Commercial Energy Storage Systems

Commercial energy storage is a game-changer in the modern energy landscape. This article aims to explore its growing significance and how it can impact your energy strategy. We’re delving into how businesses are harnessing the power of energy storage systems to not only reduce costs but also increase energy efficiency and reliability.

As demand for electricity continues to surge across the United States, energy storage systems are playing a critical role in both the wholesale and retail electricity markets. From helping ratepayers manage demand costs and take advantage of energy arbitrage to supporting wholesale grid services, battery energy storage systems (BESS) are quickly emerging as critical infrastructure for the modern electrical system. 

In this article, we will discuss the role of BESS in energy markets, the types of storage systems, specific applications, economic benefits, and the future outlook of energy storage for commercial and industrial applications. 

What Is Commercial Energy Storage?

Commercial energy storage systems work by storing and dispatching electricity to meet demand or grid stress events. These systems can be standalone or coupled with renewable energy generation, such as wind or solar. Energy storage systems play a critical role in balancing the supply and demand of energy, especially for intermittent renewable sources like wind and solar power.

Common applications for a battery energy storage system include behind-the-meter commercial applications to help store excess electricity generated by solar arrays, or to manage peak demand during projected coincidental peak hours. Energy storage technologies are another factor contributing to a more reliable electrical grid. 

In the wholesale markets, BESS assets are being deployed as a grid-resiliency mechanism and are participating in energy, capacity, and ancillary services markets.  

How Businesses Use Energy Storage (Decision Framework)

• Cost control: peak shaving, capacity cost mitigation, TOU arbitrage
• Revenue generation: demand response, ancillary services, capacity markets
• Resilience: outage protection for critical loads
• Optimization: solar-plus-storage and load shaping

Types of Commercial Energy Storage Systems

Commercial energy storage systems are typically deployed as battery energy storage systems, also known as BESS. There are several different types of storage systems, each with its own individual benefits and applications:

Lithium-Ion Batteries

Lithium-ion batteries are the most common form of commercial energy storage, valued for their rapid response, scalability, and proven performance. They are widely used in commercial and industrial facilities for peak demand reduction, time-of-use arbitrage, backup power, and participation in demand response programs. Although cost-effective and versatile, lithium-ion systems typically offer shorter-duration storage and experience gradual capacity degradation over their lifespan.

Flow Batteries

Flow batteries are well-suited for longer-duration energy storage applications due to their high cycle life and ability to discharge energy over extended periods without significant degradation. These systems are ideal for facilities with sustained load requirements. 

Solid-State Batteries

Solid-state batteries are an emerging storage technology that replaces liquid electrolytes with solid materials, offering improved safety, higher energy density, and longer lifespan. While still in early stages of commercialization, they are gaining attention for future commercial and industrial applications where safety and efficiency are critical. 

Pumped Hydroelectric Storage

Pumped hydroelectric storage is a mature, long-duration energy storage solution that uses water pumped between reservoirs to store and release energy. While it provides large-scale grid reliability and long discharge durations, its applicability is generally limited to utility-scale projects due to geographic and infrastructure requirements. 

Compressed Air Energy Storage (CAES)

Compressed Air Energy Storage systems store electricity by compressing air into underground caverns and releasing it to generate power when needed. CAES is typically deployed at industrial or grid scale, requiring specific geological conditions and significant capital investment. 

Hydrogen Energy Storage

Hydrogen energy storage converts electricity into hydrogen through electrolysis, allowing energy to be stored for long durations and used when needed. This technology is gaining traction in industrial decarbonization strategies, particularly for sectors that require high-temperature heat or long-term energy storage.

Thermal Energy Storage

Thermal energy storage systems use chilled water, ice, or other thermal mediums to store energy for later use, most commonly for HVAC load shifting. These systems are widely used in large commercial buildings, campuses, and hospitals to reduce peak electricity demand and lower energy costs.

What Are the Benefits of Energy Storage?

