Finding that Battery Size and ROI Sweet Spot

March 31, 2023
Will a larger battery pay for itself faster?
Many microgrids are built with resiliency, or backup power, as their primary purpose and, as a result, are equipped with battery energy storage. A battery energy storage system (BESS) enables a microgrid to disconnect, or island, from the main grid and continue to deliver power to critical infrastructure connected to it.

In such a configuration, the BESS return on investment (ROI) calculations tend to be based on the value of lost load. An estimate is made of the number of power disruptions from the main grid that the microgrid would sustain and that is weighed against the incurred costs and lost revenues that would result from a power outage. Understandably, it’s difficult to forecast the cost that disruptions to systems and operations would have when the frequency and length of power outages is unknown.

However, what is known and relatively easily quantified by most businesses is their daily power consumption habits and their resulting electricity bills. The positive impact a BESS can have on these aspects is sometimes overlooked in BESS ROI calculations.

For instance, a BESS offers the ability to engage in peak shaving (reducing spikes in power usage), load shifting (changing when power is consumed to off-peak times), and participation in ancillary or grid support services by providing power to the grid when asked. All of these, along with the ability to maximize renewable energy production, are BESS benefits that can bring about reductions in your electric bill. It stands to reason that a larger BESS will offer greater benefits — but paying off the capital costs of a larger system will take longer and can negatively impact the ROI. Determining the sweet spot for battery system size versus ROI is a matter of analyzing a number of relevant inputs and plotting them against different battery sizing options.

Also, once your company starts investigating some of these benefits, it may uncover that a larger battery will pay for itself faster than a smaller one because of its flexibility in providing all these additional benefits — and that combining it with additional renewable energy production like solar photovoltaics can improve the economics even more.

Understanding and including all the variables that go into determining whether additional battery (and renewable production) will result in cost efficiencies is a critical aspect of your ROI formula, which can be broken down into five steps:

  1. Conduct an energy audit to establish a baseline for comparing before- and after-installation electricity consumption.
  2. Undertake a rate structure analysis that understands the options, incentives offered and penalties imposed by your utility.
  3. Determine your baseline cost, which factors in the timing of your demand spikes.
  4. Model different battery size options.
  5. Find the sweet spot where daily savings are maximized and the BESS size is minimized.

These five steps are a simplification of a complex set of calculations involving a number of data sources. Enlisting professional help and using tools designed to plot different scenarios so you can select what’s most applicable to your business are two ways you can manage an otherwise potentially daunting task.

To get a head start on understanding some of the nuances involved in each of these five steps, download the white paper “Can Battery Storage Improve Your Company’s Energy Efficiency?

The rewards of thoroughly calculating ROI this way are twofold. First, you’ll land on the best size BESS for your company, and, second, you’ll have a clear understanding of the ROI – which may be the lynchpin to securing the funding you need to make your energy storage project a reality.

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