No More Foot Dragging for Energy Storage?

Kate Rowland | Jul 26, 2010



Grid storage.

 You're going to be hearing those words with increasing frequency in the weeks and months to come.

 Yesterday, I had a conversation with David Nemtzow, Ice Energy's new vice president and chief policy officer, about the Storage Technology of Renewable and Green Energy Act of 2010 Act (S. 3617) introduced last week by U.S. Senators Jeff Bingaman (D-N.M.), Ron Wyden (D-Ore.) and Jeanne Shaheen (D-N.H.). You may remember that Senator Wyden introduced S. 1091, The STORAGE Act, in Congress last session-S. 3617 is a revision of the earlier Act.

 Simply put, STORAGE 2010 would offer up to $1.5 billion in tax credits to storage projects connected to the U.S. electric grid. The legislation offers an investment tax credit for three categories of energy storage facilities that temporarily store energy for delivery or use at a later time. It will also provide tax credits to businesses and homeowners who install energy storage on their own property to help serve their own energy needs more efficiently or capture energy from on-site renewable energy generation. (A few examples: smart grid devices that manage the charging and storage of the electricity from plug-in electric vehicles, or thermal cooling systems that make ice at night when electricity is cheaper, and use the ice to cool the building during the day.)

 The Act provides for a 20 percent investment tax credit of up to $30 million for storage systems connected to the grid (otherwise known as "bulk" storage systems), with a total allocation of $1.5 billion, capped on a per-project basis at $30 million. It also provides a 30 percent investment tax credit of up to $1 million per project to businesses, with an equal percentage to homeowners, for on-site storage projects ("distributed" and "residential"). And it's technology-neutral, to boot.

 Obviously, Nemtzow is pleased with the proposed legislation, as it brings grid storage to the forefront and offers new opportunities for his company. But I was also interested in his perspective as a 25-year veteran of utility regulation, energy policy and management.

A bit of history is in order here. Nemtzow's resume is an envious one for those interested in energy policy and the regulatory maze in which it exists. He was president and CEO of the Alliance to Save Energy for a decade, and director-general (CEO) of the Department of Energy, Utilities and Sustainability for New South Wales, Australia, from 2004 to 2006. He also served as legislative director to U.S. Representative Edward Markey (D-Mass.), where he drafted legislation that created competitive markets for electricity transmission and drafted successful legislation on tradable air emission permits and energy efficiency. It was no accident that I chose him to help me navigate through the new STORAGE Act.

"Tax credits are a time-honored and pretty successful way to stimulate investment," Nemtzow told me. The industrial wind industry grew with them, as has the solar industry, as has energy efficiency.

And this new proposed legislation has something in it for the municipal utilities, as well, by way of $3.5 billion in new Clean Renewable Energy Bonds funding.  (Remember, entities that don't pay taxes can't benefit from tax credits.)

Oh, and one other thing: on-site and residential round-trip storage has to be at least 80 percent energy efficient to qualify. "Eighty percent is a pretty low bar," Nemtzow noted, adding that it most definitely sends a signal to grid storage providers regarding energy efficiency expectations.

In mid-December last year, I reported on a Senate Energy and Natural Resources Committee hearing on grid-scale energy storage. At that time, Steven Koonin, the U.S. Department of Energy's undersecretary for science, was asked the by Senator Bingaman whether grid storage was something the federal government was going to  focus on and maintain funding, after the American Recovery and Reinvestment Act expenditures, or whether it would "fall back to a second-tier pursuit."

Koonin stated that getting experience with the new technology being researched by the Smart Grid Demonstration Grants was a necessary first step. That didn't make Senator Wyden (who'd by then sponsored the first version of the STORAGE Act) very happy. "Wait and see is not the kind of activist strategy that I think this country needs to tap the full potential for these energy storage technologies," he said. "I don't see this as primarily a question of just spending money..But I do want to see a game plan for tapping the full potential." He went on to label a "wait-and-see" attitude as "foot-dragging."

It's clear, with the introduction of STORAGE 2010 last week, that Senators Wyden, Bingaman and Shaheen are tired of wait-and-see and anxious to push some barriers with storage capabilities and opportunities -- considered the critical "missing link" to enable more renewable energy on the grid.

 "With $1.5 billion (in allocations in the Act), we're in the game," Nemtzow told me. "Its time is here for all sorts of reasons. That's a given. With state commissioners, or utilities, or FERC (Federal Energy Regulatory Commission), attention in the last half-year has really grown." (This, despite the other federal legislative news of the week-the cratering in the Senate of an all-encompassing energy bill.)

 "We don't need tax credits to start a storage industry. We need tax credits to accelerate and broaden the industry," Nemtzow said. "People are going to eventually invest in storage. I'm optimistic-if the credits go through, it will stimulate the industry."

 Where do you stand on the grid storage issue? I look forward to your comments and your e-mails either here in the forum, or via e-mail at Follow me on Twitter: 


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Is the Problem Foot Draggin or Inadequate Compensation

I've examined storage at various times over the last 30 years and it has always proved cost ineffective.  Most of those studies looked only at what some call the energy arbitrage value, in which low cost off-peak energy is to be stored for use the following day.  Such projects require on average at leat a 2 to 1 price differential, which rarely exists in stand-alone utility operations or in organized markets.

I have seen projects with less than an hour's storage make economic sense in some instances, but even then there's a finite demand for the technology.

The problem isn't foot dragging by any means.  Instead it's a lack of demand for the services storage can provide, which is clearly signalled by poor pricing.  Storage will require huge subsidies to make sense unless one of two things happens.  Either carbon will be priced at a level (north of $60/ton) that makes alternatives to gas-fired generation economically attractive, or regulators and grid operators will stop insisting on fat planning reserves that tend to keep on-peak energy prices low.  Supply requirements driven by economics would provide the kind of price volatility that makes storage an attractive option (and it would also encourage new entry based on economic viability rather than engineering criteria).

Here's a little fact that helps prove my point.  Regulation is considered the premium ancillary service in grid operations and it should theoretically command a premium price.  However in California, one merchant generator's fleet is capable of providing three times more regulation than California requires today and it can likely provide more than the state's entire requirement for regulation under the 33% RPS target.  There's so much capability to provide regulation that supply far outstrips demand and the price has collapsed.  This is why  storage devices like Beacon Power's flywheels can't earn their keep from market revenues alone.

Jack Ellis, Tahoe City, CA