The lobby of Park Place, a 2.1 million-square-foot (195,100 sq m) mixed-use complex in Irvine, California, developed by LBA Realty. The system is expected to reduce the site’s energy costs by more than $90,000 in the first year of operation.

The lobby of Park Place, a 2.1 million-square-foot (195,100 sq m) mixed-use complex in Irvine, California, developed by LBA Realty. The system is expected to reduce the site’s energy costs by more than $90,000 in the first year of operation.

Commercial property owners are rethinking their skepticism toward energy storage systems, with battery prices dropping and third parties offering new financing models.

“Everybody is recognizing that it is a necessary component of the overall [sustainability] picture,” says Sara Neff, the senior vice president of sustainability at Kilroy Realty Corporation, the California-based real estate company.

The first quarter of 2017 was “the biggest quarter in history for the U.S. energy storage market,” according to a tracking report from the Energy Storage Association. Led by large-scale utility installations, primarily in California, the megawatt (MW) hours of storage deployments doubled in 2016, compared with the previous year, according to the association’s data.

This year’s list of big announcements includes Tesla’s deal to build what is described as “the largest lithium-ion battery storage project in the world” in South Australia. The Tesla batteries will be able to store 100 MW of power, which is enough to supply more than 30,000 homes, the company says.

Several different trends are converging to make battery storage more attractive. Battery pack costs have dropped from about $1,000 per kilowatt-hour in 2010 to $230 per kilowatt-hour in 2016, according to a report released in June by McKinsey & Co. At the same time, energy rates continue to soar, and many states—including California, New York, Massachusetts, and Hawaii—are turning to incentives to help push companies to find ways to manage their consumption.

“We’re starting to see incentives drive more demand and bigger deals,” says Billy Grayson, executive director of ULI’s Center for Sustainability and Economic Performance. “Now, companies are investing in more significant numbers of batteries.”

Utilities are increasingly raising rates during peak period, providing a key driver for “behind the meter” battery storage systems—battery technology installed on private sites, “behind” the local utility’s energy meters. While different energy storage technologies have been on the market for decades, new software and data analysis systems allow a property owner to efficiently regulate the energy flow from the grid, avoiding peak rates.

“Rates continue to change and escalate,” says Gabe Schwartz, marketing director at Stem Inc., a California-based provider of energy storage systems. “Timing of when you buy electricity is becoming much more critical.”

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One of California-based energy storage systems provider Stem’s installations.

Stem operates as a services company—it installs, maintains, and operates the battery storage system; the host company pays only a subscription fee. The plan eliminates upfront costs for the property owners, which is one reason Stem has been able to attract a wide range of clients, including Whole Foods, Extended Stay America Hotels, and Adobe Systems. Most of the company’s 700 contracted installations have been in California and Hawaii, but this year it expanded into Texas and New York.

Adoption of energy storage is “a secular trend,” says Perry Schonfeld, a principal and chief operations officer of LBA Realty, which owns and manages commercial property in the western United States. “The driver for us is to always get ahead of these things.”

Last year, LBA Realty installed a Stem-operated 1.3-megawatt battery system, believed to be the largest indoor energy storage system in the United States, in Park Place, a 2.1 million-square-foot (195,100 sq m) mixed-use complex in Irvine, California. The system is expected to reduce the site’s energy costs by more than $90,000 in the first year of operation.

“It’s working to its intended purpose,” Schonfeld says. In addition to the direct financial benefits, the system helps address the sustainability goals of tenants, he says. The key to making it work is the size of the property. “You need scale,” he says. “You need some scale to get the payback.”

Kilroy Realty is working with Stem rival Advanced Microgrid Solutions to install Tesla-made batteries in five office buildings in southern California. Advanced Microgrid, which recently raised $34 million in a Series B round of financing, essentially rents space for the batteries and installs its software to manage and analyze the energy flow, working through a Southern California Edison initiative to reduce demand for Kilroy during peak periods.

The system will not store wind or solar power—it only manages the connection to the grid—but it still works with Kilroy’s “net zero” goals, Neff says. Kilroy’s buildings tend to be tall and in urban areas, which makes solar or alternative energy production options difficult.

Kilroy is “maxed out on solar,” Neff says. “Batteries are an important piece of the puzzle to achieve net zero.”

The array of new financial models has changed the equation for battery storage systems, says William Tokash, a senior research analyst for Navigant Research, which tracks the market. By 2025, 84 percent of the projects in the “grid-tied” battery storage market will be financed by third parties or utilities, Navigant predicted in a recent report.

gtm_report_figure_1Energy storage is moving from “a nonessential but desirable addition to renewable-energy projects . . . into a standalone solution that provides customers and system owners significant value,” Navigant says. The new tracking technologies have added more “predictability” to the market, allowing investors and property owners to better forecast long-term savings, Tokash says.

Property owners are “looking for guaranteed, reliable, predictable energy savings that don’t cost any money,” Tokash says. The software platforms allow systems “to actually do what they say they are going to do.”

But there are still challenges facing a wider battery deployment. Battery systems are still more costly than generators for other applications, such as energy system backups. And government incentives are still a key driver for the market.

Industrial space giant Prologis, which has deployed more than 165 megawatts of rooftop solar, is planning its first energy storage installation later this year, says senior vice president of global energy and development Matt Singleton. The company has been “monitoring the energy storage space for several years,” looking for “opportunities that align with our business and real estate portfolio,” he says.

But the company is moving cautiously. The economics and rates “need to become more favorable for widespread adoption,” Singleton says. In the long term, however, Prologis is “focused on the technology and [anticipates] it will become a more prevalent feature in our portfolio over time,” he says.