Netting true value from batteries

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As U.S. states replace traditional net metering rules with “net billing” structures, a greater number of customers are co-installing solar with battery storage. But these batteries may not be being put to best use if they are utilized primarily to optimize self-consumption of rooftop PV, as net billing reforms incentivize.

Net billing allows solar customers to offset their electricity consumption with solar on an instantaneous or hourly basis, receiving full retail rate credit for that portion of their solar generation (area B in the chart below left). However, any solar generation exported to the grid (area A) is compensated at a reduced rate. This asymmetric pricing structure incentivizes solar customers with battery storage to charge their batteries with surplus solar (A) and discharge that stored solar energy to serve load during hours of net consumption (area C).

Battery drivers

Battery storage operation under net billing tariffs is also influenced by other policy and rate design features. For example, many residential customers in the United States remain on time-invariant rates, which do not reflect dynamic grid value.

Federal tax incentives encourage customers with paired solar-plus-storage systems to charge exclusively from onsite solar. Those rules are intended to ensure that batteries do not increase the consumption of carbon-intensive power. However, this restriction limits batteries’ ability to charge when the grid costs are lowest, and to fully charge in advance of exceptionally high-cost time periods when discharging the battery could provide the greatest value to the electric system.

Residential batteries may face additional barriers, for example through interconnection agreements or provisions in retail electricity tariffs, that restrict discharge to the grid.

A paper recently published by Berkeley Lab researchers in the journal iScience evaluates the merits of net billing structures, in terms of the incentive they create for solar customers to use battery storage to arbitrate between retail rates and grid export prices. The article, titled “Private vs. public value of US residential battery storage operated for solar self-consumption,” quantifies the value of the resulting storage dispatch patterns from the perspectives of both the individual solar customer and the larger power system.

Relying on hourly metered loads from roughly 1,800 residential customers across six utility service territories, the study’s central finding is that residential storage dispatched to maximize solar self-consumption under flat (i.e., non-time-varying) net billing tariffs provides virtually no value to the broader power system. This occurs partly because of the temporal misalignment between the storage dispatch profile and real-time grid value. However, a significant source of the deficiency occurs because, on system peak-load days, batteries used solely for solar self-consumption tend to stand idle, as there is little surplus solar to fuel storage discharge during system peak hours.

Neither of those deficiencies can be wholly corrected simply by replacing flat prices with time-varying ones. Rather they also require that customers are able to charge their batteries from, and discharge to, the grid, especially during key high-value hours.

Key takeaways

There are several important implications of the findings above. First, net billing tariffs may create what economists call “deadweight loss,” by encouraging large customer-investments in storage equipment that provide little societal benefit.

Second, the findings show how using storage to move solar exports back behind the meter could perpetuate the same set of issues related to fixed-cost recovery as with net metering, undermining the intent of the rate reforms. Finally, net billing structures could potentially exacerbate inequities in the costs and benefits of distributed energy technologies, insofar as they will be most beneficial for customers who can afford to co-install storage with solar.

Yet, the conclusions above are not foregone. The study goes on to show how net billing tariffs could be designed or coupled with other incentives in a manner that provides significant benefits to the power system – without degrading solar self-consumption levels or imposing significant additional stress on the local distribution network.

In part, incentives could promote more grid-friendly battery usage by allowing and incentivizing storage to discharge to the grid during a relatively small number of high-value hours – for example, through critical peak pricing tariffs or demand response programs.

While utilities must ensure that additional exports do not create reliability issues, interconnection agreements could impose softer limits, such as setting a maximum for the solar-plus-storage system’s combined instantaneous net exports based on the solar system’s nameplate capacity. Within the study’s analysis, those constraints tended not to bind during the highest value hours of the year, allowing storage to dispatch fully at those times.

In summary, as state regulators and utilities continue down the path of net metering reforms for rooftop solar, it will be critical to consider the implications for customers with battery storage. That imperative will become even greater as control and communication technology and standards make it more feasible to capture residential battery value, and as opportunities emerge for distributed batteries to participate in existing wholesale markets. 

About the authors

Galen Barbose is a research scientist in the Electricity Markets and Policy Department at Lawrence Berkeley National Laboratory. He conducts research and analysis on issues in the electricity industry related to renewable energy, energy efficiency, and electric system planning.

Sydney P. Forrester is a scientific engineering associate in the Electricity Markets and Policy Department at Lawrence Berkeley National Laboratory. She broadly focuses on renewable energy adoption and new utility business models. More specifically, she studies both the quantitative and policy-driven aspects of distributed PV solar adoption, as well as the impacts of distributed energy resources on utilities and ratepayers.

Chandler Miller is the program manager in the Electricity Markets and Policy Department at Lawrence Berkeley National Laboratory. He focuses on energy efficiency and distributed energy resources research and technical assistance projects in the areas of policy, program design, implementation, and evaluation.

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