Summary

• Soaring T&D Charges Drive Electricity Costs: California electricity rates are up 50% since 2020, primarily due to transmission and distribution (T&D) costs for wildfire prevention and grid upgrades. 
  
  
• Batteries Generate Major Savings: By shifting the amount and timing of grid electricity use, batteries can generate multiple value streams including reduced demand charges – which amount to to 40% or more of business electricity bills in California.
  
  
• Third-Party Expertise Unlocks Value: Optimizing battery operations can be complex, but third-party experts like Scale can analyze facility energy usage patterns and relevant utility rates to ensure maximum value without impacting operations. 

Costs for battery storage technology have dropped nearly 80% over the past decade, leading to a boom in both large-scale and small-scale installations that is transforming the way the grid operates. Flexible, fast-responding batteries are proving invaluable for maintaining reliability as we decarbonize, thanks to their ability to soak up ultra-cheap solar energy for use when it’s needed most – e.g., peak hours of demand during the late afternoon and early evening, or during heat waves when A/C use cranks up. 

Nowhere is this transformation more evident – or more needed – than in California, long a leading adopter of solar that is now leading the way in battery storage. With over 10 GW of batteries installed, including over 1.6 GW of smaller-scale installations at homes and businesses, California accounts for more than half of U.S. battery capacity. According to the analysts at GridStatus, this battery fleet is helping reduce California’s reliance on natural gas during daily peaks in demand, resulting in the lowest gas generation in 7 years this past spring. 

Batteries also have tremendous potential to help individual businesses in California manage fast-rising electricity prices. In a previous blog, we discussed how distributed energy resources (DERs) also offer a path for California businesses to remain competitive, and in this blog we’ll dive deeper into the critical role that battery storage technology plays – and how Scale is working with companies to help achieve millions of dollars in cost savings with fully-financed battery-based solutions for $0 down. 

How batteries help California businesses save

California faces the highest electricity costs in the contiguous U.S., and utility rates for business customers have increased by an eye-watering 50% since 2020. And as discussed in our previous blog, this escalation in rates is increasingly driven by the transmission and distribution (or “T&D”) portion of electricity tariffs, which pay for upgrades to the utility infrastructure. While this is a nationwide trend, California’s T&D cost increases are especially severe due to the need to harden the grid against wildfires through expensive measures like undergrounding power lines. According to analysts at WoodMac, T&D charges make up nearly 60% of business electricity rates today, and that share will increase by more than 5% by the end of the decade. 

Because these T&D costs reflect fixed cost investments in the network that are paid off through rates over decades, this trend means that a growing portion of price increases are effectively “baked in,” even as low-cost renewables help drive down the cost of generation. Moreover, the T&D portion of price increases can’t be hedged by switching to competitive retailers, since these costs must be paid by all energy suppliers that use the utility system regardless of their source of energy. 

Batteries are often thought of primarily as a source of resilient backup power – which can be enormously valuable in California, the Lawrence Berkeley National Laboratory estimates a cost of $100 per kilowatt-hour to businesses during power outages. However, gaining day-to-day control over these essentially permanently-high electricity rates is also becoming a primary driver for commercial and industrial battery installations in the state. For these customers, cost savings from batteries can accrue from several value streams:

• Avoiding demand charges: In many cases, the biggest opportunity for cost savings provided by a battery system is demand charge management. Demand charges are based on the highest level of energy used in a given hour during a monthly billing period, and California has some of the highest demand charges in the country. These charges amount to about 40% of electricity costs for many businesses, or even higher for facilities with on-site EV charging infrastructure or other equipment that can drive periodic peaks in demand. By tapping into an on-site battery during hours of peak load, businesses can reduce the amount of power they need to draw from the grid at any one time, flattening their load and greatly reducing demand charges.

Source: Scale analysis

• Buying electricity when it’s cheapest: Batteries also enable businesses to take advantage of the cost differential between on-peak kilowatt-hours and off-peak kilowatt-hours. An optimized system can charge batteries when prices are cheaper during off-peak hours and then draw on that stored electricity during expensive on-peak hours, resulting in per-kWh savings. These savings can be significant today, and a battery system also offers future flexibility if and when tariff structures change.
  
