Influencing energy storage policy in California

Utilities, vendors, enviros, consumer advocates weigh in

Phil Carson | Feb 08, 2012

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The trick here is delivering a coherent exegesis within a 750-word format on the myriad perspectives on the issues surrounding energy storage policy in California.

That means links to primary documents and past discussions for background and a representative sampling of those perspectives that will entertain, inform or, possibly, outrage readers. So I'll provide here a sampling of the latest comments on the California Public Utility Commission's (CPUC) proceeding. And yesterday's column, which provides the primary documents and past discussions, is "Energy Storage and Policy."

If you dip into the comments themselves, you'll quickly see that deep complexities attend the policy analysis and technical and financial merits of storage. I urge you to go to specific comments for the detailed recommendations on such complex matters as suggested procurement targets, how storage's cost-effectiveness should be measured, etc. All I can do here is to provide a rough sense of the parties' positions and a few statements. This may or may not be helpful.

First, I'll generalize here, based on my reading and past discussions. Consumer advocates want energy storage in place if it's cost-effective, helps with grid efficiencies and helps citizens save or manage energy use. Environmental groups think procurement targets will provide real-world deployments that will speed attainment of renewable portfolio and environmental goals. Energy storage vendors want procurement targets in place because that'll help develop the market and provide financial support to their industry. Utilities, generally, don't want procurement targets because it forces their hand while they explore possible roles for (and alternatives to) the technology and possible business cases to support it. I'm still working on understanding the California Independent System Operator's position.

The deadline for the various parties to respond to each other's filed comments is Feb. 21 and a revised, "final" staff proposal is due March 31, to provide a couple upcoming milestones.

First, the CPUC staff's "Framework Proposal" said that a Resource Adequacy (RA) value and long-term procurement process (LTPP) be developed for storage to participate in utility procurements. The staff proposal also said more analysis is needed.

The staff proposal incorporates parties' wide range of "distinct challenges for consideration," which it grouped into categories:

  • Lack of definitive operational needs
  • Lack of cohesive regulatory framework 
  • Evolving markets and market production definition 
  • Resource Adequacy accounting 
  • Lack of cost-effectiveness evaluation methods 
  • Lack of cost recovery policy 
  • Lack of cost transparency and price signals (wholesale and retail) 
  • Lack of commercial operating experience 
  • Lack of a well-defined interconnection process

 

In addition, the staff proposal identified "Next Steps," and asked interested parties to respond. The "Next Steps" identified were a regulatory framework, cost-effectiveness, a roadmap and procurement objectives. These four categories generally created the format for parties' comments in response.

I omit the specifics around the California utilities' responses, as we've covered them in-depth in prior columns. (Please see the links in yesterday's column for direction to that coverage.) It's worth noting, however, that San Diego Gas & Electric, for instance, called attention to its current work rather than fighting procurement targets.

The Consumer Federation of California (CFC) stated that energy storage systems must be cost competitive.

"California ratepayers are stakeholders in this investment and need assurances that energy storage will result in lower utility bills and better energy management and efficiency. Adopting energy storage technologies will eventually boil down to these questions: Are these technologies cost competitive? Will energy storage be more efficient than other viable energy management substitutes at a lower cost?"

The CFC said that energy storage might lessen the difference in price between peak and off-peak pricing, making EV charging more expensive than necessary as EV charging has been touted as a way to utilize wind power at the latter's peak of production, which is overnight, and cheapest under many utility scenarios.

Energy storage needs a "valuation framework" so it can be assessed for cost effectiveness, the CFC said, particularly given "the multiple values and overlapping nature of energy storage's benefits." But the process should include a cost recovery model that avoids multiple avenues for cost recovery, given that energy storage's "tentacles" reach into so many other proceedings, including permanent load-shifting, demand response, resource adequacy, dynamic pricing, electric vehicles, long-term procurement planning, etc. If utilities finance energy storage, regardless of its many applications, they should only recover their cost once, the CFC said.

A vendor, Megawatt Storage Farms, and an environmental group, the Sierra Club, both used the term "kick the can down the road" to describe the CPUC staff's recommendations, which focus on further analysis and a roadmap for addressing various hurdles to adoption. Both Megawatt Storage Farms and the Sierra Club offered their own specific procurement plans.

