Wednesday 28th November 2018

Wind Watch

Wake up, SMEs! Energy storage is an income stream
By Richard Heap

This is an analysis piece written by our Editor-in-Chief Richard Heap for Energy Storage Report and published on 31st October.

Two-thirds of energy managers at small- and medium-sized businesses in the UK expect energy costs to rise in the next decade. That is according to a survey of 250 people from YouGov last month. No surprise there.

However, there is a distinct lack of clarity over exactly what that means. Over half of those who answered (58%) were “unsure or unaware” about the impact of rising non-commodity costs, which are charges related to networks and policy changes. Those charges are due to rise 45% over the next decade according to Npower Business Solutions, which commissioned the study, and help push up electricity costs by 55%.

This tells us that there’s a serious lack of understanding among energy managers of how much they’ll have to pay for electricity in the future, and how to manage it. Many are unsure about how energy storage systems can play a role in helping them do so.

That’s no great surprise to me. I started my career at commercial property magazine Property Week and, from 2008 to 2011, often wrote about sustainability and energy efficiency in offices, shops and industrial buildings. And what I learnt is that few tenants paid much attention to how much energy they used because it was a small part of their overall business expenditure. In most cases, they didn’t care.

It was either the landlord’s issue and, if it wasn’t a major part of the tenant’s running costs, it just wasn’t a priority.

In addition, at smaller firms, signing energy deals is likely to fall to someone as part of a far broader role. The Paris climate change deal has been changing corporate attitudes to energy but there is still a long way to go.

Nowadays, some companies can see that storage can not only help them take more control of their bills, but also be a new revenue stream. This is good news, says demand side response firm GridIMP, but it also warned that companies needed to be careful about how they invested in storage or they could risk coming unstuck.

Demand side response

One popular solution is investing in energy storage to provide demand side response services.

DSR gives firms the chance to reduce or shift electricity use at peak times for a financial incentive, to help the grid operator to more effectively balance the grid.

The use of DSR is currently weighted towards larger industrial players that are able to work with the slim margins offered by market aggregators, or with the resources to manage 1MW of demand response themselves. However, GridIMP said this may not be the best solution for smaller businesses taking their first steps in storage.

It told us last week that small- and mid-sized firms should only invest in storage for DSR after assessing and understanding their long-term energy needs. The company said that investing in storage for DSR without doing that work could lead to SMEs being hit with high aggregator costs; high levels of price volatility; and unused equipment if they aren’t able to win the DSR contracts that they thought they would.

Richard Ryan, commercial director at GridIMP, said that firms looking for a revenue stream from their energy use should look at behind the meter solutions first. This would mean first measuring their energy use and needs; looking at ways to use their power more efficiently and cut waste; and only then look at DSR or load shifting.

Behind the meter

In practice, that means firms should consider how to invest in on-site renewables and storage to enable them to create the power needed to run their own operations. Then, if there is an excess, it gives them the option to sell excess power to the grid.

This stops them from relying so heavily on the electricity produced by large utilities, while the investment in storage systems gives them an opportunity to save and sell excess electricity back to the grid without the hassle of DSR-induced load shedding.

“Businesses must ensure that they start by investing ‘behind the meter’ first, hedging their investments against the current volatility for DSR pricing. At present, there are a number of compelling offers for DSR aggregation, but as the sector grows and we see greater impact from technologies such as AI, then that shifts that will take place will likely overtake the current routes to market,” said Ryan.

He added that it was “not very easy” to make a clear business case for companies to invest in storage if potential gains from DSR was the only potential source of income.

And here’s the thing. Electricity costs and contracts aren’t always a priority for these SMEs, but there’ll always be a financial benefit for businesses if they know more about their current energy use and can mitigate their exposure to future price rises. DSR can work for a lot of firms, but shouldn’t come at the cost of ‘behind the meter’. As costs go up, that work could be vital.