Energy storage systems serve a key purpose in the energy markets, offering several benefits to both commercial businesses and grid operators, including:

• Demand charge reduction through peak shaving: This is achieved by dispatching the battery during peak hours (or events) to help an end user reduce electric load.
• Energy market arbitrage: BESS owners can charge assets during low-cost hours and dispatch energy during high-priced hours to capture value.

• Backup power: Storage systems can be used for critical infrastructure (water plants, hospitals, and data centers) as a means of backup generation during outages.

• Renewable energy optimization: When coupled with wind or solar power, batteries can capture excess generation that can be consumed during off-hours when the renewable asset is not producing.

• Grid services: BESS systems can be connected directly to grid infrastructure to help with frequency regulation (ancillary services), capacity planning, and energy generation.

Commercial Energy Storage Costs

Commercial battery storage costs are driven by storage technology type, system size, and duration. A typical 1 MW lithium-ion battery can range in costs from $200,000 to $1,000,000, largely driven by the battery’s duration. A 1 MW, 1-hour battery would fall on the lower end of the scale, while a 1 MW, 6-hour battery would fall on the higher end of the range.  

If the battery is being deployed in the wholesale markets, then other ancillary costs, such as interconnection, communications controls, and software, add to the total project cost. 

Applications of Commercial Energy Storage for Businesses

By installing commercial energy storage systems behind-the-meter, commercial and industrial businesses can deploy these systems in a wide array of cost-saving strategies, including:

• Peak shaving during coincidental peak hours to reduce retail capacity costs
• Demand response participation for revenue generation
• Solar-plus-storage strategies to improve renewable energy production from solar assets
• Backup power for mission-critical applications

Applications of Energy Storage in Wholesale Markets

Storage systems in the wholesale energy markets can benefit owners in a variety of ways, including:

Energy Markets

Asset owners can participate in energy market arbitrage by charging batteries during low-cost hours, in the day-ahead market, and dispatching energy during high-cost hours, in the real-time market. This strategy often involves real-time optimization of the asset, and typically requires a third-party storage operator with the tools and technology to achieve profitability. 

Ancillary Services

As AI and data center demand grow, the need for additional energy generation is more critical than ever before. Battery systems can elect to also participate in ancillary services markets, such as frequency regulation and voltage support. Batteries are paid to dispatch energy during critical periods to help maintain grid-wide stability. 

Capacity Markets

Capacity market prices are on the rise, as evidenced by the recent surge in capacity clearing prices in PJM and MISO markets. Batteries can participate in capacity auctions by committing to a certain amount of MWs and being on standby to deploy energy when it is most needed. These high prices have recently created an unprecedented opportunity for storage assets in wholesale electricity markets. 

Emerging Energy Storage Solutions

The future outlook for energy storage is bright. As energy demand continues to grow, traditional generation sources cannot keep pace. The long planning and development cycle of traditional power plants adds to this complexity. Storage systems, such as lithium-ion BESS, are the perfect solution as they can provide a quick response to growing demand. BESS developers are during to AI-driven asset management for charging and dispatching optimization to maximize the value of the storage asset. In the ERCOT market, for example, the recent change in regulation surrounding RTC+B aligns energy and ancillary services markets to co-participate in the real-time markets. This new structure provides significant opportunities for BESS assets to capture value by dispatching when the grid needs energy the most. Further developments such as these are emerging across the United States, bringing batteries to the forefront of the conversation. 

How Diversegy Can Help

Diversegy’s team of retail and wholesale electricity market experts understands the challenges facing the modern electric system. Our team is well-versed in rising market costs affecting commercial and industrial customers, as well as the grid-level challenges faced by system operators. Energy storage systems are appearing as the obvious answer to many of these problems, and we are helping by developing effective energy strategies for our clients. If you’re interested in learning how to reduce demand-related capacity costs or monetizing a storage asset in the wholesale market, contact us for a detailed analysis.