Business models of new energy storage systems

With the continuous growth of the energy storage market and the maturity of the industry manufacturers, more and more attention has been paid to the business model and financing mechanism of the energy storage system. These models may involve alternatives to traditional asset sales methods that reduce the market entry costs of potential customers and reduce the cost of capital for energy storage companies.
Younicos, a German photovoltaic energy storage developer, highlighted this trend when it announced its energy storage leasing service. Considering that its parent company, Aggreko, leases power generation equipment globally, its leasing of energy storage equipment is an obvious move for Younicos. Younicos hopes to expand its energy storage service market by reducing energy costs. The idea is that renting energy storage equipment in many cases is much lower than buying and owning it.Younicos, a German photovoltaic energy storage developer, highlighted this trend when it announced its energy storage leasing service. Considering that its parent company, Aggreko, leases power generation equipment globally, its leasing of energy storage equipment is an obvious move for Younicos. Younicos hopes to expand its energy storage service market by reducing energy costs. The idea is that renting energy storage equipment in many cases is much lower than buying and owning it.
Tim Grejtak, an analyst at Lux Research, a research firm, said, “The main driving force behind this business model is to help the economy by reducing customer capital expenditure. Many companies use the discounted cash flow model because any deferred payment to the future will help them cash flow.
In the first phase of the marketing effort, Younicos said it would launch leasing services for hybrid systems and microgrids in the commercial and industrial markets, rather than leasing large utility energy storage equipment. Grejtak says Younicos’s new business model is part of a broader trend in the industry. The energy storage company used to distinguish from energy storage technology, especially before lithium-ion batteries became dominant. Then they focused on the control software of their energy storage system. Nowadays, enterprises are increasingly emphasizing their financial and business models. In addition to Younicos, several companies are taking different approaches to changing the traditional pattern of requiring customers to buy energy storage systems directly. Although the cost has been declining, the energy storage system is still very expensive. And the higher the initial cost of deploying energy storage systems, the higher the barrier to an acceptable return on investment.
In areas where electricity prices are high or energy storage is limited, the rate of return on investment is not very concerned. But these markets are relatively few and far apart. Finding multiple sources of income for a single energy storage asset is a lot of discussion about solutions, but layering or “stacking” multiple sources of income is often easier said than done.
1、Learning from solar energy industry
In some ways, the financial differences in energy storage systems reflect everything that happens in the solar industry ten years ago. Sales of rooftop solar panels fell as solar companies offered consumers alternatives to buy them.In some ways, the financial differences in energy storage systems reflect everything that happens in the solar industry ten years ago. Sales of rooftop solar panels fell as solar companies offered consumers alternatives to buy them.
However, this is not a direct comparison. It is difficult for the residential energy storage system to provide the same cost reduction. But the solar industry’s financing model has found more fertile ground in the commercial and industrial (C&I) energy storage markets.
In addition to Younicos, Advanced Microgrid Solutions (AMS), ENGIE Storage (formerly Green Charge Networks), Stem, Power Edison and other companies have such business models, without the need to buy energy storage systems directly. On the contrary, they can enable customers to reduce their demand cost through some form of energy storage and service. Grejtak said that for those customers who are often keen on cash flow, this simplifies investment decisions.
“We’ve reduced our customers’bills and cost savings, and we’ll get a service charge.” Vishvesh Jhaveri, director of project financing and strategy at AMS, said, “This model also allows AMS to optimize its financing structure.”
In addition to providing customers with equipment that reduces demand costs, AMS also aggregates these energy storage equipment and sells capacity to Edison Electric under the contract. The model allows AMS to offer lower-cost products to commercial and industrial (C&I) customers and utilities because they do not have to pay the high capital costs that can lead to energy storage systems.
2、Expanding financing options
The model also has another potentially less important benefit. It provides a predictable source of contractual revenue for AMS company to enable it to ensure financing. This allows AMS companies to move from relatively expensive venture capital funded companies to low-cost options funded companies, such as non-recourse project financing.