  
• Maximizing value of on-site generation: Customers with on-site generation assets such as solar panels can achieve even deeper energy savings. For example, batteries enable solar generated during mornings and midday to be stored for use during costly late afternoon periods of peak demand. The savings from using on-site power can be considerable, given the competitiveness of solar on an energy basis as well as the ability to avoid the transmission and distribution portion of tariffs. 
  
  
• Demand response and VPPs: On hot summer days when demand is high, utility demand response programs can offer payments to businesses that relieve stress on the grid by cutting their power usage. Batteries can make it easier to participate in demand response events, allowing companies to tap their own on-site power to reduce grid use without reducing their productivity. California utilities are also piloting “virtual power plant” (VPP) programs, which may offer opportunities for additional revenues from the use of batteries to provide grid services. 

When you add up all these value streams, installations of batteries alone can save businesses hundreds of thousands of dollars a year. For example, one large biotech company in San Diego stands to save $21 million on energy costs over the 20-year life of their battery project, with $0 down and 10% savings in the first year of operation. And incorporating them into microgrids that include additional DERs like solar and dispatchable generation enable businesses to pursue the increasingly-popular strategy of “going long” on energy and locking in power supplies with stable costs during this period of rapid change on the grid.

Why work with Scale

The myriad benefits of on-site battery storage are becoming obvious for California businesses, but the path to designing, installing, operating, and paying for these systems is often much less clear. On the technical side, realizing the full cost and resilience benefits of battery systems requires careful attention to system design and installation as well as ongoing operations. For example, storage capacity needs to be right-sized to maximize cost savings opportunities as well as resilience needs, and delivering these benefits on a day-to-day basis requires sophisticated dispatch control and optimization. 

When it comes to costs, capital expenses for a battery system can often be reduced with rebates from the California Self-Generation Incentive Program (SGIP) as well as the federal incentive tax credit (ITC) – but these incentives are not always straightforward. SGIP availability depends on factors including utility and location (for instance, in a high fire-threat territory), and the federal ITC can have additional value for projects depending on factors including economic conditions in a given location. Thus, identifying, understanding, and securing these incentives requires significant administrative bandwidth – and, even after factoring in incentives, the up-front costs of a battery system may take years to pay back. 

As a leader in on-site energy solutions, with financial backing from private equity firm Warburg Pincus, Scale can make the process of battery adoption easier in three ways:

• Project design and delivery: Our team of highly experienced project developers can design and install batteries and any other on-site energy assets (e.g. solar panels) to meet your needs, taking into consideration factors including your facility’s energy usage, your critical operational requirements, and opportunities for cost savings. We also have industry-leading Tesla Megapacks in stock, allowing us to design and deploy battery systems within a year instead of industry standard wait times of 2-3 years. 
  
  
• Operations management: Scale’s asset management team leverages our industry-leading in-house software platform, ScaleOS, to optimize the charging and discharging of your system to maximize energy cost savings from demand charges, energy arbitrage opportunities, and participation in demand response programs – or even VPPs. We’ll also provide ongoing maintenance to ensure your system is operating as designed and is prepared to meet your backup power needs in case of an outage.
  
  
• Financing: Scale’s Microgrid Services Agreement (MSA) financing model allows us to offer customers battery systems for $0 down. Under an MSA, Scale owns the microgrid and simply charges customers a monthly or annual fee for energy services provided, similar to traditional Energy Services Agreements (ESA). This financing model enables our customers to take advantage of the full stack of cost savings from battery storage (and microgrids) while eliminating operational risks, up-front costs, and the complexity of managing incentive program participation.

Scale’s position as a leading innovator of distributed energy solutions also ensures that our customers stay ahead of the curve on emerging opportunities such as VPPs. Our MSA contract structure ensures the continual pursuit of maximum value for our customers, not just today but over the long-term, giving you an expert partner in addition to cutting-edge on-site resources to navigate the fast-changing energy landscape. 

Make energy a competitive advantage

California businesses are facing major headwinds from rising energy costs that will likely become more and more severe over time. Installing an on-site battery system – potentially alongside additional energy assets like solar panels or dispatchable generators as part of a microgrid – represents by far the best opportunity to immediately take control of these costs and create a competitive advantage for your business. 

Incentive funds are limited, and working with Scale can make it easy to secure a long-term energy advantage with maximum peace of mind and no up-front costs. Contact us today at shughes@scalemicrogrids.com to learn more.