The combining of energy storage with solar PV applications has become a significant method for lowering electricity bills, increasing reliability of electricity supply, and decreasing of environmental pollution. In 2017, the use of such solar-plus-storage systems became a prominent application for campus microgrids, islands, and industrial-commercial behind-the-meter systems. Whether in open electricity markets such as the United States or Australia, or in island regions of Southeast Asia and the Caribbean, distributed solar-plus-storage resources have seen widespread applications. The National Development and Reform Commission’s May 31st release of the Notice on Matters Relating to Solar PV Electricity in 2018 addresses subsidy standards and tightening of solar PV targets. Solar PV companies are looking to energy storage as a solution, viewing it not only as the next direction for the market, but also seeing it as a new way of generating revenue for solar PV resources. In the following article, CNESA seeks to summarize and analyze the most recent development trends and changes involving combined solar PV and storage applications in electricity markets.
The expansion of solar PV applications that has occurred in some countries can be attributed to three factors. The first is an increase in policy support that has led to the expansion of distributed energy and renewable energy resources, allowing more solar PV applications to emerge. The second is decreasing costs for solar PV systems that has in turn led to decreasing subsidy support for grid connection of such systems. The third is increasingly open electricity markets that have shifted renewable energy subsidy costs to customers, causing electricity bills to rise. Other factors include government policy support for solar PV systems and energy storage systems as well as an oversaturation of renewable resources in the grid. Such factors have stimulated customers, including industrial-commercial customers and residential customers, to make use of energy storage both for its economic advantages as well as to lessen dependence on the grid.
1. German Investment and Policies Support the Growth of Solar-Plus-Storage
Following Germany’s decision to retire its nuclear power plants, the country has focused on increasing its renewable energy generation. Germany has set a goal to generate 35% of total power from renewable resources by 2020, and no less than 80% by 2050. Resolving renewable energy grid integration issues is a key factor to realizing this goal. In 2013, Germany released a subsidy policy to support the construction of solar PV and storage projects. The policy provided a 30% subsidy for investment in residential energy storage equipment, with additional requirements for PV operators to contribute 60% of their output to the grid. In 2016, Germany implemented a new solar-plus-storage subsidy policy. The policy is set to continue to the end of 2018 and will provide subsidies for energy storage systems combined with grid-connected solar generation. The policy only permits 50% of the system’s peak power to be returned to the grid, a significant difference from previous requirements for solar-plus-storage returns to the grid. Such changes signify how the country has begun to encourage self-generation through distributed energy resources as part of its expansion of renewable energy. In October of 2016, Germany’s KfW was forced to halt distribution of new subsidies due to exhaustion of funds. At the same time, the government also confirmed that beginning July 1, 2017, subsidy funding would decrease from 19% of the total investment cost to 16%, decreasing again by 3% on October 1, with a total drop to 10% by the end of 2018.
Germany’s guaranteed subsidies have helped stimulate the large-scale development of the renewable energy industry, yet at the same time have increased electricity prices for customers. Germany’s retail electricity costs have increased from 14 Euros/kWh in 2000 to 29 Euros/kWh in 2013. Such increases have meant that the public has had to foot the bill for increasing use of renewable resources. Policy support has pulled back to moderate levels. Decreasing energy storage prices, decreasing feed-in tariffs (FIT) for solar, increasing electricity prices for residential customers, and increased residential energy storage subsidies have all played a role in promoting Germany’s residential solar-plus-storage market development, with the self-generation of electricity becoming a popular choice.
2. United States Tax Cuts and Accelerated Depreciation Encourage Solar and Storage Combinations
Apart from its favorable environmental conditions, energy storage financing policies, and pressures from high electric prices, the United States has seen additional factors which have encouraged the use of solar-plus-storage applications. Support for the construction of energy storage systems in the United States has not relied completely on subsidy programs such as California’s Self-Generation Incentive Program (SGIP). Early efforts included Investment Tax Credits (ITC), tax credit policies created to stimulate green energy investment. Such policies provided solar PV projects with a tax credit of 30% on the total cost of the project. Other support includes accelerated depreciation, a tax deduction method approved by the IRS. Solar PV projects constructed after December 31, 2005 can make use of the accelerated depreciation rule, allowing stationary assets to gradually depreciate based on the equipment’s age. In 2016, ESA submitted proposal S3159 to the U.S. senate—The Energy Storage Tax Incentive and Deployment Act. The act specifies that energy storage technology may apply for ITC and that it may operate in support of renewable energy systems either independently or as part of a microgrid system. To promote the simultaneous development of energy storage and renewables, policies have also required energy storage systems to source at least 75% of their stored electric power from renewable energy as a condition for receiving ITC support. This support covers 30% of the system investment costs, lowering to 10% support by 2022. Energy storage systems that store between 75%-99% renewable sourced energy can enjoy a partial ITC tax break. Only those systems which store 100% renewable energy can enjoy full ITC benefits. At the same time, energy storage systems that do not include renewable energy components can utilize a seven year accelerated depreciation plan, equivalent to a 25% reduction in initial system costs. Although systems that source less than 50% of their charging capacity from renewable energy do not meet the requirements to receive ITC, they can still enjoy the same accelerated depreciation plan. Storage systems charging greater than 50% renewable sourced energy can enjoy a five year accelerated depreciation plan, equivalent to a 27% reduction in initial investment costs.
