Behind-The-Meter Battery Energy Storage: NREL

Behind-The-Meter Battery Energy Storage: NREL

Battery Energy Storage:
Frequently Asked Questions
What Is Behind-The-Meter                                          BESS refers to customer-sited stationary                           system (e.g., utility-scale storage systems),
Battery Energy Storage?                                           storage systems that are connected to the                          in many ways, including who owns the
                                                                  distribution system on the customer’s side                         systems, where they are installed, and
Energy storage broadly refers to any
                                                                  of the utility’s service meter.1 BTM BESS,                         the size and number of systems installed.
technology that enables power system
                                                                  along with DG and other grid assets                                These characteristics influence the role of
operators, utilities, developers, or
                                                                  deployed at the distribution level, are                            BTM BESS on the grid. Figure 2 outlines
customers to store energy for later use. A
                                                                  broadly referred to as distributed energy                          a few key characteristics of BTM BESS
battery energy storage system (BESS) is
                                                                  resources (DERs). Figure 1 provides                                and how they impact the integration of
an electrochemical device that charges or
                                                                  some examples of DER (including a                                  BTM BESS into the power system.
collects energy from the grid or a distrib-
                                                                  BTM BESS) that are increasingly being
uted generation (DG) system and then                                                                                                 As of the time of this writing, the primary
                                                                  deployed in power systems around the
discharges that energy later to provide                                                                                              cost-effective battery chemistry available
                                                                  world as technology costs decline and
electricity or other services when needed.                                                                                           for BTM applications is lithium-ion.2 The
                                                                  customer interest grows.
BESS can provide grid and customer                                                                                                   trend toward lithium-ion has been driven,
services, acting as both a load (while                            BTM BESS differ from front-of-the-meter                            in part, by steep price declines in the price
charging) and a generation asset (while                           storage systems, both interconnected at the                        of lithium-ion technologies—over 89%
discharging). Behind-the-meter (BTM)                              distribution system and the transmission                           from 2010 to 2020—with further price

         Figure 1. A selection of DERs customers can deploy BTM in combination with, or apart from, distributed solar photovoltaics (PV)
             Source: (O’Shaughnessy et al. 2017). Note: This report only covers BTM battery energy storage, although it can interact with other DERs.

1. Customer-sited, off-grid battery storage systems, which are not connected to the grid, are not covered in this fact sheet. Additionally, while electric vehicles can act as BTM storage
systems and provide services to the customer and power system, this fact sheet does not cover them.
2. For additional information on various technology options for energy storage, see Kim et al. (2018). |
Behind-The-Meter Battery Energy Storage: NREL
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                                                                            2

                                                                               SITING AND OPERATION:
                       SIZE AND QUANTITY:                                                                                             System operators and utilities have
                                                                           Utility-scale systems are sited and
                      BTM systems have smaller                                                                                       limited visibility into the BTM system
                                                                           dispatched to meet power system
                        capacities, but there                                                                                           operation (i.e. they only see the
                                                                         needs. BTM systems are installed and
                         are more of them.                                                                                          difference between customer demand
                                                                           operated to meet customer needs.
                                                                                                                                            and storage operation).

                              PROBLEM:                                                 PROBLEM:                                                  PROBLEM:
                This complicates their integration as                      Customer needs are not necessarily                         This can impact planning exercises
              utilities struggle to process applications.                   aligned with power system needs.                           and regular operating practices.

                            SOLUTION:                                                SOLUTION:                                                    SOLUTION:
                  Well-designed interconnection                              Well-designed compensation                                Well-designed interconnection
                processes can help streamline this                           mechanisms and other policy                             requirements can ensure sufficient
                 process while ensuring they do not                       instruments can help align interests,                       metering and telemetry equipment
                negatively impact the power system.                       ensuring BTM systems are deployed                         installed to help utilities; however, the
                                                                            and operated to benefit all power                          burden these requirements can
                                                                                 system stakeholders.                                 represent for installing customers
                                                                                                                                       should be carefully considered.

