Part 2: Detailed feasibility and tariff modelling sells commercial batteries

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If you don’t understand commercial electricity tariffs, you won't be successful selling commercial batteries. This is our blunt assessment for commercial solar installers after nearly five years of modelling commercial battery opportunities in Australia, New Zealand, UK and Germany. This blog unpacks detailed feasibility and tariff modelling, and highlights the opportunities that exist within retail, distribution and transmission electricity tariffs. 

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This is the second blog in our multi-part series to help commercial solar installers sell more commercial batteries. This blog is more technical and aimed at managers of engineering teams and analysts.

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Read Part 1: If you want to sell batteries, you have to understand commercial tariffs.

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What is detailed feasibility and tariff modelling?

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Detailed feasibility modelling means accurately calculating the electricity bill savings from installing a solar and/or battery system by calculating baseline and after-project electricity bills at a “utility grade” as an electricity supplier would. 

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Generating utility-grade electricity bills requires accurately modelling electricity tariffs and all the components of a commercial electricity bill. To do this modelling work, one must go through reams of network tariff guides, regulatory documents, and pricing schedules and consolidate them from around a dozen public sources.

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Why is detailed feasibility modelling being ignored?

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Frankly, it's very hard and costly to do well, and (until Orkestra) the tools didn’t exist to make it cheap, fast and easy. 

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Solar design software (e.g. Open Solar, PV Sol) doesn’t have the tariff model sophistication to accurately financially model commercial solar and battery systems and shortcut it by enabling blended rate analysis. This is fine for residential systems but not commercial. Companies that recognise this gap in solar design tools generally undertake feasibility analysis done in Excel.

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Even though Excel is practically free, it requires the skills of a senior energy analyst with at least 5 years of solid energy, tariff and modelling experience to model commercial solar and battery system savings for UK projects. Further, even if you have an energy analyst on your team who can model at this level, it's likely impractical and uneconomic to have them perform detailed tariff modelling on every commercial solar and/or battery project that comes through the door - it's typically several days of Excel work. Excel is also inherently unscalable and fragile, meaning that your analyst is likely the only person who can drive the model and if they leave, it likely means starting again. Network tariffs are also updated yearly, which can easily get forgotten or not updated in Excel.

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Why is detailed feasibility modelling “suddenly” important? 

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Well, it’s always been important. But until now, many solar companies have not had a significant incentive to consider detailed tariff modelling. Historically, the UK solar market has been strongly driven by government incentives and energy price shocks.

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Now, the confluence of low solar and battery installation prices and high but stable commercial electricity prices means a perfect storm is brewing for commercial battery adoption.

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Further, as we witness every day, more residential solar installers are trying to enter the commercial market, increasing the competitive pressure in the segment. It’s more important than ever for dedicated commercial solar installers to differentiate and operate without missteps. Our view is that those who continue to take a pass on detailed feasibility modelling will ultimately be dropped from the market.

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What are the risks of not doing detailed feasibility modelling?

Unfortunately, the status quo for the UK solar industry seems to be to ignore detailed feasibility modelling and tariff analysis. 

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We identify four main risks from this approach:

1. Leaving value on the table, especially in regards to batteries. Unlike residential batteries, most commercial batteries will not be sold to improve solar self-consumption. The story for commercial batteries is much more complicated, with the value stack usually including tariff arbitrage, peak demand bill savings, market participation and/or grid support. Simple feasibility analysis will hide these value streams. We expand further on this below.
2. Eroding customer trust by creating indefensible feasibility analysis and over-promising on the returns. As mentioned above, your sales success may likely depend on the trustworthiness of your project financials. Shortcutting the feasibility misses crucial opportunities to build trust with a CEO and CFO. The issues of poor analysis will compound if you want to build long-term customer relationships (e.g. with asset management and O&M contracts) and promised savings fail to materialise. 
3. Lack of bankability for project finance. If a customer needs funding for a project and the feasibility is not robust, it may be difficult for the customer to proceed with the project at all. 
4. Creating business and industry reputational risk. It speaks for itself that if businesses routinely produce poor feasibility modelling for their customers, it will ultimately impact their reputation. Further, if a broad swathe of the industry is doing likewise (as we observe), it will garner a reputation for overselling its value. 

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In our Strategic Playbook for Commercial Opportunities in the UK, we unpack these risks in detail with two case studies - one that shows a lot of commercial battery opportunity, the other how you can easily oversell the benefits of a commercial solar PPA.

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What are the biggest opportunities hidden in commercial tariffs?

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Holistic energy solutions leverage battery storage and tariff optimisation. Only through tariff optimisation will economic returns for batteries be maximised.

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Battery storage is economically viable when it charges at low electricity prices and discharges at high prices, typically cycling once daily with an arbitrage of around 16p/kWh.

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As discussed in Part 1 of our series, using blended electricity rates will literally average out all the opportunities for batteries and demonstrate only the benefits for improving solar self-consumption with a battery. 

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Detailed modelling, on the other hand, uncovers additional value and builds up the 16p/kWh value we need every day. This includes:

• Retail, distribution, and capacity levy arbitrage
• Peak demand cost reduction (distribution/transmission charges)
• Fixed residual charges optimisation
• Transmission support payments

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These tariff-related opportunities, particularly significant in winter, complement the improved solar self-consumption benefits predominantly realised in summer.

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This is even before front-of-meter revenue streams include participation in capacity, wholesale, and ancillary service markets. (The subject of a future blog in the series)

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Below, we unpack the excellent opportunities that exist in retail, distribution and transmission tariffs for commercial and industrial sites in the UK.

