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New Bain & Company research anticipates energy storage will have tremendous implications across the electricity value chain, but early deployment requires ‘value stacking’

New York – Oct. 18, 2017 – As the rapid adoption of electric vehicles brings down battery costs, energy storage is coming online quickly. In new research, Embracing the Next Energy Revolution: Electricity Storage, Bain & Company estimates that large-scale battery storage could be cost competitive with peaking plants by 2025. This revolution will have tremendous implications across the electricity value chain. However, Bain finds early deployment of utility-scale energy storage will require new business models that create value in multiple ways – also known as value stacking.

Battery storage’s distinguishing characteristics – part generator, part wire and part ancillary service – are what make it revolutionary. As such, it needs to be considered an integrated offering by both utilities and regulators who would otherwise tend to regulate these historically discrete businesses separately. Storage is well positioned to become an integral tool for utilities in managing peak loads, regulating voltage and frequency, ensuring reliability from renewable generation, and creating a more flexible transmission and distribution system. For utility customers, storage can be a tool for reducing costs related to peak energy demand and helping meet sustainability goals by ensuring a more reliable flow of electricity from distributed renewable generation, namely solar.

“Utilities can use batteries to store electricity during periods of low demand and then tap the stored electrons during peak periods to shave peak loads. Customers can do the same to offset electricity rates,” said Julian Critchlow, who leads Bain’s global Utilities Practice. “But until costs come down, leaders in energy storage will need to explore ways to stack value on top of peak shaving.”

Bain suggests utilities adjust their operating models to take better advantage of the opportunities from storage and other technological developments in the electricity system. For example, as energy storage shaves peaks and flattens the load curve, utilities may be able to forego some investments in peaking capacity and defer investments in transmission and distribution infrastructure. In this way, storage not only becomes a tool to meet system needs but can also reduce system costs as it pushes unnecessary capacity and waste out of the system.

Additional opportunities may come from new business models related to value stacking. To make the most of these, utilities will need to think creatively about ways to partner with commercial and industrial customers:

• A large commercial customer running a fleet of electric vehicles may for efficiency choose to deploy an array of large batteries at a garage where vehicles are parked and recharged in the evening. This electricity storage asset may be available for use by the utility during times when the vehicles are fully charged or on the road.
• Similarly, a company with large data centers may invest in battery storage to ensure a reliable supply of electricity, but may allow the utility to tap those resources when the data center doesn’t require them. Deals like these will require some new muscles within utilities, since most are not accustomed to managing these types of partnerships.

Central to all of these efforts is enhancing utilities’ IT capabilities, particularly mastery over advanced data analytics. Increasingly, they will require better visibility of supply, demand, and voltage and frequency needs as customers and regulators demand more from utilities.

Along with new opportunities, however, energy storage also brings added challenges and complexities, such as integration into strategic plans, investment decisions, or regulatory priorities. Although vertically integrated or regulated transmission and distribution utilities may have the best integrated view of the need for storage, regulators are concerned that utility participation could dominate or stifle the market.

“As energy storage costs continue to decline, new business models that integrate a wide range of value streams together will unlock its potential,” said Aaron Denman, a partner in Bain’s Utilities Practice. “Energy storage has the potential to transform the entire electricity value chain, but in order to capture the opportunities at hand, utility executives need to move quickly and aggressively.”

For utility executives assessing the energy storage opportunity, the first step is defining the role of energy storage and related services within the strategic plan. Executives should also continue to work to shape their regulatory environments including performance-based incentives that encourage the deployment of storage to improve reliability, resilience and safety while lowering system costs.

Editor's Note: To arrange an interview, contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102

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