Commercial, Industrial & Institutional Facilities are the Next Frontier for Energy Storage


Game changing energy storage technologies will fundamentally alter the functionality of the electric supply system: What this means for energy consumers, and why commercial facilities should be considering it today.

As we consider the future of the built environment, one of the most dramatic changes will be the way we generate and consume electricity. The challenge to decarbonize our energy supply has created a myriad of opportunities for new ways to generate, manage and consume power. Over the last decade, clean energy technologies like solar and wind have been complimented by super-efficient technologies like LED lighting and new heating and cooling technologies, resulting in lower costs for consumers and fewer emissions. Energy storage is the critical third leg of this stool, the lynchpin that enables more rapid penetration of new efficiency technologies and clean energy generation.

Why energy storage is important

Because electric power cannot be stored, it requires the overbuilding of our energy systems with a vast amount of expensive, and often dirty, capacity waiting on the sidelines ready to be called upon during periods of peak demand. For example, a recent study by the Department of Energy Resources in Massachusetts calculates that the top 1% of peak energy demand for the state represents 10% of the overall supply costs and that the top 10% of peak demand represents 40% of total energy supply costs.[1] Energy storage gives grid operators much more control in managing their load. Batteries can be charged in periods of low demand and deployed when energy  is needed. It also allows energy resources to be located closer to where the energy is required, relieving congested nodes on the grid and reducing the need to upgrade distribution systems.

In recent years, as the world has begun to address the carbon intensity of electric power supplies, we have seen a significant deployment of clean energy generating sources. Much of this new capacity has come from solar and wind energy which are “intermittent” resources, meaning that they produce power dependent on the wind blowing and the sun shining.  At higher levels of penetration, intermittency can create additional burdens for managing the grid; not producing enough power when it’s needed or producing too much power when the grid can not accommodate it. A well known pattern of solar energy production is called the “duck curve” (see image below) where solar energy systems deliver maximum output during the middle of the day, but then trail off as the grid hits its peak in the evening. Energy storage can help to balance these intermittent resources and smooth out load problems like the duck curve.

The “Duck Curve:” Image from California Independent System Operator

Another important benefit of energy storage is resiliency, as a battery system can allow a facility to continue operations during a power outage. This is especially important for critical infrastructure like hospitals and public safety facilities. Traditionally these facilities have often relied on diesel generators for backup power, but with the penetration of on-site solar, declining battery costs and the ability to avoid demand charges, storage is becoming an attractive and cost effective option to enhance resiliency.

With the expense of building a grid that needs to ramp-up on a moments notice to meet demand, and a growing amount of intermittent generation sources from solar and wind, the ability to store energy becomes much more urgent. Historically, batteries have been too expensive to displace peaking assets on the grid, but with the plummeting costs of batteries this is rapidly changing, and may happen sooner than many think.

Early Deployment at Utility Scale

In European countries that were early adopters of storage friendly policies, energy storage has seen robust market penetration. According to Energy Storage News, 300 Megawatt (MW)  hours of energy storage was installed in the EU in 2015 which grew to 700 MW hours installed in 2017. 60% of the total installed capacity is utility scale. These are larger projects that benefit from scale efficiencies and are often referred to as “front of the meter.” This means it is a stand alone project that feeds power directly into the grid. Commercial and Industrial (C&I) projects are often called “behind the meter” as they sit behind the meter at a facility and provide on-site energy with benefits going directly to the energy consumer.

The C&I market is expected to see explosive growth over the next five years

A recent study by Delta Energy and Environment predicted that by 2021 up to 210 MWs of energy storage would be installed annually in Germany and the UK for C&I markets; this would be ten times the 22 MWs installed in 2016.[2] Like Europe, the U.S. has seen initial market penetration at the utility scale. However, behind the meter systems are expected to see tremendous growth in the next few years. A report by Green Tech Media and the Energy Storage Association forecasts the U.S. C&I market to grow 15 times its current size in 5 years (by 2023) reaching 3.3 Gigawatts (GW) of new annual capacity. By 2019, it is expected that behind the meter projects (residential and C&I) will comprise 50% of the new capacity.[3]

Behind the boom: a closer look at the economics of commercial and industrial energy consumers

To understand why C&I facilities are expected to see such rapid rates of adoption we need to take a closer look at how C&I customers are charged for their energy. Typically utilities charge commercial customers in two different ways. Most well known are volumetric charges, i.e. how much energy is consumed over a period of time. This is calculated in terms of kilowatt hours (kWh).  However, because of the expense of managing peak demand, many utilities will also send economic signals that encourage consumers to “flatten” their load; i.e. avoiding dramatic energy surges that will trigger the need to call upon more expensive generating assets.

The most common way that utilities send these signals is through demand charges. Although these charges can vary in the way they are calculated, typically a utility will look at a consumer’s peak load each month for a short duration of time, usually a fifteen minute window. The demand charge is calculated by taking the peak usage for each month and multiplying it by a certain rate. Unlike energy consumption charges, demand charges look only at a snapshot in time, and thus are based on kilowatts (kW) as opposed to the volumetric charges which are based on kilowatt hours (kWh).

For example, a small manufacturing company may have a big order due at the end of the month and utilize all of its machinery in a short period of time, causing a spike in its energy consumption. Let’s say their typical load is 750 KW but during the end of month surge it ramps up to 1200 KW. The rate for demand charges can vary from zero to as high as $50+/KW. Let’s assume $40/KW. This would translate to a monthly charge of $48,000, just for that one spike in energy consumption. Typically demand charges are anywhere from 30%-70% of a customer’s bill.