                                           Figure 2. Unique characteristics of BTM BESS, resulting issues, and solutions

declines anticipated (Frith 2020).3 These                           reductions, improving energy resilience,                            more information, see “Compensation
price declines, in turn, have spurred a                             and mitigating power quality. For addi-                             Mechanisms for BTM Storage.”
growing interest in the adoption of BTM                             tional information, see Zinaman                                     Additionally, depending on the presence
BESS and the implications of integrating                            et al. (2020).                                                      of utility or third-party programs,
BTM BESS into power system operations.                                                                                                  customers may be interested in
                                                                                     Customer Bill Savings:                             investing in BTM BESS and granting
This fact sheet provides a brief overview                                            BTM BESS is often paired                           other power system stakeholders access
of stationary BTM BESS.                                                              with DG to reduce energy                           to their systems in exchange for payments
                                                                                     bills and/or enhance                               (see “What Emerging Business Models
Why Do Customers                                                                     compensation. Bill                                 Can Support BTM BESS Deployment?”).
Adopt BTM BESS?                                                     reduction is primarily achieved through
                                                                    demand charge reduction (lowering the                                               Customer Reliability
BTM BESS adoption is mainly influenced
                                                                    maximum power consumed, typically                                                   and Resiliency: Customers
by customer decisions, as the systems are
                                                                    per month) and energy arbitrage (shifting                                           may be interested in having
installed on customer premises, provide
                                                                    electricity consumption from high to                                                reliable access to power
savings or other benefits to the customers,
                                                                    low energy cost periods). The ability of                                            after a disruption to the
and customers are typically the principal
                                                                    customers to reduce their bills depends                             grid, particularly if these interruptions
investors in the system. The primary
                                                                    on what a customer pays for electricity                             occur relatively frequently or the customer
drivers for customer adoption of BTM
                                                                    (the retail tariff rate) and what they                              faces steep consequences for interruption
BESS to date are opportunities for bill
                                                                    are paid for exports (the sell rate). For                           in supply (e.g., a hospital) (Anderson

3. Note that this figure only refers to battery pack prices, which represent only a portion of total energy storage system costs. Additional cost categories include labor for installation,
additional monitoring and telemetry equipment, and developer overhead to fund customer outreach and advertising programs.
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                          3

et al. 2019; Elgqvist forthcoming).            be indirectly encouraged through price         load (charging). In Hawaii, a virtual
Continuous cost declines in renewable          signals. In South Australia, a virtual power   power plant comprising BTM BESS and
DG and energy storage have made them           plant pilot project is under development       other DER is planned to help provide
a viable alternative and/or complement         to aggregate 1,000 BTM BESS to act as          frequency support to the grid, including
to traditional diesel generators because       a single 5-MW power plant. In addition         fast frequency response. These services
they can reduce the size of the diesel         to providing services to customers, this       are expected to become more critical as
generator needed, do not rely on fixed fuel    virtual power plant will be used to perform    the small island grid transitions to higher
supplies, and can generate revenue while       energy arbitrage in the wholesale market,      levels of renewable energy in line with its
the grid is operational. Customers may         benefiting retailers, and help meet peak       100% target (HECO and OATI 2019).
become increasingly interested in resilient    demand, benefiting system operators
solutions as climate change increases the      (AGL Energy Limited 2018).                     Transmission and Distribution Upgrade
frequency and intensity of natural disasters                                                  Deferral: Just as system operators need
such as flooding and tropical storms,          Ancillary services: The supply and             to ensure sufficient generating capacity to
causing increasing interruptions to            demand of energy must be carefully             meet demand in all hours of the year, there
the utility grid (Fried, Hellmuth, and         balanced to maintain the safe operation of     must also be sufficient transmission and
Potter 2019).                                  the power system. To account for fluctua-      distribution capacity to deliver that power.
                                               tions in the demand and supply of energy,      As the loads on the utility grid grow, a
               Customer Power Quality:         system operators procure a wide array of       utility may need to upgrade the distribu-
               Many customers, in partic-      ancillary services on timescales ranging       tion and transmission system capacity.
               ular industrial customers,      from milliseconds to several minutes           Energy storage can defer the need for
               rely on an uninterrupted        (Denholm et al. 2020). Energy storage          additional transmission or distribution
               supply of high-quality          technologies such as lithium-ion batteries     capacity investments by charging during
power. These industries, such as semi-         are well-suited to provide ancillary           low-demand periods and discharging to
conductor manufacturers, may be willing        services as they: (1) react exceedingly        meet local demand during high-demand
to invest in BTM BESS to ensure power          quickly and accurately to signals, and         periods, essentially reducing the power
from the grid within very tight voltage or     (2) can switch from being sources of           that must be transmitted from centralized
frequency tolerances.                          generation (discharging) to sources of         resources during traditional periods of grid