"The [staff proposal] states that its purpose "is not to resolve any of the barriers at this point in time, but rather outline a roadmap for how they can be addressed," the Sierra Club said. Instead, the Sierra Club proffers a procurement plan and points to the statement in the California Energy Commission's PIER report ("2020 Strategic Analysis of Energy Storage in California") that "the state can boost appropriate deployment of energy storage by setting targets for procurement under AB 2514, ideally in a two-phase process with short-term and long-term targets."

Megawatt Storage Farms said that without procurement targets, storage cannot be properly evaluated in a long-term procurement process (LTPP) designed for fossil fuel resources, renewables, energy efficiency and demand response projects.

"Unless storage procurement targets are defined quickly, fossil fuel plants will be deployed for renewables integration and storage will not contribute its unique services of fast response, locations close to the load, low environment impact and increased local reliably at a lower cost when considered as an element of the overall fossil, demand response, energy efficiency and renewable portfolio," Megawatt Storage Farms wrote.

"The feedback from the deployments will provide much better real world information on storage on the California grid than 'end use' analysis ever can and will avoid 'paralysis by analysis.'

"In summary, the staff proposal will further delay the development of cost-effective
storage needed in California in support of 33 percent renewables and greenhouse gas policy," Megawatt Storage Farms concluded. "The staff proposal should be rejected as it frustrates the clear intent of the governor and the legislature, as expressed in AB 2514, to make storage an integral part of California's grid, just as renewables are today."

As forewarned, the devil is in the details, which you'll find in the primary documents. Hopefully, this too-long write-up gives you the flavor of the debate, without over-simplification. I invite your comments, particularly with regard to the CAISO's role and position in energy storage.

Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757

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Comments

Computational tools needed for storage valuation.

 

Phil has written a cogent review of the issues and politics surrounding AB 2514 as it relates to integrating energy storage onto the grid in California. In regards to CPUC's proposed  framework for implementation, the commentary seems to boil down to "let's hold off because we don't yet understand the economics".

 

As CEO of Growing Energy Labs, Inc. (GELI) I agree that evaluating energy storage on the grid is “fraught with complexities”, but complexities make a perfect domain for a computer solution. Computational tools are necessary, first, to model the benefits of storage and, second, to operate storage nodes efficiently within a network.

 

Before anyone can apply computational methods (to the problem of valuing storage on the grid), there needs to be regulatory transparency of pricing for grid-based electricity and of the value of various opportunities. Only then can we start to get a picture of the potential benefits of storage.

 

GELI's mission is to build systems that include computational and networking tools, together with storage, so that every consumer can operate as a micro-utility. Utilities would continue to play an important role in providing grid infrastructure and would be able to increase their profits by renting electricity "bandwidth" to meet the increased numbers of transactions. Homes and businesses would become their utility's partner in managing the flow of electricity in the grid from local storage nodes.

 

Toward this end, GELI has joined with the Galvin Electricity Initiative (galvinpower.org) to help facilitate the reforms that will be necessary to realize this vision. We welcome participation from regulators, utilities, and consumer advocates such as the Consumer Federation of California.

 

 

Dr. Ryan Wartena

CEO, Growing Energy Labs, Inc.

ryan@gelli.net

 

Replies to Comments

First, Phil has done an excellent job in summarizing the parties' points of view on the implementation of AB2514 by the CPUC including those of my firm, MegaWatt Storage Farms, Inc.


Second, I appreciate and agree with the comments titled Deploy Now!


Third, my colleague Jack Ellis is repeating the general opinion that storage is more expensive than peaking plants. A peaking plant of 100 MW with fast start-up can provide 100 MW of fast response in one direction. So can a 100 MW battery. A battery of 100 MW can also provide instant response to absorb 100 MW. To integrate 33% renewables, California needs fast response in both directions. So a 100 MW battery has perhaps has two times the value of a 100 MW peaking plant for fast response to changes in renewable generation.


For very fast response, some peakers must be operating at 75% of capacity so that they can go up or down 25% frequently without frequent costly starts and stops (assuming it can’t go below about 50%). In this case the 100 MW peaker would have a 50 MW dispatch range whereas a 100 MW battery would have a 200 MW dispatch range. Hence, a 100 MW battery would have four times the value of a 100 MW peaking plant for fast response to changes in renewable generation.


I believe there is a need for about 4 GW of fast, clean, deep, (2 to 4 hour) distributed storage in California by 2020 to balance renewables in combination with thermal and other resources and price responsive demand.


And as Jack mentioned, there are siting challenges in locating peakers close to the load whereas batteries on the distribution grid can support local reliability as well as integrate renewables.