Price signals justify commercial scale energy storage projects today

High demand charges are sending price signals that are accelerating the energy storage market. In looking to mitigate these charges, facility and energy managers are looking for ways to even-out their load profiles. At the same time, commercial energy storage systems have rapidly declined in price, making storage an attractive option today. In fact, according to a study by the Clean Energy Group and the National Renewable Energy Laboratory (NREL), installing an energy storage system makes economic sense for customers who are paying more than $15/kW in demand charges. Based on this threshold, NREL determined that energy storage systems would make economic sense (2-5 year payback) for 5 million commercial customers in the US.[4] As policy makers establish incentive programs for energy storage, the numbers will become even more compelling.

In another study, NREL looked at two specific case studies for commercial facilities to determine the potential value of an energy storage system. The first project was in Los Angeles, CA and looked at a storage system paired with photovoltaic (PV) solar energy, and a second project in Knoxville TN that only had a battery system. Based on the potential performance of a lithium ion battery system, both projects had a positive Net Present Value (NPV); $31,874 for the Los Angeles project and $60,731 for the project in Knoxville.[5]

Incentives for Energy Storage:

Like Europe and other global markets, the rate of penetration for energy storage is dependent not only on the underlying market conditions but also government policies to jump start the market. In Europe, first Italy, then Germany and then the UK each created rapid growth as they rolled out storage friendly policies.  In the U.S., early stage markets are driven by state policies with the leader being California where a rebate program called the Self Generation Incentive Program (SGIP) drove 45 MW of new installed storage capacity for the C&I market in 2017. More recently, New York, New Jersey and Massachusetts have all launched new storage incentive programs. Of course federal policies are also important and customers who co-locate storage with solar, will be able to take advantage of the 30% Investment Tax credit and accelerated depreciation.

Types of Energy Storage:

Energy storage can come in multiple forms. Systems can range from pumped hydro to compressed air systems. For commercial facilities, we have already seen the use of thermal energy storage where buildings are heated or cooled during off-peak hours when electric prices are cheaper. We have also seen the deployment of ice systems that exploit the same arbitrage opportunity. Flywheels have been deployed to help with frequency modulation on the grid and flow batteries have the potential for longer-term storage requirements. For electrical power and the demands of the C&I market, lithium-ion batteries are currently the technology of choice. These systems are produced by reliable OEMs, require little maintenance and are easily installed at a commercial facility. Their “energy profiles” match well with storing energy from the grid or a solar energy system and then deploying that energy over shorter period of time to mitigate the demand charge by “peak shaving”.


An example of an installed DSS®Distributed Storage System ©2018 NEC Energy Solutions, Inc. – Used with Permission


Bringing intelligence to energy storage

As mentioned above, the preferred technology for C&I applications is a lithium ion battery. Although we are still seeing innovations in manufacturing that are driving down costs, the performance characteristics and longevity of lithium ion are well understood and predictable. However, a battery needs an operating system to tell it what do. This system needs to be sophisticated enough to understand when the facility load is at its peak and when to deploy its energy. Most commercial battery systems come with their own integration software or can be combined with other energy management software.

Over time, these systems will become increasingly sophisticated to factor in a variety of additional variables such as market pricing signals, time of use rates or even predictive models using weather, load and other data. This is called demand monitoring and many C&I customers are installing these software systems, even without storage, because it gives them in-depth insight into their energy load and the ability to control it. For example, they could sub-meter tenants or identify specific pieces of equipment that they wish to monitor in order to operate it more efficiently.

The Benefits of Pairing Solar and Storage

When combined with a solar energy system, energy storage essentially allows a facility to be self sufficient in that it can generate its own power, store it and use it as needed. However, although it is technically possible, the economics at this point do not favor disconnecting from the grid. The sizing requirements for a storage system large enough to be completely independent of the grid does not yet make economic sense in most market conditions. Instead, energy storage systems will be designed to lower costs through demand mitigation (reducing demand charges by reducing load spikes), arbitrage (for facilities with time of use rates) and back-up power that can keep facilities fully operating for a limited amount of time or a subset of critical systems for a longer period of time. Lastly, as policy makers continue to leverage the benefits of distributed generation and storage there are likely to be more opportunities for facilities to monetize their systems. This will give facility managers even more flexibility with their energy choices down the road.

Exploring the advantages of energy storage

Across the globe, policy makers are recognizing the benefits of energy storage and this is reflected in aggressive market forecasts. With large, complicated energy loads commercial, institutional and industrial facilities are ripe for storage deployment. In turn, the benefits to these entities go beyond cost savings giving them more control and optionality with their energy strategies, increasing their resiliency and helping them to achieve their sustainability goals.

However, for facility managers who are interested in pursuing these benefits the initial steps can be quite daunting. The best choice will be dependent on specific incentives, tariff structures and load profiles. If you think storage, or a combined solar and storage system might be a good fit for your facility, a reputable energy company should provide a basic assessment free of charge. That assessment should indicate the potential for savings. In-depth analysis is often done for a fee or a shared savings model. By understanding your options, you are taking the first step in lowering your bills and your carbon footprint while also building resiliency and gaining control of your energy future.



John Mosher is the vice president of energy solutions at Solect Energy in Hopkinton, MA. John leads Solect’s Energy Storage Division and he can be reached at

[1] Massachusetts Department of Energy Resources, State of Charge Report,

[2]Jason Deigh, C&I Storage Expected to Grow Threefold…, Feb 17, 2017, Greentech Media:

[3]Energy Storage Association & Greentech Media, US Energy Storage Monitor: 2017 Year in Review, March, 2018:

[4]Joyce McLaren & Seth Mullendore, Identifying Potential Markets for Behind the Meter Energy Storage…, Clean Energy Group & National Renewable Energy Laboratory, August, 2017.

[5]DiOrio N, Dobos A, Janzou S. Economic Analysis Case Studies of Battery Energy Storage with SAM. National Renewable Energy Laboratory. Published November 2015.