Utility Death Spiral Companies turn to battery tech

Hi, I’m Jervis Whitley. Today is Friday, 15th of November, and you’re listening to WindFront, the weekly roundup of the wind industry from Australia, around the world. Today I’m gonna cover another aspect of the Utility Death Spiral, as companies are increasingly turning to battery tech, and I’ll cover the weekly top 3 earners.

I’ve uncovered a new business model for battery tech. California has a curious electrical rate system, and it’s fostering the growth of the battery tech industry. Midsize businesses, the ones that consume over 200 kilowatts at their peak, they’re subject to a payment known as demand charges. So what happens is your hourly usage is monitored for the entire month, and your maximum instantaneous power in the month forms the basis for your demand charge. So if you can shave off your peak demand, you’ll save money. So an example would be for throughout the month, for a single afternoon at one 15 minute period, a large motor was switched on and it consumed 250 kilowatt at that point, then the demand charge would be the charge for that month, which might be $12 per kilowatt, times by the 250, and that forms the demand charge for the entire month. So even if they only used it once for only a 15 minute period through the whole month, it’s based on that absolute peak usage.

So the Intercontinental in California just finished a test trial. They installed a large lithium ion battery. It’s the same kind that powers electric cars or a laptop, and their hope was to avoid the excessive demand charges, and to cash in on green innovation grants. So the cost of the hotel’s system was reported at $100,000 for a 54 kilowatt hour battery. However, the Californian government will cover 60% of that cost. And the battery company, which is called Stem, a start up in Silicon Valley in the US, installs the battery with no money up front, and instead charges a monthly fee, which I think is the interesting part here, because batteries have historically been seen as extremely expensive. And for them to offer that with no cost at all and instead having the trailing monthly fee, and that monthly fee matched up against the savings, I think that’s a huge thing.

So the question I have is how much would a company typically pay in demand charges? And then by knowing that we can work out how much they might save using a large battery. So for a company that uses a peak between, say, 200 kilowatt and 500 kilowatt, they’ll be on a rate which charges $13 per kilowatt, which puts the monthly demand charges between $2,500 and $6,500. So every month on your bill, you’ll see a $2,500 to $6,500 charge, and it will be directly related to your maximum usage at any one period in that whole month. So reducing that peak by, say, 50 kilowatt would only save about 650 bucks in that month or $4,000 a year. And the reason it’s a little lower for the year figure is because in winter, they have lower demand charges. It’s about half, $6 per kilowatt rather than 13. So that number doesn’t look so great compared to the cost of the battery. $4,000 a year saving versus $100,000 battery. But one of the use cases was for when patrons want air conditioning turned on. I mean, air conditioning is a fairly high sustained load, and I’m not sure how far the 50 kilowatt or 54 kilowatt hour battery would supply.

And yet people are still buying into battery tech. So I see this as evidence of a utility death spiral. So future years, they will bring cheaper batteries and then more large businesses will install them to shave off their peak. Perhaps these early adopters are arbitraging the dynamic rates, but once demand levels flatten out somewhat, utilities will raise off peak prices, and there won’t be such a disparity between peak and off peak pricing. So that’ll kill off this golden arbitrage opportunity. What do you think? Is this evidence that battery tech is taking hold?

And this week, the top 3 weekly earners. Macarthur, just shy of a million bucks, 950 grand. Waubra right up there at almost $900,000 and Musselroe at almost $600,000. And until I see you next time, keep buying those green electrons.