A year ago, AMS completed the first recourse project financing for the first energy storage system. Financing with CIT bank supports the establishment of a 50 megawatt energy storage system. The CIT banking deal is part of a broader agreement signed by AMS and Macquarie Capital in the summer of 2016 to jointly develop and build a range of energy storage projects. The result, says Jhaveri, is that AMS’s prices are lower, enabling it to price its products competitively. Stem has also adopted a similar model to provide energy storage as a service. It is now extending this model to the East Coast market and establishing partnerships with Constellation, which will allow its businesses and industries (C&I) to reduce their capacity costs. However, energy storage services and leasing modes may depend on favorable regulatory environment. They may work in energy-storage restructuring markets like California and New York, but they may face regulatory barriers in other jurisdictions. It is a relatively new phenomenon to be able to provide services in the wholesale energy market and to provide customized user-side distribution markets from the same equipment, which has not been fully tested or reviewed by regulators. It raises a number of complex issues, such as how to set rules that allow the owners of energy storage equipment to mine multiple revenue streams without allowing them to pay twice for the same service. Grejtak said this could be one of the reasons the Federal Energy Regulatory Commission postponed its decision on distributed energy when it issued its February energy storage order. One solution to this problem is to avoid potential jurisdictional conflicts and not to try to tap resources in different markets, such as wholesale and distribution markets, but rather to concentrate on a single jurisdictional market.A year ago, AMS completed the first recourse project financing for the first energy storage system. Financing with CIT bank supports the establishment of a 50 megawatt energy storage system. The CIT banking deal is part of a broader agreement signed by AMS and Macquarie Capital in the summer of 2016 to jointly develop and build a range of energy storage projects. The result, says Jhaveri, is that AMS’s prices are lower, enabling it to price its products competitively. Stem has also adopted a similar model to provide energy storage as a service. It is now extending this model to the East Coast market and establishing partnerships with Constellation, which will allow its businesses and industries (C&I) to reduce their capacity costs. However, energy storage services and leasing modes may depend on favorable regulatory environment. They may work in energy-storage restructuring markets like California and New York, but they may face regulatory barriers in other jurisdictions. It is a relatively new phenomenon to be able to provide services in the wholesale energy market and to provide customized user-side distribution markets from the same equipment, which has not been fully tested or reviewed by regulators. It raises a number of complex issues, such as how to set rules that allow the owners of energy storage equipment to mine multiple revenue streams without allowing them to pay twice for the same service. Grejtak said this could be one of the reasons the Federal Energy Regulatory Commission postponed its decision on distributed energy when it issued its February energy storage order. One solution to this problem is to avoid potential jurisdictional conflicts and not to try to tap resources in different markets, such as wholesale and distribution markets, but rather to concentrate on a single jurisdictional market.
3. Hire public utility services.
Power Edison also wants to provide a business model that reduces costs by providing energy storage customer leasing and storage as a service model and ownership model. But the company focuses on single market segments. Shihab Kuran, CEO of Power Edison, said the “regulatory barriers” between the utility market and the customer service market did not converge, but Power Edison focused on specific applications in the utility market. Kuran said: “the most valuable use of fixed energy storage is the extension of transmission and distribution (T&D). But this delay will not last forever and will become a grounded asset once a permanent energy storage system is not needed. Many energy storage applications rely on energy arbitrage, but wholesale electricity prices are usually very low. But its reliability creates a compelling value proposition for obligatory utilities. Power Edison’s business model requires leasing energy storage equipment. It’s a model from a project announced a year ago that NRG Energy and Edison United Electric are investing $7.6 million to deploy batteries on trucks. For example, if Edison United Electric uses batteries to ease power shortages or provide emergency power, NRG, for example, can connect them to the grid and use them to provide ancillary services. “The Younicos statement confirms our partnership with NRG and ConEd, and we formed Power Edison around the rental business,” Kuran said. We believe this is a feasible way. ” Kuran said Power Edison would not cross regulatory barriers between market segments by selling energy storage services simultaneously, but by selling services with the same assets several times in a row. The mobility of these systems also contributes to the financing mode of Edison joint electric company. He points out that because these systems are mobile, they are cheaper because they can be recovered. In addition, when regulatory or market conditions change, its energy storage assets will not be in trouble. Kuran cites frequency regulation in PJM’s interconnected market, which began to rise when PJM created a new category for rapid response resources. Developers enter the market to deploy the battery energy storage system and do well in a short time. But eventually it was overwhelmed by the market. “We like to anchor our projects with utilities,” Kuran says. “They buy the most storage space and are more reliable.” This is a business model that can operate in markets like New York, where the energy vision reforms aim to create a new electricity paradigm that can inspire utilities to save money. Kuran acknowledges that in more traditional markets, utilities may be more inclined to use ownership models for return on investment. Edison Electric also works with several utility customers and develops financing solutions, partly financed by private equity and infrastructure funds, Kuran said. He said, “we need to find a case of energy storage without incentive or authorization.”
New business models and financial structures can help achieve this goal by reducing capital expenditure and capital costs, making more jurisdictional reserves more affordable and attractive.