Can BTM BESS Provide
Power System Services?                            Text Box 1. Enabling Power System Services From BTM BESS
In addition to the “customer-facing”
                                                  Although BTM BESS can provide a wide variety of services to the power system,
services described previously, BTM BESS
                                                  enabling these may require additional infrastructure, more complex operating
has the potential to provide a wide range
                                                  practices, and changes to compensation mechanisms. “Implicit” approaches
of additional services to other power             such as using retail tariffs to incentivize certain behaviors may require more
system stakeholders. The following is a           advanced metering infrastructure and additional administrative oversight, as
nonexhaustive list of services that BTM           well as customer education programs, to enable and encourage customer
BESS can provide to utilities and power           participation. More “explicit” approaches such as directly dispatching DER, either
system operators. While technically               through aggregators or directly by utilities and power system operators, may
capable of providing these services, addi-        require additional metering, telemetry infrastructure, cybersecurity considerations,
tional steps may be necessary to tap into         and operational changes to ensure safe and reliable procurement of services
this potential (see Text Box 1). For a more       from BTM BESS. This additional metering or communication infrastructure, while
in-depth description of these services,           critical for service provision, may increase the price of the storage system beyond
see Bowen et al. (2019) or Denholm                what a customer can afford.
et al. (2019).
                                                  In New York, the transmission system operator is developing a “Dual Participation”
                                                  model that will allow DERs such as BTM BESS to provide services to customers,
Energy and Capacity: BTM BESS
                                                  utilities, and the wholesale energy market. The model attempts to address issues
can provide both energy and peaking
                                                  related to: (1) ensuring bulk power system reliability; (2) ensuring appropriate
capacity services by discharging stored
                                                  visibility into DER operation for all parties; (3) ensuring the DER has access to
energy either from an associated DG
                                                  the most value streams possible; (4) preventing double payment for services;
system or imported earlier from the grid.
                                                  and (5) “coincidence” (when a DER is contracted to provide conflicting services to
Encouraging BTM BESS to perform                   multiple entities in the same time period) (Lavillotti 2019). These rules will ensure
energy arbitrage or provide peaking               customers can pursue value through both on-site services (bill reductions, backup
capacity may rely on explicit signals             power) and revenues through markets.
from power system operators or may
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                                4

congestion. As BTM BESS are located on
the distribution system, they are uniquely          Text Box 2. Net Metering vs. Net Billing for Energy Storage Systems
suited to providing distribution deferral
                                                    Two common frameworks for compensation mechanisms for electricity exported
services. Faced with a potential $1.2
                                                    to the grid include net energy metering and net billing, both of which have different
billion distribution upgrade, the New York
                                                    impacts on the relative benefits of pairing storage with DG.
utility ConEdison opted instead to defer
the upgrade by relying on a portfolio of            Under net energy metering, customers receive bill credits for electricity exports in
investments, including customer-sited               excess of on-site consumption. These credits can be used to offset consumption
BTM storage, to reduce demand and                   from the grid in the current or future billing cycles. In this way, the power system
remain within existing infrastructure               itself acts as a form of financial energy storage, and, as such, net energy metering
capacity limits (Schwabe, Statwick, and             is unlikely to incentivize the pairing of BTM storage with DG.
Tian 2018). The use of a broad set of               Under net billing, customers are compensated for electricity exports at a
nontraditional investments, such as DG,             predetermined sell rate, while paying for consumption from the power system at
BTM BESS, demand response, or energy                their normal retail tariff rate. The ratio of the sell rate and the retail tariff rate plays
efficiency, to offset the need for traditional      an important role in whether storage is incentivized. If the sell rate is lower than
transmission and distribution investments           the retail tariff rate (as is typically the case), customers pay more for consumption
is known as non-wire alternatives.                  from the grid than they are rewarded for exports to the grid. This encourages
                                                    customers to avoid consumption from the grid when possible by storing excess
How Can Power System                                generation from DG for use at a later time, therefore incentivizing pairing their DG
                                                    system with BTM BESS.
Decision Makers Encourage
the Adoption of BTM BESS?                           For more information on the impact of compensation mechanisms on BTM BESS,
                                                    see Zinaman et al. (2020).
Policymakers, regulators, and other power
system stakeholders may be interested in
encouraging the adoption and influencing
the operation of BTM BESS, either in the         California Public Utilities Commission              Power offered financial assistance with
interest of policy priorities (e.g., customer    (CPUC) established mandatory energy                 purchasing BTM BESS in exchange for
choice or decarbonization efforts) or as a       storage targets for systems connected to            limited control during certain hours of the
means of providing valuable power system         the transmission system and distribution            year, allowing the utility to reduce oper-
services. Customers, however, will adopt         system, both behind and in front of                 ating expenses (Green Mountain Power
and operate storage to match their own           customers’ meters (CPUC 2013). These                2021b). Existing financial incentives for
energy needs or objectives, which may            goals, whether mandatory or aspirational,           DG can also be expanded to include BTM
or may not be aligned with the broader           can send a clear message to developers              BESS, either paired with DG or in stand-
needs of the power system. Fortunately,          and customers on the long-term support              alone systems.
there are several tools available to help        for BTM storage, potentially bolstering
                                                 nascent markets.                                    Compensation Mechanisms for BTM
align the interests of customers and other                                                           BESS: Compensation mechanisms
power system stakeholders, including             Financial Incentives for BTM BESS:                  govern: (1) what power flows between
goal setting, financial incentives, and          Providing financial incentives, such                the customer, the DER system, and the
compensation mechanisms. These offer a           as low-interest loans, grants, or tax               power system are allowed, tracked,
powerful means for directing the adoption        credits, can drive targeted adoption of             and billed; (2) the rate customers pay
and operation of BTM BESS to contribute          BTM BESS among specific regions and                 for purchasing electricity from the
to power system objectives.                      customer classes, particularly if there is a        power system; and (3) the rate at which
Setting Goals for BTM BESS:                      concern that BTM BESS is out of reach               customers are rewarded for electricity
Policymakers, regulators, and utilities may      for low-income customers. For instance,             sold back to the power system (Zinaman
be interested in increasing the presence         California regulators expanded financial            et al. 2017). Compensation mechanisms
of BTM storage on the grid, particularly         assistance for BTM BESS for under-                  can be designed to reward exports by and
among certain customer classes or in             privileged customers in areas prone to              incentivize the adoption of DG and are
certain regions. Existing targets for            wildfires as part of their broader mission          in some jurisdictions being expanded to
utility-scale storage, if present, can be        to promote energy resilience and equity             include DG plus BTM BESS (Zinaman,
modified to include specific targets for         (CPUC 2020). Incentives can also come               Bowen, and Aznar 2020). Choices around
BTM storage. For instance, in response           with conditions to ensure that BTM BESS             the design of compensation mechanisms
to directives from policymakers to               are being operated in ways that benefit             can influence whether customers are
increase the presence of energy storage          multiple power system stakeholders.                 likely to pair energy storage with DG
in line with environmental objectives, the       For instance, the utility Green Mountain            (see Text Box 2).
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                         5

