Demand Peak Reduction
Most utilities charge customers not only on energy consumption but also on their peak power use since transmission costs are a function of power and not energy as bigger infrastructure (cabling, contactors etc.) is needed to distribute higher power loads. Furthermore, at times of high-power demand, many utilities must supplement their normal power production with underutilize and more expensive sources of generation such as gas combustion turbines ($179-$230/MWh) compared to base load generation ($61-$151 /MWh).
An energy storage system (ESS) can save money when installed by the utility (in front of the meter) or by the electricity customers (behind the meter) by storing energy at times of low power consumption and deploying it at times of high-power consumption thus reducing the maximum power the utility must deliver to the customer.
Demand charges are based on power consumption not on energy, therefore behind the meter ESS technologies have unique value potential for demand charge reduction since ESS capital costs are a stronger function of energy stored than power delivered. For many building load profiles, it takes a relatively low amount of energy to reduce peak power levels since these peak power periods occur over a short time. Thus, having an ESS with high power capability, high energy efficiency and low latency such as batteries or capacitors is an attractive option for demand charge reduction. Electrochemical storage devices deliver the highest value for demand charge reduction especially with systems that have larger power to energy ratios.
The electric power grid transmits power from a generator to the end user using alternating current (AC) operating at a specific frequency (60 Hz for North America). If demand attempts to be higher than supply the frequency will fall slightly, and vice versa, requiring continuous modulation of generation. Lack of precise and fast regulation control would lead to brownouts. Rapid fluctuations in the grid frequency have increased because of the increasing penetration of highly variable renewable resources. FR is the second-by-second adjustment of electrical power generation to maintain grid frequency at 60 Hz to ensure grid stability. Spinning and non-spinning reserve can be used as secondary and tertiary response respectively if necessary
Payment for FR services vary depending on the contract set by the grid operator, however generally the payment for regulation has two components. First, responders are paid for the capacity that they commit to providing to FR and is paid each time the services is used or it is paid on an annual basis regardless of the number of times the service is provided. This is sometimes called the "capability" price and has units of $ per MW of capacity. Second, when a responder is called on to increase or decrease output in response to a frequency deviation event, it is paid for the energy that is produced or absorbed. This is sometimes called the "performance" payment and is often set equal to the real time price energy with units of $ per MWh. Batteries and Capacitors have the profitable ability to both produce and absorb electricity from the grid.
The macro electricity power demand of the consumer fluctuates substantially throughout the day and seasons, leading to peaks and troughs for daily, seasonal, and annual energy consumption that the electricity utility must provide to the grid. Ideally the utility would provide constant power to the consumer as this would make sizing of power-generation simple and efficient, however this is not the case. In most areas of the developed world the grid must be able to generate enough power for the potential highest peak in energy consumption to avoid blackouts. This leads to over sized generation plants and consequently increased capital expenditure and cost for the consumer. A solution to this problem is storing energy when consumption is low and deploying it when the demand rises thus getting closer to a constant power generation.
Depending on local legislation the energy price ($/kWh) can fluctuate throughout the day. Energy can be purchased, charged, and stored when demand and price is low; and can be sold, discharge, and released back to the electricity grid when demand and price rises. This is possible on the both the generation side (day-ahead and real-time markets) and on the load side (time-of-day tariff), both with give potential performing energy arbitrage.
The increase of catastrophic weather events due to climate change has caused many grids to become less reliable. For this reason, along with the dropping costs of Li-ion batteries many homeowners and businesses have started installing energy storage systems to increase their resiliency to these blackout events. These are generally customers who do not expect a return on investment and our willing to pay a premium for the luxury of a resilient power supply.