Battery Energy Storage Systems (BESS) are no longer considered an emerging technology because of the large-scale deployment of lithium-ion-based battery storage across the United States. Battery manufacturing global expansion combined with Investment Tax Credits (ITC) have created alternatives for municipalities and cooperatives to procure BESS as an economical resource in their power supply portfolio. Public Power has historically contracted with third-party owners and operators through an Energy Storage Service Agreement (ESSA), which provides utilities access to the equipment without the liability of ownership. The need for ESSA’s has been driven by third-party development and operations experience along with life cycle management of expected performance and decommissioning responsibilities. Technology maturation and the ability for Public Power to capture the ITC through Elective Direct Pay has created opportunities for utilities to develop, own, and operate BESS facilities.
Direct-Purchase and Build-Transfer Agreements (BTA) are becoming a viable option for utility owned and operated BESS facilities. The challenges of owning and operating Distributed Energy Resources (DER) are not trivial and most municipal and cooperative utilities may not be immediately equipped to integrate a technology in which they have no experience. The responsibilities of asset ownership involves many things, including financing alternatives, qualified support services, capturing incentives, developing internal organizational capability, and managing performance over the project’s life.
HOW DOES IT GET DONE?
Project execution steps vary on a case-by-case basis but always involves the hurdles of: (1) early-stage development, (2) obtaining project capital / financing, (3) selecting project partners, and (4) assuring Operation and Maintenance (O&M) throughout the life of the equipment. Many utilities are familiar with aspects developing, owning, and operating power resources such as distribution systems and substations, but are less familiar with the aspects of BESS due to the relatively new entrance of this technology into utilities DER portfolios. An electric utility’s organizational capabilities and project partners determine the ability to support the various aspects (Figure 1) of BESS asset ownership. 
- Early-stage development: Owning BESS involves the typical steps of evaluating the value proposition through market and regulatory analyses. The early-stage development process establishes site control, begins the long-term planning process, and determines how the capital expenditure will be financed or otherwise funded.
- Capital/ Financing: Determining how the project’s capital cost will be funded is specific to a utility’s access to cash through municipal bond financing, Rural Utility Service (RUS) loans, traditional loans, or even having cash on hand. A distinct advantage for municipalities and electric cooperatives is the lower cost of capital relative to Developers, combined with their ability to partner with local industrial or investment entities on upfront capital requirements. Local partners such as data centers, manufacturing facilities, or even community energy programs all have potential to help a utility financially justify the expenditure through electric rate structures or other alternative project structures.
- Engineering: Development of the selected site will facilitate decisions on various best practices to achieve technical specifications for a construction firm to complete civil design scope. This process results in a specification for contractors to implement designs based upon physical constraints, equipment specifications, substation integration analysis, system impact studies, operation and maintenance planning, integration with utility operations, applicable codes and standards, community and environmental impacts, site access, and utility preferences.
- Procurement: Most electric utilities have robust procurement processes in place that are suitable for BESS equipment procurement. To be eligible for the ITC Elective Pay, current Internal Revenue Service guidance requires the project meet Domestic Content thresholds in addition to Prevailing Wages. The accounting of these parameters can be complex and will require tax and accounting skills to advise and manage the process.
- Construction: A general contractor experienced with utility work is typically capable of turning development specifications into detailed design documents outlining the requirements for materials, workmanship, and methods, which ensures consistency and quality. Appropriate staff, including third-party engineers, can advise construction planning and select local companies to execute necessary geotechnical site studies and construction work.
- Operations: BESS facilities are not trivial to manage and require 24/7 monitoring, bi-annual preventative maintenance, and an event response plan. Operations planning translates equipment technical requirements into scheduled maintenance, monitoring strategy, and event response action planning. Utilities can develop best practices to manage operation agreements with third-party O&M provider(s).
- Asset Management: Assuring the economic success of the project comes down to rigorous asset management throughout the life of the project, including construction, operations, and end of life removal. Electric utilities are already familiar with many aspects of managing BESS facilities, such as: regulatory compliance, developing emergency action plans, depreciation managing contractors, product performance analysis, and ensuring employee and public safety. Combining a utility’s existing know-how with an experienced third-party vendor will produce an effective asset management team.
SHOULD A PUBLIC POWER UTLITY OWN AND OPERATE A BESS?
The decision to incorporate energy storage also has long term implications whether the asset is owned by the utility or a developer. Every utility has their own challenges that determine the most economical and comprehensive solution. Some entities may be experienced in owning and operating generation assets while other utilities have experiences limited to the electric distribution system. Although BESS is far less complex than an aeroderivative turbine and other utility managed assets, each entity will need to carefully evaluate the ability to support the project throughout its lifecycle. Diligence should be completed with respect to obtaining capital financing, reviewing internal capabilities, and seeking out third-party services that allow them to successfully execute the project plan.
INSPECT WHAT YOU EXPECT: A project proforma can demonstrate required levels of capital financing, asset management profile, need for third-party services, and the qualitative and quantitative benefits of the project. Sensitivity analyses will help evaluate low-probability-high-impact events or unexpected issues over the life of the system, both of which allow a utility to determine appropriate risk management or mitigation tools, including potential third-party vendor support.
ACCESS ORGANIZATIONAL CAPABILITIES: Not every utility is equipped to explore all aspects of owning and operating BESS, but there may be some key areas that allow the utility to create opportunities from within and grow. For example, the electric utility typically has a detailed understating of its electric distribution system and substations to integrate the BESS into their system with the correct protection and controls. Once an evaluation of organizational capabilities is complete the utility can seek out support services from known project partners and other third-parties to assure project success.
THIRD PART SERVICES: Third-party services are widely available to help assure project success while utilities eventually scale up operations during construction and over the life of the project. Some of these services include outside assistance for legal and regulatory compliance, market analysis and integration, communication and data management, financial consulting, technical consulting, information technology, operational and maintenance, and general asset management support.
Until recently, the idea of owning energy storage was out of reach for many electric utilities, particularly cooperatives and municipal utilities, due to a lack of familiarity with the technology and rapidly emerging energy storage industry. But as is often the case with emerging technologies, familiarity increases with the technology, ownership cost structure, and use cases over time and today’s BESS industry has matured in such a way that electric utilities now have options as to whether they want to assume more ownership responsibilities and benefits versus outsource those responsibilities to BESS developers.
For more information or to comment on
this article, please contact:
MATT SMITH, SENIOR ENGINEER
GDS Associates, Inc. - Marietta, GA
770.799.2478 or
matt.smith@gdsassociates.com