Some jurisdictions are introducing more        BTM BESS to interconnect that are likely      which help ensure interconnecting systems
complex retail tariff elements into their      to cause issues. The three categories of      are capable of appropriately reacting to
compensation mechanisms, like time-            rules outlined below can help jurisdictions   power system conditions, as well as cover
of-use rates or demand charges. These          safely and efficiently interconnect BTM       other important elements for DER such
elements can be more likely to incentivize     BESS while ensuring interconnecting           as communication and cybersecurity
pairing BTM BESS with DG, as complex           systems are capable of meeting power          protocols. Additional standards specific
rates often offer more opportunities for       system objectives. Many of the same rules     to energy storage are currently under
customers to reduce their bills with BTM       and approaches already used to safely         development.
BESS relative to flat volumetric rates         and reliably integrate other DERs like
alone. Such complex tariff elements also       distributed PV can also be implemented        Technical review processes govern how
help to align DER operation and consump-       for BTM BESS.                                 systems are reviewed for their potential
tion with power system needs. However,                                                       impact on the grid by the utility before
these benefits must be weighed against the     Application processing determines the         being allowed to interconnect. Some
increased effort to administer such tariffs,   information customers and developers          regulators have allowed for expedited
as well as a customer’s ability to reason-     must provide the utility to submit a          review processes in constrained portions
ably respond to additional complexity.         complete application and how the utility      of the grid if the developer or customer
                                               must handle these applications once           agrees to limit discharging back to the grid
                                               received. Finding ways to automate or         (e.g., Hawaii’s Customer Self Supply tariff
How Can Decision Makers
                                               streamline the application process can help   option (HECO 2019)). Well-designed
Promote the Efficient, Safe,                   utilities make the most of their limited      technical review processes help utilities
and Reliable Interconnection                   resources and ensure a relatively painless    prioritize additional review for systems
of BTM BESS?                                   experience for adopting customers,            most likely to cause issues, while allowing
Interconnection is the process of safely       removing a stumbling block for the            accelerated interconnections for systems
and reliably integrating a given DER into      growth of BTM BESS and other DERs.            unlikely to cause issues. This streamlined
the broader power system. Poor intercon-                                                     process can enable the adoption of
nection procedures can act as a barrier        Grid requirements dictate the                 storage and help utilities use their limited
to DER like BTM BESS by either: (1)            behavior and capabilities of equipment        resources more efficiently (Horowitz et al.
presenting customers and developers with       interconnecting to the power system,          2019).
opaque and difficult-to-navigate appli-        typically through model equipment and
cation processes; (2) requiring too much       interconnection standards developed
                                                                                             What Are Some Key Safety
effort on behalf of the utility to process     by international bodies. Two important
                                               standards for DER such as BTM BESS
                                                                                             Issues Surrounding BTM
applications, leading to long delays for                                                     BESS?
customers and developers; or (3) allowing      are IEEE 1547-2018 and UL 1741 SA,
                                                                                             As BTM BESS are sited on customer
                                                                                             premises, it is important for these systems
                                                                                             to operate safely. Two critical safety
   Text Box 3. Ensuring Safety for BTM BESS                                                  concerns for storage systems include
   The New York State Energy Research and Development Authority (NYSERDA)                    unintentional islanding and, for lithi-
   has developed a set of guidelines for reviewing and evaluating BESS, which rely           um-ion batteries that make up the majority
   on utilizing codes, standards, and training. This includes guidance on the adoption       of new BTM BESS installations, thermal
   of legislation and regulations for safe and reliable adoption of BESS, permitting         runaway.
   considerations for residential and small commercial BESS, and an inspection
   checklist for code enforcement officers or third-party inspectors. In 2020, the New       Unintentional islanding refers to
   York State Uniform Fire Prevention and Building Code, which outlines the required         instances in which energy stored in the
   statewide guidelines for building construction and fire prevention, was modified to       BTM BESS re-energizes a portion of the
   include the latest safety considerations for energy storage systems (NYSERDA              distribution network without the knowl-
   2020).                                                                                    edge of utilities. This can delay service
                                                                                             restoration, damage utility equipment,
   Given the dense urban areas in New York, building-related requirements are
   provided for both “occupied” and “unoccupied” areas to minimize fire and chemical
                                                                                             and pose hazards to utility workers who
   hazards to occupants and also minimize the conditions under which fires occur,            assume a segment of the grid is not
   including ensuring adequate ventilation to prevent any gas and air buildup around         energized (Enayati 2018). Although rare,
   modules, which can lead to fires (Gokhale-Welch and Stout 2021). In combination           unintentional islanding can happen if an
   with existing codes, regulations, and industry standards, these provisions help           energy storage system (or a distributed
   ensure the safe permitting, siting, and deployment of BESS.                               PV system) continues to export power to
                                                                                             the grid during an outage. Many technical
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                         6