I strongly agree with Jack’s comments that the California markets do not provide useful and accurate price signals for storage. The wholesale and retail markets for energy and T&D services need to be fixed not only for storage but for customer price response and accurate investment and operational signals for all technologies.


Fourth, regarding the comments titled “CA Energy Storage” I strongly agree that a clear mandate for storage such as we have for renewables and demand response should be in the interest of the utilities because it reduces the risk of any claim of imprudence in utility investment or purchase of storage services. Perhaps the utilities currently oppose a mandate so they are in a better position to negotiate any implementation of the mandate so as to expand their monopoly to storage rather than support a robust and open competitive process for storage services and investment.


Ed Cazalet
MegaWatt Storage Farms, Inc.

Thanks for the comments

Thanks to all who commented here, including Ed Cazalet,

So we have a few issues on the table:

  • procurement targets versus utility autonomy in a state that has passed storage legislation (that raises the question of whether storage procurement has been mandated by law);
  • simulation and paper analyses by regulators versus field implementation and real-world data;
  • contention over how storge should be valued and compared to a peaker plant's value (and capital and O&M costs);
  • who should own storage -- developer and/or utility;
  • and whether wholesale market reforms to allow storage to be properly valued should be part of the picture.


That's the short list. I look forward to more discussion at all levels to see how this issue and its many questions is  resolved.

Regards, Phil Carson  

Deploy Now!

MegaWatt Storage Farms makes the most sense:

"The feedback from the deployments will provide much better real world information on storage on the California grid than 'end use' analysis ever can and will avoid 'paralysis by analysis.'

We have enough analysis.  The more questions we try to answer on paper, the more issues will be developed by the staff and consultants that live off studies.  Direct the utilities to deploy a limited number.  Let third-party owners determine where. Don't let the utilities do the actual deployment - just sign a service contract with the developer - like they do with generation.

Then evaluate the real-world applications.  The analysts keep doing studies based on assumptions that may or may not be relevant. I've heard the term "Frankenstein System" used by these analysts to describe an imaginary energy storage system that incorporates the attributes they want to study, not a study based on actually available and commercial systems. 

The frog that keeps jumping half-way to the door will never go through.  Somebody stop the madness and just do it!

Frog being eaten

CPUC Authorization

In California, the IOUs receive authorization to procure resources ahead of time and are, for all practical purposes, relieved of after-the-fact prudence reviews of the procurement decision.  the may still be subject to disallowances if they mismanage the procurement process or mismanage construction.

Given the age of utility T&D infrastructure, there are plenty of uses for their excess cash other than storage.  If storage is significantly more expensive than the alternatives, which it is at this time, the cumulative rate impacts start to make alternatives to grid power look attractive.  Remember storage costs would be added to a large and rapidly growing bill for renewable energy.

Today the cheapest storage systems (pumped hydro and CAES) are roughly competitive with the cost of a new peaking plant but both have siting challenges.  Batteries range from somewhat more expensive to a lot more expensive.  In all cases, the structure of California's wholesale energy market make it practically impossible for storage used in time-shifting applications to operate cost-effectively.  How can a storage operator figure out when to charge and discharge the device if the price of energy isn't known until after the allowable window for making wholesale trades in the California ISO's spot market  is closed?

Jack Ellis, Tahoe City, CA

CA Energy Storage

It is interesting that investor-owned, rate-regulated utilities would be opposed to storage procurement targets.  Utilities generally generate excess cash flow and need to make investments in new infrastructure to make good use of that cash.  Having a the CPUC direct, or strongly encourage, a specific level of investment should remove, or reduce, an element of risk in making infrastructure investment.  After all, how can the CPUC disallow recovery and find investment in energy storage to be imprudent if the CPUC drove that investment in the first place.  Even if the directive were to procure third-party storage services, rather than directly invest in new storage capacity, that would open lower risk opportunities to meet RPS mandates and invest in new transmission facilities to serve remotely located intermittent generation sources.

In the absence of a CPUC mandate to invest in some level of energy storage, the utilities are open to being second guessed later by the CPUC.  If they choose not to procure such capability, they may be found to have been imprudent and have their return reduced in the event that the grid can't efficiently integrate intermittent resources or that intermittent resources were not built due to a lack of storage.  If they choose to procure such capacity, they may be found to have been imprudent and have their return reduced should it turn out that the best play would have been to invest in natural gas fired generation either as a primary generation source or as firming capacity that could substitute in some respects for storage.