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The Efficiency Mandate: Storage Goes Mainstream

New business models make energy storage attractive.

Fortnightly Magazine - April 2009

purchase Ice Energy’s equipment outright, and contract with the company for operations and maintenance (O&M). Hickman says this approach works best for municipal utilities and cooperatives, whose low cost of capital makes buying assets more attractive than contracting. Second, a utility can enter a long-term contract as it would with an IPP.

“We’ve structured our deal so it includes all the things utilities are used to seeing in a PPA,” Hickman says. “You sign a 20-year agreement with availability and power factor criteria, insurance, O&M, maintenance reserve, etc. Our first cost is higher than it is for a gas-fired peaker, but because we have lower operating cost, we’re more cost-effective over the 20-year PPA.”

Its cost characteristics distinguish Ice Energy in the market; battery systems, by comparison, can’t compete against fossil-fired peaking plants. As a result, deploying most types of distributed storage technologies will require more complex financing structures, to accurately apportion the values and costs of ancillary services. But as utilities seek ways to manage load and optimize grid resources, ancillary services will gain value—making distributed storage projects an easier sell.

“Storage has gone mainstream in the last year and a half,” Hickman says. “People now recognize that storage is a critical aspect of what we need to manage the grid effectively.”