requirements (e.g., IEEE 1547–2018)
now stipulate specific measures to detect                          Recommended BTM BESS inspection procedures and frequency
and prevent unintentional islanding,
                                                                   Fire detection and suppression systems
while explicitly allowing for intentional
islanding, such as BTM systems providing                           Firefighting measures posted on-site
energy to a critical section of the grid
during a major outage (e.g., in a microgrid                        Emergency stop protocol
application).                                                      Ventilation
Thermal runaway refers to a process                                Siting considerations
unique to electrochemical energy storage
systems in which the temperatures within                           Signage with 1-2-3 stepwise procedures for potential issues
the storage system increase to a critical                          such as leaked fluid, off-gassing, damaged container, etc.
point beyond which internal chemical
reactions create a self-sustaining process       Figure 3. Select examples of safety measures and considerations for BTM BESS
of heat generation that can ultimately lead
to fires or an explosion. Thermal runaway     Customers may ultimately be less inter-        utilities or developers pay for access to a
is especially a concern for lithium-ion       ested in ownership of an energy storage        customer’s energy storage system during
batteries, and this danger can be             system than accessing the services that        periods where the storage system would
compounded in BTM BESS that may be            energy storage can provide to them (such       otherwise be unutilized.
housed in dense urban areas and may not       as backup power). Such customers may
                                              not have the means or desire to invest in a    The utility Green Mountain Power in
come equipped with the same extensive
                                              storage system but would be willing to pay     Vermont utilized both of these business
fire suppression equipment as utility-scale
                                              a small addition to their normal electricity   models when looking to reduce its demand
systems. Technical standards governing
                                              bills in exchange for specific services        charges from the transmission system
the testing, installation, operation, and
                                              like accessing stored power during             operator (Green Mountain Power 2021b;
maintenance of these systems can help to
                                              grid outages. Additionally, utilities and      2021a). It offered to pay customers with
mitigate such safety issues (e.g., NFPA
                                              developers typically have better access        existing storage systems and to subsidize
855 in the U.S.). See Text Box 3 for infor-
                                              to capital to invest in energy storage         storage purchases for customers interested
mation on how New York state has sought
                                              systems, and they would also be interested     in storage, in exchange for using those
to approach safety considerations for
                                              in having access to other services energy      BTM assets during system peaks each
energy storage systems. Figure 3 shows
                                              storage can provide when not servicing         month. When not used by the utility,
example safety measures for BTM BESS
                                              customers. Under energy-storage-as-a-          customers could use storage to help
installations that can be implemented to
                                              service business models, developers or         lower their utility bills and during system
reduce the risk of fire and other hazards.
                                              utilities own and operate BTM BESS in          outages.
                                              exchange for paying the upfront costs
What Emerging Business                                                                       Additional business models have evolved
                                              of the storage system. Customers, in
Models Can Support BTM                                                                       to utilize BTM BESS for the provision
                                              exchange for regular monthly payments,
BESS Deployment?                                                                             of power system services. Although
                                              will have access to the services of the
                                                                                             individual systems may have unutilized
BTM BESS’s high upfront capital costs         energy storage system for the rest of the
                                                                                             capacity, customers often do not have
combined with its ability to provide a        time, using the system to reduce bills or
                                                                                             the sophistication or scale to offer their
wide-ranging set of services to many          power critical loads during grid outages.
                                                                                             services to markets or power system oper-
different power system stakeholders has
                                              Alternatively, customers may invest in         ators. Virtual power plants have evolved
prompted the development of business
                                              energy storage but only use a fraction of      to aggregate these systems on behalf of
models that allow different actors to share
                                              the energy storage’s capabilities (e.g.,       such customers and coordinate them to act
in the benefits and costs of these systems.
                                              using it to reduce demand charges during       as a single plant (see Figure 4). Although
The process of pursuing multiple value
                                              a billing cycle or for backup service provi-   barriers and questions still exist (see Text
streams from a power system asset at
                                              sion). In these cases, customers may be        Box 4), such business models can help
different times and on different timescales
                                              interested in allowing other stakeholders      the power system operate more efficiently
is referred to as “value-stacking.” Value-
                                              access to the storage system when they are     and improve the coordination between
stacking can be important for assets such
                                              not using it, in exchange for reduced bills    transmission and distribution system oper-
as energy storage to help recoup the high
                                              or regular payments. Under bring-your-         ators while yielding additional financial
upfront capital investments required.
                                              own-device (BYOD) business models,             benefits for customers. Aggregation can
                                                                                             happen across broad swaths of the power
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                           7

