March 14, 2023

Charging Ahead: Innovative Ways to Fund Battery Energy Storage Systems for a More Sustainable Future

Charging Ahead: Innovative Ways to Fund Battery Energy Storage Systems for a More Sustainable Future

As businesses look for ways to reduce their energy costs in 2023, battery energy storage systems (BESSs) are becoming an increasingly popular option. Although battery energy storage systems are widely viewed as a smart, efficient way for businesses to increase their sustainability, the high upfront costs have become a barrier in the transition.

For many companies, the upfront costs of deploying BESSs can be a significant hurdle. Fortunately, there are a variety of funding options available for businesses looking to invest in this emerging technology.

In this article, we’ll explore some of those funding options for businesses looking to invest in BESSs, and explain how to make the most of this technology.

What Are Battery Energy Storage Systems?

A BESS is a type of energy storage system that relies on batteries to store and distribute energy in the form of electricity. According to Carbon Collective, BESS systems are most commonly used in electricity grids, along with applications such as businesses, electric vehicles, solar power installations, and smart homes.
Businesses can use a BESS for energy savings in one of two ways. The first option would be to store energy when energy prices are low, and to discharge energy when energy prices are high. The second option would be to discharge energy when loads are highest as a way to reduce peak demand use, and as a result, reduce peak demand charges.

Although these are the two primary ways businesses use a BESS for energy savings, there are other reasons why a business may want to use a BESS. For example, some businesses use a BESS for battery backup. A business could also invest in a BESS that connects directly to the grid, however that is much less common.

As the world transitions to a more sustainable energy future, BESSs are poised to play a crucial role in shaping the power systems of tomorrow.

Globally, the battery energy storage system market is expected to reach $12.1 billion by 2025, up from just $2.9 billion in 2020. In order to reach those projections, businesses and other organizations investing in battery energy storage will need to have access to the right funding options.

Reducing Energy Costs

A BESS can be an effective tool for reducing energy costs. Here are some ways a business can use a BESS to achieve this goal:

Time-of-use optimization: A BESS can be used to store excess energy during off-peak hours when energy prices are lower, and then discharge the stored energy during peak hours when prices are higher. This strategy helps businesses reduce peak demand charges and overall energy costs.

Peak shaving: A BESS can be used to reduce a business’s demand during peak periods, which means avoiding high demand charges. By discharging the stored energy during peak periods, a business can potentially avoid costly peak pricing.

Backup power: A BESS can be used as a backup power source during power outages, which can help avoid costly downtime for a business. By storing energy during normal operating hours, a business can ensure that critical systems remain operational during power outages.

Benefits & Use Cases for BESSs

BESSs are used in a variety of applications, including peak shaving, frequency regulation, and renewable energy integration. In 2020, the California Public Utilities Commission approved four battery storage projects to provide critical capacity and reliability services to the state’s electric grid.

One of the key benefits of BESSs is their ability to help stabilize the grid by providing frequency regulation and voltage support. These services are critical for maintaining the reliability and stability of the power system, particularly as more renewable energy sources are added to the grid. With the help of BESSs, the grid can maintain a steady frequency and voltage, ensuring that power quality remains high.

BESSs also have the potential to reduce the need for expensive grid infrastructure upgrades. By storing excess energy during times of low demand and releasing it during peak demand periods, BESSs can reduce strain on the grid and defer the need for costly infrastructure investments.

According to a report by the National Renewable Energy Laboratory, battery energy storage systems can help to reduce peak electricity demand by up to 10% and save businesses up to 30% on their electricity bills.

Another key benefit of BESSs is their ability to enable greater integration of renewable energy sources into the grid. Renewables like wind and solar are intermittent, meaning that their output fluctuates depending on weather conditions. BESSs can help to smooth out these fluctuations, ensuring that the electricity generated from renewable sources is available when needed.

Types of Battery Energy Storage Systems

There are a variety of types of BESSs available on the market today. Lithium-ion batteries are currently the most common type of battery used in BESSs due to their high energy density and relatively low cost. However, other types of batteries, such as flow batteries and sodium-ion batteries, are also gaining popularity.

When it comes to deploying a BESS, there are several factors to consider, including the size of the system, the type of battery, and the intended application. For example, a small-scale BESS designed to power a home will have different requirements than a large-scale system designed to provide grid-scale energy storage.

6 Ways to Finance a Battery Energy Storage System

A number of funding options are available for businesses looking to invest in BESSs. The most suitable option will depend on factors such as the size of the project, the business’s financial situation, and the availability of government incentives or grants. Businesses should carefully consider their options and seek expert advice to ensure they select the financing option that best suits their needs.

Six of the more common options for financing a BESS include:

1. Self-funding

Some businesses may choose to finance a BESS project using their own capital. This can be a good option for businesses with strong cash reserves or access to low-cost financing. Self-funding can offer more control over the project and may result in a faster return on investment.

2. Power Purchase Agreements (PPAs)

PPAs are contracts between a business and a third-party developer, where the third party installs, owns, and operates the BESS system, and the business agrees to purchase the power generated by the system at an agreed-upon price. PPAs reduce upfront capital costs and may provide long-term cost savings to the business.

3. Energy Savings Performance Contracts (ESPCs)

An ESPC is a contract between a business and an energy services company (ESCO) that finances, installs, and maintains a BESS system on the business’s property. The ESCO guarantees energy savings to the business, and the business agrees to pay for the BESS system using a portion of the energy savings achieved.

4. Government incentives and grants

Many governments offer incentives and grants to businesses looking to invest in clean energy technologies like BESSs. These incentives may include tax credits, rebates, and low-interest loans.

5. Commercial loans

Businesses may be able to secure financing for a BESS project through a commercial loan. Many banks offer loans specifically for clean energy projects, which can provide favorable terms and interest rates.

6. Crowdfunding

Crowdfunding platforms allow businesses to raise funds from a large number of individual investors. While this may not be a suitable option for larger BESS projects, it can be an effective way for smaller businesses to raise capital.

Key Takeaways

BESSs are an exciting technology with the potential to transform the energy industry. As the world continues to transition to a more sustainable energy future, BESSs will play a crucial role in supporting the reliable delivery of electricity on both a small and large scale.

Businesses looking to invest in BESSs have a variety of funding options available to them. By carefully considering their options and seeking expert advice from a licensed engineering solutions provider, businesses can make the most of this technology and reap the benefits of reduced energy costs over time.

KMB Design Group is a full-service engineering solutions provider licensed in the United States and Europe. Our team is at the forefront of the escalating solar industry. As a leading consulting firm in the energy services sector, we’re not only engineers, but also stewards for the environment and community. For more information on BESSs and other energy services, contact us today at 855-755-6234.