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🤔 Don’t see the charges mentioned below on your customer's bill? This is likely because your customer is not on a passthrough tariff and is currently on a bundled rate similar to a residential tariff. You must work with an energy broker or the customer’s energy supplier to get them onto a pass-through tariff. This should be possible without re-contracting to another supplier. For assistance on this, feel free to contact our team.

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Opportunities in retail tariffs

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It’s reasonably well understood that there are time-of-use (ToU) electricity retail tariffs. The Economy 7 tariff in the UK is a good example. What is less understood is that the timings for these tariffs will differ from the network tariff timings. This detail can be essential to create “peakier” peak prices in aggregation with the other value streams. 

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It may also be the case that a customer is on a single rate tariff today, and moving them to a ToU tariff while installing solar and batteries can have a game-changing impact on the project economics. 

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Take the example below from our Strategic Playbook for Commercial Opportunities in the UK. Here we show the impact of a tariff change from a British Gas flat rate tariff to an Octopus Shape Shifter tariff and using a battery with optimised control (a controller that can forecast load and solar generation, and charge and discharge the battery to capture the most value). 

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The results speak for themselves - the project's Net Present Value almost doubles from the solar only project! In plain English, considering a battery alongside a tariff optimisation results in 25% bigger project i.e. more installer revenue, and 58% more savings for the customer.

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Opportunities in distribution network tariffs

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There are three different opportunities here:

1. Reducing capacity tariffs - every 12 months, commercial customers can reduce the capacity they contract with their distribution network operator. Installing batteries in combination with solar can reduce capacity requirements by 20-30%. This can be a significant bill saving and add further “discharge” value for a battery.
2. Arbitraging DNO Red, Amber, Green rates - many commercial and industrial sites in the UK are time of use, with red, amber and green prices (read: peak, shoulder and off-peak), and those that are not can request to be on them. For some low-voltage customers, the arbitrage potential from distribution tariffs is 11p/kWh, almost enough to pay for a battery without considering other opportunities.
3. Optimising fixed residual charges - this opportunity is most relevant for sites with a high voltage connection. Moving a customer to a lower network tariff “band” has historically saved up to £130,000 (see table below). These bill savings alone could make or break a battery project. Warning, though, while the savings are spectacular, unlocking them is spectacularly complex, requiring a multi-year process outlined in Schedule 32 of the UK Distribution Connection and Use of System Agreement (DCUSA) that should frankly outrage anyone wanting to shift tariff bands.

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Opportunities in transmission network tariffs

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There are three opportunities within the transmission network use of system (“TNUoS”) charges that mostly benefit projects in southern England (see graphic and table below). These charges exist to encourage customers to avoid using the grid during times of constraint in the National Grid transmission network. The three opportunities that exist are: 

1. Reducing HH Demand tariffs - these are “locational” demand charges charged to customers on a $ per kW per annum basis, based on their average metered import (in kW) during the Triads (see definition below). Historically and conveniently, the Triads fall on intervals between 5 pm and 7 pm. If you use a battery to manage power during this small window in winter, it can result in a nice limit bump in savings, especially in the South and Southwest of the UK.
2. Potentially also capture Embedded Export Tariff payments - these are tariffs paid to customers on a $ per kW per annum basis, based on their average metered export (in kW) during the Triads. Where discharging a battery results in a net export, a grid support payment can be received.
3. Optimising fixed residual charges - in an aligned structure to distribution residual charges, where customers can be moved between tariff bands, significant savings exist on transmission charges and creating a double-whammy for network tariff optimisation. But again, before promising rivers of energy-saving gold to your customers, make sure you understand the multi-year process outlined in the DCUSA.

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What are the Triads? The Triads are the three half-hourly settlement periods of highest net system demand between November and February inclusive each year, separated by 10 “clear days”. That is, the three highest net system demand intervals must be at least 10 days (480 intervals) apart from each other.

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Bonus opportunity: Capacity Market Levies

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Finally, my favourite opportunity is within the capacity market levies on a commercial electricity bill.

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In the UK, a capacity market (CM) is operated where users pay for the supply of capacity on their bill via a CM Obligation Levy. All commercial customers pay Capacity Market Obligation and Operational Levies (totalling approximately 12p/kWh) on all Chargeable Demand, with costs smeared over the year using monthly weighting factors (that incidentally hides the opportunity on most bills).

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That aside, Chargeable Demand is measured at the electricity usage in kWh between 4pm – 7pm, working days, November to February. This both perfectly aligns with the DUOS Red periods and TNUoS Triad periods mentioned above, but also provides a 12p/kWh opportunity for the battery to capture value during the winter when opportunities to store excess solar tend not to exist.

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This is an excellent example of value stacking, where you can receive benefits from multiple different value streams for the same energy discharged from a battery.

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How can Orkestra help sell more commercial solar and batteries?

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Orkestra is fast emerging as a leading feasibility modelling software for analysing and selling commercial new energy projects - solar, batteries, e-mobility, financing and more - that is fast, easy and accurate to use.

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As of November 2024, Orkestra is now operating in the UK and UK commercial solar companies are quickly signing up.

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Core to Orkestra’s software is a tariff engine able to produce a bill at utility-grade level. This enables solar companies to determining the financially optimal sizing and feasibility of solar and battery projects. 

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By simulating how a site uses and generates energy, Orkestra's platform can pinpoint the best battery size and how to operate it to rake in the most savings and revenue. This helps solar companies fine-tune their project designs, minimize risk, and build trust with customers.

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Interested in learning more and exploring Orkestra? Book a demo with our team.

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