                                          Virtual Power Plant                           Utility Grid

                                     BTM Storage                                                FTM Storage

                                       Figure 4. Illustrative example of virtual power plant aggregation

sector, such as when providing energy,           and monitoring BTM BESS. These can be            manner. Additional barriers include poor
peaking capacity, or frequency services, or      addressed through solid interconnection          performance, inadequate communication
can be concentrated to specific regions in       practices, which can allow utilities             infrastructure, and insufficient cyberse-
the power sector experiencing issues, such       to quickly process applications while            curity for the BTM BESS (see this fact
as in non-wire alternative applications.         ensuring BTM BESS behave in a reliable           sheet for more information on DERs

What Are Important Barriers
to Address for BTM BESS?                            Text Box 4. BTM BESS and Aggregation Barriers
As a relatively new energy asset, a critical        Many more BTM systems must be coordinated and dispatched to provide
barrier for the widespread adoption of              equivalent levels of services relative to utility-scale systems. Aggregation is the
BTM BESS is its high costs, which                   process of combining multiple smaller assets to act as a larger asset for the
may prevent it from being cost-effective            provision of specific power system services. Such aggregation can be important
for many customers. As technological                for extending access to additional sources of value for BTM BESS, particularly for
innovations continue and manufacturing              system services to utilities and power system operators.
capacity increases globally, these BESS
                                                    Aggregation of DER, such as BTM BESS and DG, is a fairly new concept; best
costs are expected to decline. However,
                                                    practices for rules governing DER are still being developed. Such rules might
despite these cost declines and the many            bar or enable aggregations of DER: (1) in different locations within the power
opportunities BTM BESS affords, key                 system; (2) of different technology/types; and (3) of different ownership types.
technical, regulatory, and financial barriers       Stakeholders should work together closely to determine what sorts of restrictions
can continue to impede the development              of DER aggregation are important to enforce, which may depend on both the local
of a BTM BESS market. Addressing these              power system context as well as the service being provided.
barriers can enable customers to deploy
                                                    Under FERC Order 2222, regulators in the United States have attempted to
BTM BESS sooner while ensuring bene-
                                                    expand the role of BTM assets (including storage) on the power system (FERC
fits to multiple power system stakeholders.
                                                    2020). This regulation directs market operators to offer participation models for
Technical barriers include difficulties in          aggregated resources that allow the BTM assets to provide all power system
adequately interconnecting, coordinating,           services of which they are technically capable.
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                                                                    8

and cybersecurity). These issues can be                        customer assets may need to be replaced                        customers and developers when deciding
addressed by ensuring compliance with                          sooner (NREL 2021).                                            to deploy BTM BESS. Similarly, storage
up-to-date grid requirements. Utilities                                                                                       may in effect be barred from providing
and regulators can and often do make                           Poor installations, or use of uncertified                      system services due to language or rules
compliance with such requirements                              equipment, can also hamper system                              designed for more traditional assets such
a precondition for interconnection.                            performance and prevent it from                                as conventional generators. Developing
Adequate communication infrastructure                          adequately providing services to either                        rules and regulations in a technology-ag-
is particularly important for jurisdictions                    customers or the power system. This can                        nostic manner (or updating existing rules)
looking to provide services to the power                       impact adopting customers by not meeting                       can help ensure that new DER like BTM
system with BTM BESS. See Section 6 of                         expected performance and reducing                              BESS can equally provide and be compen-
Zinaman et al. (2020) for a more in-depth                      revenues or bill savings they might have                       sated for all system services of which they
discussion on the role of interconnection                      anticipated. This can also impact the                          are technically capable (Bhatnagar et al.
practices and grid requirements in                             power system if it leads to reliability                        2013).
ensuring DER capabilities.                                     or safety issues. If quality concerns are
                                                               pervasive in a given market, it can lower                      Financial barriers involve those that
An additional concern for BTM BESS                             investor confidence and create a poor                          make financing for BTM BESS difficult
owners is degradation, which refers to a                       reputation for BTM BESS, impacting                             for adopting customers. Financing can
wide range of mechanisms and processes                         future market development. Regulators                          be critical for the adoption of BTM
that can affect BESS performance over                          can help the development of a BTM BESS                         BESS given its high capital costs. This
its lifetime. Degradation occurs in all                        market by providing customers, investors,                      is a particularly relevant barrier if power
energy assets, including all types of                          and utilities with quality assurance                           system objectives involve encouraging
energy storage, solar PV, and others.                          through regulations aimed at ensuring a                        the adoption of BTM BESS among
Degradation in battery chemistries,                            minimum standard for the installations,                        particular customer classes such as among
including lithium-ion, can have a wide                         performance, and safety of any equipment                       low-income customers. While the issue
variety of physical and chemical causes                        that is allowed to interconnect.4                              of upfront capital can be addressed in part
that are still under investigation. While                                                                                     by access to loans and other incentives,
all energy assets will degrade over their                      Regulatory barriers primarily take the                         alternative or complementary approaches
lifetimes, the rate of degradation for BESS                    form of ambiguity in the applicability                         can include incentivizing novel business
is influenced by several factors, including                    of existing rules or incentives. Existing                      models that help various power system
the temperature in which it is operating,                      incentives or rules for DERs can often                         stakeholders share the costs and benefits
operating windows, and charging and                            be expanded with minor modifications to                        of BTM BESS. These can include
discharging rates (Edge et al. 2021).                          include stand-alone BTM BESS or BTM                            third-party, or utility-owned and -operated
Lithium-ion BESS can typically last 10                         BESS coupled with DG systems. Clearly                          BTM storage. An additional barrier for
years with minor impact on performance;                        including BTM BESS in such rules and                           customers considering pairing BTM BESS
however, depending on these factors,                           regulations can help reduce uncertainty for                    with solar PV installations is the two

