Battery Energy Storage Systems: Benefits & Solutions

Energy price volatility coupled with the environmental impact of fossil-fuel electricity are leading more corporations like yours to adopt renewable energy sources. Incorporating a battery energy storage system (BESS) into your energy mix alongside other assets like solar panels can maximize the operational and sustainability benefits of renewables, which is why it’s no surprise that battery capacity in the U.S. will just about double in 2024. If you’re interested in energy storage solutions but are unsure about the benefits they provide, keep reading.

Understanding BESS and How It Works

A battery energy storage system is a highly flexible asset that can reduce energy costs and contribute to energy security. With the price of lithium-ion batteries hitting a record low in 2023, battery energy storage systems have evolved into a cost-effective, reliable energy solution for many types of organizations including workplaces, nonprofits, and educational institutions. But how exactly does a BESS work?

The role of a battery is to store energy and then dispatch it when needed. A battery energy storage system functions similarly to a standard consumer battery but is applied at scale to help power a facility.  

A BESS is not a single battery, but a bank of connected batteries that work together with other components to store energy. A standard BESS configuration consists of:  

• Batteries: Typically composed of lithium-ion, BESS batteries are energy dense, meaning they store a significant amount of energy without taking up a great deal of space.
• ‍Enclosure: Batteries are housed within a metal structure, the enclosure, which protects the system from the elements and allows access for maintenance.
• ‍Inverter/Charger: Batteries store and discharge direct current (DC), but facilities require alternating current (AC). The inverter/charger (also called a hybrid inverter or power conversion system) converts DC to AC so the electricity can be used to power onsite loads. As its name suggests, an inverter/charger can also intake AC electricity from the electric grid, transform it to DC, and use it to charge the batteries.
• ‍Battery Management System (BMS): Commonly referred to as the “brain” of the system, a BMS monitors state of charge, temperature, and other vital information that is critical to battery health.
• ‍Energy Management System (EMS): Not to be confused with the BMS, the energy management system controls when to charge and discharge the battery. EMS software makes these decisions based on energy- and cost-saving strategies.
• ‍Step-Up Transformer: In some installations, a step-up transformer is needed to ensure the system is interconnected with the customer’s energy meter and the power grid at the proper voltage. The step-up transformer is considered part of the “balance of plant,” which encompasses all the additional components of the system including cabling, switchgear, and other behind-the-meter assets such as solar arrays.

The BESS enclosure is normally installed outdoors through a straightforward installation process that can be done with minimal disruption to your daily business operations. Depending on the size of the system, the enclosure can typically fit within 2 to 6 parking spaces, however, a larger system could span up to 100 square feet. A BESS can either be installed as a standalone asset or used in tandem with other onsite clean energy projects such as commercial solar solutions and commercial EV charging stations.

Primary Applications of BESS

Battery energy storage systems are used in a variety of ways to help organizations of all kinds achieve their business goals. Here are some examples:

Costs Savings

A BESS can be leveraged to facilitate several energy-cost-saving strategies (which we’ll explore in greater detail later). Companies can use the money saved on electricity bills year over year to improve their bottom line as well as make further investments in renewable energy.  

Energy Independence

One of the main drivers of energy cost savings with a BESS is that it helps reduce your reliance on the power grid. This contributes to your company’s overall energy independence, giving you more operational freedom. In some cases, a BESS can even help power your facility during prolonged power outages, which avoids costly productivity losses.

Sustainability

A battery energy storage system can be a powerful component in a company’s sustainability strategy. By relying less on the power grid, you can greatly reduce your carbon footprint and achieve emission reduction goals. A BESS can also maximize the sustainability potential of other installed renewable assets like solar.

Grid Stabilization

Facilities that have installed a BESS can stretch the usefulness of their energy to later periods in the day, avoiding having to draw electricity from the grid during times of peak demand. This relieves stress on utility companies and contributes to the health of the larger power grid.

The Importance & Benefits of Battery Storage

Now that you have a better sense of how a battery energy storage system can be applied, let’s dive deeper into the benefits it can produce for your organization.

Optimized Energy & Load Management

Battery energy storage systems enhance energy and load management by ensuring a balance between energy supply and demand in real time. Sophisticated energy management software tracks energy consumption, predicts demand trends, and fine-tunes battery charging and discharging schedules to boost efficiency and reduce costs.