Many regions, including California, have been promoting the use of solar-plus-storage microgrid applications, shrinking electricity bills. Hawaii is a strong example of a region harnessing solar-plus-storage applications. For many years, Hawaii has used investment stimulus plans to support the use of energy storage technologies, in part as a way to harness the region’s plentiful renewable resources. High electricity prices have also encouraged the islands to construct solar PV systems. By the end of 2017, 16%-20% of households on each of Hawaii’s islands owned a solar PV system. The proliferation of distributed solar systems across the state has been a challenge for utilities. In 2015, the state government canceled net metering regulations for the Hawaiian Electric Company and implementing a policy to restrict the transfer of electricity back to the grid, essentially encouraging the use of combined solar-plus-storage systems. In January 2017, the region released a stimulus policy directly supporting the installation of solar-plus-storage systems.
3. Japan Explores Solar-Plus-Storage Applications for Power Markets
The choice to abandon nuclear power has led to rising electricity prices and supply issues in Japan. In response, the country has looked to reform its electricity system to provide safe, stable electricity and control rising prices. In the fall of 2014, Japan’s five big power companies decided to pause purchases of solar generated electricity in response to the rapid spread of solar generation. To address this problem, the Japanese government began to encourage renewable energy generators to adopt energy storage batteries, providing funding to power companies to develop concentrated renewable projects integrating energy storage that could lower curtailment of wind and solar resources and bring stability to the grid. In 2015, the Japanese government allocated 74.4 billion Yen to provide subsidies to wind and solar generators integrating energy storage batteries into their systems.
Japan began introducing feed-in tariffs (FIT) for stationary solar PV in 2012, resulting in rapid expansion of the country’s solar PV market. However, the purchasing system for renewable energy and implementation of FIT brought new problems. One example is the stability issues brought by the excessive construction and integration of solar PV into the grid. Such issues forced grid companies to request independent solar PV power generators to add battery storage systems to improve grid stability. Renewable energy subsidies also resulted in the increase of electricity prices, putting greater burden on ordinary customers. In response to these problems, Japan’s Ministry of Economy, Trade, and Industry issued reforms to the renewable energy purchasing and FIT systems. Such measures included allowing renewable energy purchasing prices to be decided by competitive bidding between companies and establishing medium- and long-term pricing goals, measures which help to clarify a timeframe for decreasing FIT prices. The continued lowering of solar PV FIT prices and the recent rise in electricity prices are factors that will contribute to customer use of self-generated solar PV, creating opportunities for greater use of energy storage to increase economic viability of such behind-the-meter solar PV systems.
4. The Domestic Solar-Plus-Storage Applications Environment
In contrast to the thirty years of open electricity markets in other countries, China’s “Thirty Year Power Market Reform” is still under way. In theory, China already possesses the solar-plus-storage technologies and market conditions necessary for large scale applications. China has begun user-to-user energy transactions, providing opportunities for customers to market their excess self-generated energy. Solar generation subsidies have also seen enormous reduction, creating an urgent need to find profit generation methods that do not rely on policy support. Customers also show interest in reducing their reliance on the grid. In addition, the Methods for Promoting Construction of Grid-Connected Microgrids policy stipulates that grid-connected microgrids must have a renewable energy capacity of over 50%, and the exchange of energy between microgrids and external grids should not exceed 50% of the year’s total energy use. Demonstration projects have helped support the penetration of renewable energy into the grid, and as renewables proliferate on a large scale, demonstrations must stress the self-generation model, promoting self-sufficient systems that also make use of energy storage.
Energy storage has already become an important part of China’s energy demonstration projects, bringing attention to electricity pricing reforms and solar PV investment while increasing the opportunities for solar PV and energy storage to be combined in hybrid applications. At the current stage, cross-subsidization and residential power use limitations have not been enough to stimulate residential behind-the-meter energy storage applications, yet as solar PV prices continue to fall, the value of behind-the-meter solar-plus-storage applications for industrial-commercial use will become more apparent. The movement toward an open electricity market provides new market pricing and transaction mechanisms that will help create more opportunities for solar-plus-storage applications and developments in China. In the future, China’s solar-plus-storage developments and applications will see benefits from the retirement of current policies and the opening of the electricity market.
Author: Wang Si Translation: George Dudley