Much has been made of the benefits that installing solar and batteries can offer businesses, but as businesses face increasing input cost inflation, is the upfront investment too much to bear or have fluctuations in electricity prices made the decision pointless?
Like pv magazine Readers will know that battery storage and solar power systems work hand in hand to allow businesses to generate their own electricity and store excess energy for use during times of high demand or low sunshine. By utilizing these technologies, companies can significantly reduce their dependence on grid electricity, which is often subject to unstable pricing structures.
Companies that are completely dependent on grid electricity are at the mercy of the energy market. As energy prices rise, their operating costs rise, which can significantly affect profitability. By investing in battery storage and solar power systems, companies can generate their own electricity and reduce their dependence on the grid. This gives them better control over their energy costs and helps them avoid price spikes in the energy market. We already know this much, but how could this principle take shape in practice?
Assume that a manufacturing plant in Victoria, Australia, with an annual energy consumption of 8.76 GWh, has installed a 2 MW solar system and a 1 MWh battery storage connected to a microgrid. With an average electricity price of A$0.27 ($0.18)/kWh, the site could earn revenue by participating in the Australian Energy Market Operator’s Wholesale Demand Response Mechanism (WDRM). The latter program allows consumers to meet the needs of the grid by changing their electricity load profiles and pays them for it. Charges range from AUD 1.50 per kilowatt of reduced peak demand to AUD 13/kW, based on 2022 prices and depending on the month.
If the solar system at the production facility produces electricity six hours a day and the battery is charged and discharged once a day, here is an estimate of the potential cost savings and income.
The solar power system produces 13 MWh every day for six hours, when its production capacity of 2.17 MW is in use. The factory’s industrial load requirement is 24 MWh per day, but it consumes only 6 MWh of the electricity produced by the panels due to the disproportion between the solar energy production hours and the unit’s production activity. With the battery discharging a megawatt-hour per day in industrial use, the fab uses only 17MWh per day of grid power instead of 24MWh, resulting in a daily cost saving of AUD$1,890 and a monthly saving of approximately AUD$56,700.
In addition to this, if the plant’s peak power demand is 3MW per hour per day, using a microgrid and battery to reduce the peak load to 2MW can generate AUD$5,000 per month based on the WDRM weekday peak demand. rebate fee 5 AUD/kW.
As production accounts for only 6MWh of the 13MWh produced daily by the solar panel and an additional MWh is allocated to battery charging, the remaining 6MWh could generate a daily income of AUD$600 if sold to the grid at AUD$0.10/kWh, at a monthly rate of AUD$18,000 with the income stream.
All this translates to AUD$79,700 in monthly energy savings and incentive payments from our fictional fab in Victoria.
This is, of course, a highly stylized example and ignores factors such as real load and solar production profiles that are not uniform as assumed in the simple example discussed above, and the arbitrage income opportunities that the battery has for further savings by avoiding peak grid electricity prices and selling excess energy back to the grid at optimal times.
The battery can also earn income by participating in the frequency control auxiliary market, which balances supply and demand in unexpected generator failures to maintain the frequency level.
The diagram below shows a more realistic representation of the interaction between load, solar energy and battery storage.
Actual savings and revenue will depend on a number of factors, including location, size and type of installation; energy prices; and demand profiles in a given area. The interaction of all these variables on any given day ensures that the decision-making process can become quite complex. In such circumstances, it is beneficial to use mathematical optimization programming to achieve the best results and get the highest return on investment. A critical point to note is that a battery co-located with solar changes the risk profile of the investment, ensuring that some of the uncertainties associated with weather-based power generation are at least partially mitigated.
Battery storage and solar systems offer companies an innovative solution to protect themselves from energy price risks. By producing their own electricity, reducing their dependence on the grid and storing excess energy, companies can significantly reduce their energy costs and improve their energy efficiency. In addition, investing in these technologies can help companies increase their energy independence, reduce their carbon footprint and promote a more sustainable future.
With these benefits in mind, it’s clear that battery storage and solar power are a necessary investment for companies looking to hedge against energy price risks and remain competitive in an ever-changing market.
About the author: Paul Conlon is the head of modeling and forecasting at Dublin-based AI-powered energy services company GridBeyond and is a regular speaker at industry conferences on energy price forecasting and risk management. Paul has over 20 years of experience in the energy and technology sector and is an expert in a range of analytical techniques applied to gas and electricity markets. He has worked in various positions in energy and consulting organizations covering market planning, regulation and trading.