                                             Figure 5. Lithium-ion battery recycling process from electric vehicles

4. For an overview of how quality concerns around DER can impact market outcomes and how system stakeholders can address these concerns, see Karandikar et al. (2020). Although this
report refers specifically to distributed solar PV, many of its lessons and approaches can be broadly applied to BTM storage as well.
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                                                                               9

technologies’ different lifespans, with                            • Developing a set of similar or uniform                           as batteries that are no longer sufficient
solar PV lasting in excess of 25 years                               designs for lithium-ion batteries can                            for transportation applications may still
and BTM BESS lifespans closer to 10                                  drastically simplify the recycling                               be able to adequately function in BTM
years. This requires customers to plan                               process, and batteries should be                                 roles for many years before service quality
for replacing the BTM BESS within the                                designed with ease of disassembly                                deteriorates.
paired system’s lifetime.                                            in mind.
                                                                   • Similar or uniform designs can aid
What Are the Recycling and                                           in reuse applications by enabling                                AGL Energy Limited. 2018. Virtual Power Plant in South
                                                                                                                                      Australia: Stage 2 Public Report. Technical Update.
Reuse Considerations for                                             automated disassembly and diagnostic                             ARENA Advancing Renewables Program. South Australia:
Battery Systems?                                                     processes.                                                       AGL & ARENA.
Many BTM BESS are composed of mate-                                • Support for research and development                             report.pdf.
rials that are classified as hazardous for                           and analyses to address investor                                 Anderson, Kate, Eliza Hotchkiss, Lissa Myers, and Sherry
both the environment and human health,                               uncertainty and increase the lifetime                            Stout. 2019. Energy Resilience Assessment Methodology.
raising concerns about how these systems                                                                                              NREL/TP-7A40-74983. Golden, CO: NREL. https://www.
                                                                     value of battery materials in the early                
are handled, transported, stored, recycled,                          stages of the recycle and reuse battery
and disposed of after their useful life has                                                                                           Bhatnagar, Dhruv, Aileen Currier, Jacquelynne Hernandez,
                                                                     market (e.g., determining the value of,                          Ookie Ma, and Kirby Brendan. 2013. Market and Policy
been exhausted. Lithium-ion batteries,                               and markets for, reused and recovered                            Barriers to Energy Storage Deployment. SAND2013-
which make up much of the stationary                                 lithium-ion battery materials, or
                                                                                                                                      7606. Albuquerque, NM: Sandia National Laboratories.
and mobile battery energy storage market                             developing refurbishment processes and                           7606.pdf.
share, can be considered hazardous due to                            improving recycling technology) (see                             Bowen, Thomas, Ilya Chernyakhovskiy, and Paul
the toxicity of its materials (e.g., cobalt in                       Section 2.3.1 of Curtis et al. (2021) for                        Denholm. 2019. Grid-Scale Battery Storage: Frequently
some battery chemistries), depending on                              more information).
                                                                                                                                      Asked Questions. NREL/TP-6A20-74426. Golden, CO:
local regulations. Lithium-ion batteries can
also be considered hazardous due to the                            • Ensuring a high quality of the end                               CPUC. 2013. Order Instituting Rulemaking Pursuant
                                                                     recycled product (e.g., lithium), by                             to Assembly Bill 2514 to Consider the Adoption of
reactivity or flammability of their electro-                                                                                          Procurement Targets for Viable and Cost-Effective
lytes (see thermal runaway under “What                               carefully avoiding material contamina-                           Energy Storage Systems. Decision 13-10-040. http://
Are Some Key Safety Issues Surrounding                               tion wherever possible.                                
BTM Storage BESS?”). Furthermore,                                  • Clear, consistent, and stringently                               ———. 2020. “Energy Storage Rebates for Homes
some battery technologies rely on rare                               enforced regulation across jurisdictional                        and Critical Facilities Available NOW.” Fact Sheet.
earth metals that may be expensive or                                levels surrounding the safe handling,                            Self-Generation Incentive Program. San Francisco, CA:
destructive to source, driving additional                                                                                             California Public Utilities Commission. https://www.
