In previous posts in our Solar + Energy Storage series we explained why and when it makes sense to combine solar + energy storage and the trade-offs of AC versus DC coupled systems as well as colocated versus standalone systems.

With this foundation, let’s now explore the considerations for determining the optimal storage-to-solar ratio.

What is the problem you are trying to solve with energy storage?

The first question to ask yourself when sizing energy storage for a solar project is “What is the problem I am trying to solve with storage?” If you cannot answer that question, it’s impossible to optimally size storage. Usually the problem you are trying to solve falls into one of three buckets:

A. Plant stability: I need to stabilize the output of variable renewable energy plants in order to connect to the grid (e.g. Puerto Rico’s minimum technical requirements for solar)

B. Grid stability: I need to provide grid services (e.g. ancillary services) to stabilize the grid or want to increase the revenue potential from the project.

C. Firm renewable energy or peaking capacity: I need to be able to deliver firm energy commitments during certain hours of the day (i.e. dispatchable solar).

As a general rule for all three scenarios, the economics of solar + storage will always be much better compared to the economics of a new investment in a different technology like a natural gas peaker. However, if you are competing against the marginal cost of existing infrastructure, it is much harder to make the economics of solar + storage work today. Put another way, it is hard for a new energy storage investment (CAPEX + operating costs) to compete against just the operating costs (or marginal cost) of an investment that was already made. For the economists out there, CAPEX + MC vs. CAPEX + MC is better than CAPEX + MC vs. MC. There are exceptions to this rule, such as Australia, Chile, and Hawaii where solar is substantially cheaper than the marginal cost of existing generators.  As the cost of solar and storage continue to decrease over the coming years and the cost of fossil fuels stay flat or increase, this exception will expand to additional locations until it becomes more of the rule than the exception.

For each of the three use cases of solar + storage, let’s look at the key inputs and analysis needed to size optimally.

A: PLANT STABILITY

Virtually every grid requires an interconnection study before allowing any generator to interconnect. Because of the variable output of renewable energy plants, some jurisdictions mandate ramp rate limitations to help stabilize the grid. For example, in Puerto Rico new solar plants must have enough energy storage to cover 45% of the plant’s nameplate capacity for one minute. Additionally, the solar plants also provide 30% of the plant’s nameplate capacity for 10 minutes in order to qualify to provide frequency regulation.

Below are the needed inputs and analysis required to determine how to properly size energy storage for solar plant stability.

B: GRID SERVICES

It is not necessary to co-locate energy storage with a solar plant to provide grid services to stabilize the grid (e.g. ancillary services). The main reason that you would co-locate the two systems is to take advantage of the cost savings of shared balance of plant costs including the cost of land, labor, project management, permitting, interconnection, operations and maintenance. 

In the United States, project owners may be able to claim the Investment Tax Credit on most of the storage capital costs if it is charged with solar energy. Other than being limited by the interconnection capacity, the two systems will operate independently and determining the optimal energy storage size is no different than determining the optimal size of a stand-alone energy storage system. Below are the needed inputs and analysis required to determine how to properly size energy storage for grid services.

C: RENEWABLE FIRM ENERGY

The third application is what most people think about when they hear solar + storage: the ability to deliver firm energy commitments during certain hours of the day (i.e. semi-dispatchable solar). Two years ago, we noted in a blog post that solar had broken the $30/MWh barrier in an auction in Chile. Now we routinely see mid- to low- $20’s per MWh PPAs in the US, and a solar PPA in Saudi Arabia broke $20/MWh at $17.9/MWh. The fuel for energy storage is only getting cheaper. An important aspect of helping utilities and other off-takers benefit fully from a solar+storage “peaker” is getting the sizing of each resource right.

One subset of renewable firm energy is curtailment avoidance or arbitrage, which are essentially the same operation. Note that avoiding renewable curtailment or arbitrage is usually not a good business case unless there is a high value for the curtailed energy and it occurs for several hours on a daily basis throughout the year.

One way to think about solar + storage is as two separate contracts: one for solar energy on a per MWh basis and one for storage on a per kW-month basis. This structure allows off-takers to explicitly see how storage competes against traditional capacity resources like natural gas peakers. Another way is to have a volumetric based contract that requires delivery of energy in certain hours or pay a premium for energy delivered in certain hours.  Sizing storage for renewable firm energy also depends on whether the configuration is DC-coupled or AC-coupled. DC-coupled systems have the additional complexity of optimizing the inverter loading ratio to much higher levels than solar-only plants (which will be discussed in more detail in our next solar + storage blog post).

Below are the needed inputs and analysis required to determine how to properly size energy storage for renewable firm energy.

To do this duration analysis, you will need to:

1. Determine the value of additional firm solar energy. This will likely be based on the avoided cost of existing generators or the cost of new capacity additions modeling.
2. Determine the amount of firm energy delivery for different durations. This will require a granular analysis, likely at the hourly level, to determine how much firm energy can be delivered for different durations. As a simple rule of thumb, we recommend you start with the duration 30% shorter than duration you initially plan, increasing to 30% above the initial plan.  The analysis should be focused on the period when firm energy is most valuable, which is likely going to be during summer mid-day-evenings, or a period defined in an RFP or identified by an off-taker. At first order, this analysis can be done using solar output derived from location-specific typical meteorological year (TMY) solar files (available here: https://nsrdb.nrel.gov/tmy) or from your preferred solar modeling software provider. The sizing can be further optimized by considering the difference in sizing needed for P90 and P50 solar output scenarios. The key to optimally sizing the storage system probabilistically is understanding the tradeoff between marginal cost of additional solar or storage and the penalty for being unavailable to meet a peak in a rare situation. For example, being willing to charge from the grid during non-peak hours for a small percentage of time can make a big difference in the required size of solar PV. Said another way, with a fixed amount of solar PV (if you are land-constrained, for example), you can provide more firm capacity with the same amount of storage if you are willing to charge from the grid sometimes [see Figure 1].

Figure 1. Solar capacity, in MW, required to create a 100 MW renewable peaker. In this example, we are sizing solar for a 100 MW, 4 hour battery. The storage requirement is 100 MW due to the time of day the peak occurs, and we want to know how much solar PV to build to “fuel” the peaker. As you can see, the more stringent the requirement to avoid charging from the grid, the quicker the solar capacity (and the CAPEX) increases.

Figure 1

3. Determine the marginal change in energy delivery for change in duration. Determine how much additional firm energy can be delivered for each increase in duration.

4. Determine the value of the marginal firm energy changes. For each duration, multiply the value of the energy calculated in step 1 by the marginal energy calculated in step 3.

5. Determine the marginal cost to change duration. This should include the cost of the batteries and balance of plant, such as building/container size, HVAC, and racks.

6. Determine the duration where the value, based on a net present value of revenues or avoided costs, of the marginal firm energy increase/decrease equals the marginal costs of longer durations.

As you can see, sizing solar + storage projects have a number of variables and can become quite complex. Feel free to reach out to us if you get stuck along the way or if you would like a full analysis performed.