Peak Shaving & Demand Charge Management

A BESS can help reduce peak loads by releasing stored energy during spikes in electricity demand (a practice called “peak shaving”), which in turn decreases demand charges. These charges are calculated based on the highest level of electricity used during peak periods. By strategically releasing energy at these times, both peak loads and associated demand charges are minimized, offering substantial electricity savings.

Energy Arbitrage

Energy storage systems also allow organizations to purchase and store electricity when prices are low and then either sell it back to the grid or use it when prices are high, capitalizing on the price variations. This approach takes advantage of the daily fluctuations in electricity prices, which are influenced by changes in demand, supply, and overall market conditions. Through strategic timing of energy use and storage, energy arbitrage can help lower electricity expenses, increase revenue, and enhance the financial feasibility of renewable projects.

Grid Services & Demand Response

Grid services that enhance the dependability of the power grid — such as frequency regulation, voltage support, and grid stabilization — are also made possible by energy storage. In certain areas, organizations can engage in demand response programs or sell surplus stored energy back to the grid, creating additional revenue streams that can help reduce operational costs.

Backup Power & Resilience

When leveraged as part of a microgrid solution, battery energy storage systems also provide crucial backup power, ensuring operational continuity during grid failures or other emergencies. By storing energy locally, organizations can keep critical functions running, safeguard sensitive equipment, and prevent expensive operational interruptions, thereby boosting resilience.

Integrated Solar-Plus-Storage Solutions

When installed with solar arrays, an energy storage system can extend the utilization of solar power into later parts of the day by storing surplus energy for use once the sun goes down (this is known as “solar shifting”). This approach maximizes clean energy usage, supports sustainability goals, and lowers electricity costs by limiting grid consumption. Solar-plus-storage solutions are becoming even more economically viable than solar-only systems due to new net metering policies like California’s NEM 3.0, which cuts grid export rates by about 75% during peak hours.

Ownership Structures & Financing Options for Energy Storage Projects

There are many flexible ownership structures and financing options available to get your energy storage project off the ground, potentially with zero money down. These opportunities are roughly organized into three categories: Direct Ownership, Third-Party Ownership, and Co-Ownership.  

Many of these opportunities are advantageous for both battery energy storage systems and solar energy systems, since the two technologies are commonly installed together. (If you’re interested in solar-only financing options, read our blog on commercial solar financing.)

Direct Ownership

In this arrangement, the business owner maintains direct ownership of the system installed on their property. This ownership model grants complete control over the system, enabling the owner to enjoy energy cost reductions, tax benefits, and other financial advantages. However, it necessitates an initial capital outlay and places the responsibility of system maintenance, operation, and performance monitoring on the owner.  

Financing options for direct ownership include direct purchase and loans.

Direct Purchase

An organization may directly purchase an energy storage system outright using cash reserves or capital budgets. Opting for a direct purchase can be financially advantageous as it offers the highest return on investment with an average payback period of 5 to 7 years, largely due to saving on financing costs and eligibility for solar tax credits and incentives. Additionally, owning the system allows the owner to benefit from selling renewable energy certificates, providing an additional revenue stream.

For businesses considering relocation, buying a solar system can enhance property value and simplify the process of transferring the storage asset to the new owner. This option is particularly appealing for those looking to maximize financial returns and maintain control over their energy production.

‍Loans

Loans enable organizations to fund energy storage projects by spreading the initial costs across a set period — typically anywhere from 5 to 30 years, depending on the loan terms — with either a fixed or variable interest rate. This financing method allows organizations to retain ownership of the system while distributing the financial burden over time. The interest rates, duration of the loan, and qualification requirements differ based on the lender and the specific terms of the financing.

In addition to the above loan factors, customers should also consider dealer fees. These fees are imposed by the lender to offset the administrative expenses involved in processing and approving the loan application, or as a premium to compensate for their risk.

Third-Party Ownership (TPO)

In a third-party ownership model, a third-party provider finances, installs, and retains ownership of the energy storage system on the customer’s premises. Under this arrangement, the customer either leases the system or buys electricity or energy services from the owner at a set rate over an extended contract duration. These arrangements enable organizations to access energy storage benefits without initial capital investment and the burdens of ownership. However, they might result in greater costs over the long term when compared to direct ownership.  