                                                                     transport, storage, and disposal of                    
economic and environmental consider-                                 battery components can help drive                                News_Room/NewsUpdates/2020/SGIP_factsheet_124020.
ations for recycling and repurposing used                                                                                             pdf.
                                                                     the development of robust economic
batteries.5 Although less frequently used                            recycling practices.                                             Curtis, Taylor, Ligia Smith, Heather Buchanan, and
for BTM applications, lead-acid batteries,                                                                                            Garvin Heath. 2021. A Circular Economy for Lithium-Ion
                                                                                                                                      Batteries Used in Mobile and Stationary Energy
nearly ubiquitous in the transportation                            • Policies to incentivize the reuse or recy-                       Storage: Drivers, Barriers, Enablers, and U.S. Policy
sector today, offer a success story to                               cling of batteries over their disposal.                          Considerations. NREL/TP-6A20-77035. Golden, CO:
emulate for the recycling of lithium-ion
                                                                   Figure 5 highlights the major steps in the
batteries, which have come to dominate                                                                                                Denholm, Paul, Trieu Mai, Rick Wallace Kenyon, Ben
                                                                   process of recycling lithium-ion batteries                         Kroposki, and Mark O’Malley. 2020. Inertia and the
BTM applications and are the primary
                                                                   from electric vehicles.                                            Power Grid: A Guide Without the Spin. NREL/TP-6A20-
chemistry for electric vehicles (ESMAP                                                                                                73856. Golden, CO: NREL.
2020). Some considerations for bolstering                          In addition to recycling, the reuse of
the reuse and recycling of battery systems                         lithium-ion batteries can minimize nega-                           Denholm, Paul, Yinong Sun, and Trieu Mai. 2019. An
                                                                                                                                      Introduction to Grid Services: Concepts, Technical
include (ESMAP 2020; Curtis et al. 2021):                          tive impacts and reduce the overall costs                          Requirements, and Provision from Wind. NREL/TP-6A20-
                                                                   associated with battery manufacturing.                             72578. Golden, CO: NREL.
• The collection of spent batteries can                                                                                               fy19osti/72578.pdf.
                                                                   Reusing batteries from electric vehicle
  be effectively managed by the same
                                                                   applications in BTM stationary applica-                            Edge, Jacqueline S., Simon O’Kane, Ryan Prosser, Niall
  entities that are responsible for their                                                                                             D. Kirkaldy, Anisha N. Patel, Alastair Hales, Abir Ghosh,
                                                                   tions may prove particularly beneficial,                           et al. 2021. “Lithium Ion Battery Degradation: What You
  distribution.                                                                                                                       Need to Know.” Physical Chemistry Chemical Physics 23
                                                                                                                                      (14): 8200–8221.

5. Following the convention laid out in ESMAP (2020), we define recycling and reuse as two separate activities, where recycling refers to “the retrieval of specific elements in a produced
technology for subsequent use in other technologies, perhaps, including other batteries,” and reuse refers to “putting the battery technology as a whole to a second use that is quite distinct
from its primary production purpose,” such as using EV batteries in stationary storage applications.
Behind-The-Meter Battery Energy Storage: Frequently Asked Questions                                                                                                                  10

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                              Written by Thomas Bowen and Carishma Gokhale-Welch, National Renewable Energy Laboratory


This work was authored, in part, by the National                       The Energy Storage Toolkit offers curated resources and guidance on integrating commercially avail-
Renewable Energy Laboratory (NREL), operated by                        able energy storage technologies into the power system.
Alliance for Sustainable Energy, LLC, for the U.S.
Department of Energy (DOE) under Contract No.                          The USAID-NREL Partnership addresses critical challenges to scaling up advanced energy systems
DE-AC36-08GO28308. Funding provided by the United                      through global tools and technical assistance, including the Renewable Energy Data Explorer, Greening
States Agency for International Development (USAID)                    the Grid, the International Jobs and Economic Development Impacts tool, and the Resilient Energy
under Contract No. IAG-17-2050. The views expressed                    Platform. More information can be found at:
in this report do not necessarily represent the views
of the DOE or the U.S. Government, or any agency
thereof, including USAID.

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