GELI Outlines Energy Storage Financing Options

Energy storage at Portland General Electric's Salem power plant
Portland General Electric's Salem Smart Power Center includes
a large-scale energy storage system.

Energy storage is continuing to gain traction in the commercial and industrial (C&I) space as well as among utilities, thanks to the large variety of additional services it promises to provide. However, many customers are still curious about its tangible value and savings.

In an attempt to answer these questions, Growing Energy Labs Inc. – also known as GELI, an intelligent energy software and analytics company – hosted a webinar series. The first event was called “Solar + Storage : Why 1 + 1 =3.” It addressed the additional value a storage system can add in combination with solar PV. The second one was called "Solar + Storage : Risk Mitigation and Monetization."

The first webinar was hosted by Andrew Tanner, vice president of business development at GELI.

“When you visualize water as a metaphor, it can help in communicating the difference between power and energy,” Tanner said. “The utility sells you buckets of water, which is kWh. Then they measure the peak demand, or how fast you turn the tap on – which is that demand measured in kW.”

Understanding Energy and Demand

Demand charges make up approximately 50 percent of the C&I energy bill, Tanner said. Energy charges over the past 10 years have remained more or less the same, but demand charges have been going up at approximately 10 percent per year.

Charting Energy and Demand

Tanner used the example of a privately-owned healthcare facility in the Southeast and contrasted three scenarios:

  1. the baseline load the facility faces
  2. the load profile with solar PV alone
  3. the profile with solar as well as a 250 kW/270 kWh lithium ion battery storage system

The system has a peak demand of 1.1 MW, on average.

Solar + Storage Load Profile

Both the second and the third option yielded demand-charge improvements, Tanner said.

Throughout the day, the benefits vary, Tanner said. “What’s happening at 8 AM is we’re recharging the solar system. In order to claim the investment tax credit for the energy storage system on solar, you need to charge at least 70 percent through solar. By 10 or 11 AM, the battery is fully charged and we’re in a position to deliver demand charge management later in the afternoon at about 3 PM.”

With the energy storage system, Tanner said, “We’ve managed to drop the demand for this particular day from what would’ve been in excess of 850 kW to 700 kW.”

Solar and Storage Savings Outcome

In the first scenario, Tanner said, the solar demand savings range from $0 to $31,668 because financiers are often uncomfortable guaranteeing those savings without a storage system in place. The current form of solar contracting, therefore, does not allow for the capture of demand benefits that are easily financeable today.

“The beautiful thing about the energy storage system” is that the savings increased from $27,400 to approximately $34,000, Tanner said. “This is because were attacking a modified load profile. Rather than that rolling hill, we have that localized duck curve where we’re attacking the head of the duck and not needing as much battery capacity to deliver those demand savings.”

Why 1 + 1 = 3

Thus, the solar and storage system has reduced the project payback time. It has also increased the internal rate of return and net present value – as long as the investment tax credit and the bonus MACRS depreciation are taken into consideration.

While the first webinar made a compelling case for a solar and storage system, the webinar on risk mitigation and monetization spoke to the different contracts available to finance these systems. It explored the risks and how they are allocated. The moderator for this webinar was David Feldman, a senior financial analyst at NREL. The speakers were Fernando de Samanlego, director of sales at GELI, and Andrew Krulewitz, director of marketing and strategy at GELI.

Krulewitz said third-party financing has been vital to the growth of the solar PV market over the decades. These financing solutions led to a 90-percent increase in the number of third-party owned solar projects. In contrast, there was a meager 18-percent growth in host-owned PV projects over the same time span. He said GELI is optimistic that innovative methods of financing storage projects in conjunction with PV will help the storage market achieve similarly rapid growth.

There are four types of contracts emerging in the market, according to Krulewitz.

Fixed payment – This structure involves the customer renting the system from the owner and paying a fixed amount on a monthly or annual basis for up to 20 years. The customer is the beneficiary of all the savings (both energy and demand).

Shared savings – This model is similar to the fixed lease model, but has an added layer. The project owner installs the system at the host site. The host is the beneficiary of all the demand and energy savings. However, the host pays a pre-negotiated percentage of the savings to the owner in addition to a minimum payment on an annual or monthly basis. This minimum payment is required by financiers as an additional layer of protection so that the net present value of the system will be zero in the worst-case scenario.

Real estate lease This model is the most complex because it has two contracts. The owner installs a standalone solar system. The host buys all the energy from it as a solar-only power-purchase agreement (PPA) or lease. In addition to this, the owner rents or leases a space in the host’s property and installs a storage system there. However, the utility pays the owner for grid benefits. This yields the revenue.

PPA 2.0 – This is the PPA reimagined by GELI. In this type of contract, the cost of the energy procured from the utility, including the energy and the demand charges, is used as the basis for the PPA price.

Structure PPA 2.0

Using the same term, escalators and assumptions, along with the same internal rate of return, GELI modeled all four contract types. The financial results for customers all looked exactly the same on an annual basis.

The deal financially is the same for the owner and the developer at every outcome – however, it really begins to get exciting when you take into account the different risks and how they’re allocated. GELI has identified four main risks when it comes to these contracts. They’re classified according to the source of the risk.

Project Risks

While the financials of the four models might look the exact same, developers have to take the different risk categories into consideration while picking a contract type.

According to de Samanlego, “Not only is it important to understand those four risks, but it’s also important to understand who is bearing that risk under what contract structure. And that is the meat of these contracting structures. This is the main problem that the financiers need to tackle.”

Risk Allocation

While the fixed payment and PPA 2.0 contracts are similar in risk allocation, the shared savings model is the least-optimal one. The problem with contracts that share almost all risks equally among the owner and customer is that the financier takes on the most risk. This makes the cost of finance much higher. It also makes financiers unwilling to fund such projects.

Due to the complicated nature of the real estate lease model, it is difficult to predict which party off-takes the risk in certain categories. This depends on the contracting structure, which varies on a case-by-case basis. 

GELI has developed a few proposed solutions to help mitigate the various risk factors.

Means of Mitigation

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