Financing options for TPO arrangements include:

Leasing or Rental Agreements

These arrangements permit organizations to rent energy storage systems from third-party providers at a set monthly rate or lease payment. The leasing entity retains ownership and is responsible for the maintenance of the system, while the lessee enjoys lower energy expenses. It’s important to note that the project developer benefits from tax breaks and all other incentive and rebate programs under this financing model, not the lessee. This arrangement is beneficial for organizations such as nonprofits and real estate investment trusts (REITs) that do not have sufficient tax liability to fully leverage tax benefits.  

Leasing provides a low-risk way to tap into the advantages of clean energy, eliminating the need for upfront capital investment and the responsibilities of owning the system. Some contracts, however, may include a buyout option — providing a great option for customers looking for a path to eventual asset ownership.

Power Purchase Agreements (PPA)

PPAs are formal contracts between a solar or energy storage project developer (the seller) and a business or property owner (the buyer) to purchase solar electricity or energy storage services at an agreed-upon rate for a defined period. In most cases, the developer is responsible for financing, installing, and managing the systems, while the buyer commits to purchasing the produced electricity or energy services. PPAs provide fixed rates for electricity, allowing buyers to protect themselves against future fluctuations in energy prices and enjoy sustained energy savings without upfront capital outlay.

A PPA minimizes the responsibility and ongoing management burden for the energy purchaser, as the developer typically handles the operation and upkeep of the energy storage system. While this arrangement shifts risk to the developer, it also allows them to benefit from tax credits and any other eligible incentives for the project.

Energy Savings Performance Contracts (ESPC)

These contracts enable businesses to fund battery energy storage systems through the savings achieved in energy costs by the project. In an ESPC, an energy services company (ESCO) is responsible for the design, installation, and financing of the energy storage system. The business then covers the project costs over time by allocating a portion of the financial savings gained from enhanced energy efficiency or demand management.

Co-Ownership

Co-ownership involves multiple parties or stakeholders who jointly own and manage solar or energy storage systems. This type of arrangement can take the form of partnerships, joint ventures, or community solar initiatives where participants share the ownership rights, costs, and advantages of the system.  

Co-ownership enables organizations to combine resources, distribute risks, and reap the benefits of clean energy while also promoting cooperation and community involvement. Financing options available for direct and third-party ownership models are also applicable to co-ownership scenarios.

Each ownership structure carries implications for financing, tax advantages, and the responsibilities of operation and maintenance. Organizations should thoroughly assess their energy requirements, internal capabilities, financial goals, and risk tolerance to choose the most appropriate ownership and financing arrangements for their projects.

Financial Incentives & Tax Benefits

Organizations installing clean energy systems such as energy storage and solar can qualify for a range of incentive programs. Here are some common opportunities that system owners can take advantage of:

• Federal Investment Tax Credit (ITC): Energy storage system owners can receive a federal tax credit equal to 30% of the system cost if eligibility criteria are met.
• ‍Tax Credit Monetization: Organizations that don’t have tax liability may be able to sell their tax credits to entities that do. This is achieved by selling the credits to tax-equity investors or financial institutions through third-party arrangements or tax credit monetization services.
• ‍State, Local, and Utility Incentives: Rebates and other incentive programs that can reduce initial system costs are available throughout the country and vary by region. You can see what’s available in your area by consulting PowerFlex’s Policy Hub.
• ‍Accelerated Depreciation: Through the Modified Accelerated Cost Recovery System (MACRS), organizations can deduct a part of the project expenses from their taxable income over a reduced timeframe — improving the financial returns and expediting the cost recovery for solar and energy storage investments.

System size, location, and other factors can affect program eligibility, so it’s essential to partner with an experienced project developer that can maximize the financial benefits of your project. Incentive programs may change over time, so staying informed about updates and changes is crucial for positive project economics.

Take Charge of Your Energy With PowerFlex

Ready to get started with a battery energy storage system of your own? The cleantech experts at PowerFlex can guide you through every step of the implementation process including project design, financing, permitting, installation, and asset management. We work with you to understand your energy needs today and plan a system that can deliver on your goals for years to come. Whether you’re interested in a standalone energy storage system or one that integrates with solar and electric vehicle charging, PowerFlex is your single-source provider for all your clean energy solutions. Contact us today to see what we can do for your business.