By Janice Lin, California Energy Storage Alliance (CESA)
When we look at the expansion of the smart grid and all of its components, policy makes a huge difference. That’s especially true for energy storage systems in California, where cutting-edge policies are enabling a set of expanding technologies to greatly benefit the grid. Indeed, the policies and rulemaking being explored in the Golden State should be a benchmark for agencies nationwide.
Paving the way
In February 2010, assembly member Nancy Skinner introduced AB 2514, titled “Energy Storage Systems.” The bill directed the California Public Utilities Commission (CPUC) to establish procurement targets and policies for cost-effective and commercially viable energy storage systems for the state’s investor-owned utilities (IOUs). It was the first law of its kind nationwide, and signaled a major turning point by recognizing the inclusion of energy storage as a necessary part of a well-functioning grid. It also stood as a turning point around incorporating storage procurement into an often time-consuming and deliberative grid development process. By considering storage now, the CPUC is commencing a full-on evolution of California’s electricity system towards something smarter, more reliable, and more sustainable.
AB2514 directed the CPUC to begin rulemaking by March 2012, but the Commission started a full year early, on March 3, 2011. In its Storage Rulemaking (R.10-12-007), the Commission is aiming to set procurement targets for, and facilitate the expansion of storage statewide. The first part of that equation requires significant coordination with other proceedings, including California’s 33% Renewable Portfolio Standard (RPS), Long-Term Procurement Planning (LTPP), and Resource Adequacy (RA) activities. The second has taken the Commission down a path of analysis, reflecting on the role that energy storage technology can play within California’s energy policy landscape. A key output of the storage rulemaking will include essential focus on priority applications, a cost benefit methodology for evaluating those applications and hopefully, a policy roadmap that can be used for other entities that wish to do the same.
CPUC President Mike Peevey put it succinctly at the first storage rule-making workshop in March 2011: “So,” he said in his opening address, “we’re looking at how we can tear down barriers that prevent cost-effective energy storage resources from competing and providing benefits to California customers, ratepayers of California utilities.” The nine barriers listed in the CPUC’s Energy storage Framework, which was formally adopted on 8/2/12 include:
- Lack of definitive operational needs,
- Lack of cohesive regulatory framework,
- Evolving markets and market production definitions,
- Resource adequacy accounting,
- Lack of cost-effectiveness evaluation methods,
- Lack of cost recovery policy,
- Lack of cost transparency and price signals (for both wholesale and retail electricity),
- Lack of commercial operating experience, and
- Lack of well-defined interconnection processes.
Many of these barriers stem from a lack of existing rulemaking, procurement, or interconnection processes. By “tearing down barriers,” the Commission is establishing methods by which cost-effective and beneficial storage resources may be fairly evaluated against status quo (largely fossil fuel) solutions, and how such resources may be procured and integrated into the grid. When fairly evaluated, storage will prove more cost-effective than traditional fossil fuel alternatives. Storage has a lower cost of delivered flexibility, improves overall system efficiency, reduces risk in system planning, improves existing system asset utilization to deliver more kWh per kW of system capacity, and helps accelerate renewable deployment. The California Energy Storage Alliance (CESA) believes that these policy changes will recognize these benefits and increase procurement accordingly.
The overall rulemaking process comprises two main phases: in the first, the general procurement rules and procedures were established; and in the second, the Commission will establish methodologies for evaluating and prioritizing individual projects within the procurement process.
Stage one of this rulemaking was completed on 3 August 2012 when the Commission adopted a staff proposal surrounding storage procurement procedures. This stage outlines basic concepts, such as establishing a definition of energy storage for rulemaking purposes. It also identifies 20 “end-uses” for storage broken down into four general categories: renewables firming, demand-side management, distributed energy support, and transmission-like ancillary services. Returning to the theme of barriers, the CPUC addressed “operational needs” in Stage 1 by identifying these applications as major operational roles for future storage procurement. Overall, stage one has addressed many of the policy barriers identified by the Commission, opening the door for comprehensive statewide policies.
In the upcoming second phase, the CPUC will establish methods for locking down procurement targets and prioritizing individual projects accordingly. The latter includes the Commission’s methods for balancing qualitative characteristics with measurable capacities, as well as any established calculations for financial valuation of energy storage projects. As methods for calculating the financial value of energy storage are largely limited to theoretical papers, valuation methods – including innovative calculations such as options valuation – will evolve for real-world application right in the Golden State. Finally, the bureaucratic details for actually getting projects off the ground are starting to take shape, including a draft request for offers (RFO) which is being presented to the Commission this year pursuant to the LTPP and Storage Rulemakings, so concrete processes may soon be established.
Growth in storage projects and investment
Even before the new rules are instituted, industry growth has begun to impact the expansion of storage in California. CalCharge, a recently founded clean technology consortium, has identified 30 storage startups in the San Francisco Bay Area alone. Investment has likewise seen massive growth. The Cleantech Group’s i3 industry research shows that energy storage companies raised $630.5 million between May 2011 and May 2012. Between 2010 and 2011, these investments grew 13 fold to represent 11% of the state’s clean tech venture capital investments. Ultimately, the payoff is showing through innovation: statewide battery patent filings numbered an impressive 258 between 2008 and 2010, according to a report from Next 10, a San Francisco-based non-partisan research group.
Storage projects and smart micro grids incorporating storage have also multiplied. For example, the Eagle Mountain Project is a pumped storage plant under development that will provide 1300 MW of electricity when needed. On a smaller scale, Alameda County’s Santa Rita Jail has incorporated a 2000 kW, 4 MWh lithium iron phosphate battery into its smart grid system (currently the largest Consortium for Electric Reliability Technology Solutions (CERTS)-based micro-grid in the country). At least 13 major projects in California are either operational, contracted, or under construction, according to a new, publicly accessible storage database from Sandia National Laboratories (www.energystorageexchange.org). As the database is just starting, numbers of actual projects are undoubtedly higher.
 Figures cited/paraphrased from http://energy.aol.com/2012/05/29/california-energy-storage-startup-community-gets-state-bridge-ac/
The future potential is vast as storage industry evolution finally meets storage-friendly policies and procurement, both of which will be implemented by October 2013. Benefits include an optimized and improved grid which will further expansion and competitiveness of intermittent renewables, reduced carbon footprints through minimizing peak electricity use, savings to ratepayers through reduced transmission & distribution (T&D) investment, increased grid stability and reliability, and the establishment of California as the center of storage industry expansion and innovation. We at CESA want to see California as a global leader in storage policy and technology. AB 2514 and its components are a huge part of that leadership, and we believe its success will inspire other states to pursue similar changes. Ultimately, that transformation will be the next step in making widespread storage a reality, and the world will be better off for it.
About the author
Janice Lin is the Executive Director of CESA and the Managing Partner of Strategen Consulting. At CESA, Janice oversees all aspects of the organization’s operations and strategic priorities. Prior to CESA and Strategen, Janice held several senior management positions with PowerLight Corporation, where she led initiatives in product and new market strategy, business development, regulatory affairs, strategic partnerships, investor relations, and customer finance. She co-founded CESA with Don Liddell in 2009.
CESA is a broad advocacy coalition that is committed to expanding the role of energy storage to promote the growth of renewable energy and a more affordable, clean, and reliable electric power system. CESA’s members are a diverse mix of energy storage technology manufacturers, renewable energy component manufacturers, developers and systems integrators. CESA is a technology and business model-neutral association of members who share a common mission, and is supported solely by the contributions and coordinated activities of its members.