and “peaker plants” to support the grid by responding to variable high power (peak) demands. These peaker plants are expensive to operate, used intermittently, and run inefficiently. Batteries reduce the cost per kilowatt (kW) of peak power* by dispatching stored energy during times when peak demand (and costs) are high, thereby providing measurable and significant consumer utility cost savings. There are a number of other measurable benefits such as providing continuous energy during power outages and other distributed cost benefits.

For the first time ever, behind-the-meter (distributed) battery storage in Massachusetts has been included in a state Energy Efficiency Plan. Program details and implications were unveiled on April 4, 2019 (see full CEG report).

This is a significant direction forward in recognizing the value of stored energy. Why is this significant?

Historically, the value of energy efficiency has been measured by the overall load, or energy, reduction. For example, LEDs are a known efficiency reduction measure that has been incentivized for years to replace existing incandescent light bulbs. LEDs are three times more efficient, which means you will use 75% less energy than with incandescent lighting. Similar new technologies, especially those rated by Energy Star, are designed and incentivized to reduce energy consumption in one’s home or business.  

Battery storage as an efficiency measure, however, is unique in that it does not reduce overall energy consumption. Instead, an energy storage system is capable of peak demand reduction (peak shaving or peak shifting) and can shift consumption to non-peak times to reduce expense.

Think of batteries in terms of storing excess energy for a “rainy day” (literally speaking if it’s an off-grid application). As a utility, dealing with peak demand is very challenging and costly to both utilities and consumers alike. The fundamental requirement of the utility is to be able to provide reliable power to all of their customers at all times of day which is an immense responsibility. The most challenging part is providing constant power quality 24/7…no vacation, holidays, or sick days.

Utilities rely fundamentally on two types of power plants to achieve this: baseload plants which operate continuously and “peaker plants” to support the grid by responding to variable high power (peak) demands. These peaker plants are expensive to operate, used intermittently, and run inefficiently. Batteries reduce the cost per kilowatt (kW) of peak power* by dispatching stored energy during times when peak demand (and costs) are high, thereby providing measurable and significant consumer utility cost savings. There are a number of other measurable benefits such as providing continuous energy during power outages and other distributed cost benefits.

It’s important to note that these energy efficient incentives are not for the installation of batteries, but rather for reducing peak power demand. In other words, this is a performance-based incentive rather than a rebate. These incentives are in addition to SMART program incentives and battery storage adders so consumers can value stack energy cost savings.

Unlike the SMART program, however, the energy efficiency plan does not require batteries to be paired with solar; although, this is the cleanest, most resilient, and most cost-effective way of both producing energy and then storing it over the long-term. Solar plus storage also affords consumers the ability to zero out their utility bills by offsetting kilowatt hours in addition to peak power and take advantage of substantial federal and local tax incentives to help reduce upfront installation costs.

Program Specifics:

  • Participants are required to purchase their own battery system. There are several financing options for both residential and commercial consumers that can relieve the owner of fronting the upfront costs. This can afford the use of available cash on hand for other planned capital expenditures.
  • Participants will sign a 5-year agreement which allows the utility to send a signal to consumers to “dispatch” their stored energy to shift peak power.
  • Duration of expected discharge is in 3 hour blocks and may vary with each utility.
  • Participants are not required to respond to the utility’s signal and choose instead to maximize storage benefits to avoid peak demand charges. This is a crucial consideration for calculating peak demand cost savings and warrants extra attention to maximize storage benefits.  The issue is that the utility signal may overlap the consumer’s need to peak shave to avoid costly peak demand charges. In Massachusetts, peak hours are defined as from 9 am -11 pm which unfortunately does not align with real-time peak events, so this definition is in flux and may vary by utility.  Ultimately, the question from the consumer’s standpoint becomes “can I maximize the value of both the peak power cost savings in addition to the energy efficiency incentives?”

The energy efficiency incentives are calculated by applying a seasonal incentive rate of $100 during the summer and $25 during winter. This is multiplied by the maximum average load reduction over a 3 hour block.  (See pg 19 for example scenarios in CEG’s report). For a 60 kWh battery system, the estimated maximum incentive is $2,500 each year or $12,500 over 5 years.

Choosing Your Battery Options:

It’s a wildly evolving new market space for battery solutions, which the industry has only witnessed over the past 3 years. It’s important to understand that not all battery solutions are all-encompassing. Once you begin the journey in looking at battery storage options, you will often hear or read about industry terms such as “peak shaving”, “demand response”, “energy arbitrage”, “self-consumption”, “resiliency” or ”back-up power” and/or “microgrids”. While one option may satisfy your need to peak shave and save on costly demand charges from the utility, it may not have the capability of backing up your whole house or facility or even critical loads.

Maintaining power during power outages is an increasing concern as storms along the New England coast are an ever clear and present danger. Lost production for businesses, in particular, wracks up billions of dollars in lost revenue each year (read the Centrica Resilience report). In some cases, loss of production is not an option for critical services such as hospitals, first responders, and the like.

Asking the right questions and prioritizing your motivations when considering battery storage solutions is key to maximizing your return on any investment. Whether you’re further along in your battery project or just starting out, we’re happy to take a look to ensure you’re getting the most out of your energy storage solution and answer any questions you may have.

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