Energy storage and California regulators

Southern California Edison lauds recent, proposed decision

Phil Carson | Jul 30, 2012

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As you may recall, we looked at a proposed decision of the California Public Utilities Commission on energy storage recently in "California Takes Deliberative Stance on Storage." 

That proposed decision, which relies on the CPUC's own "staff proposal" on how to proceed in this complex issue, can be found here. (Look for the July 2, 2012 proposed decision on energy storage.) 

In the weeks since the CPUC's proposed decision was released on July 2, various parties to the proceeding have weighed in with their view of the outcome. (Phase 1 of the energy storage "order instituting rulemaking" or OIR, considers policies and guidelines for energy storage systems, while Phase 2 will address costs and benefits and how they should be allocated.)

To capture the flavor, let's look at just two sets of comments, one from a utility that has led the thinking on storage and another from a storage association that found the CPUC's proposed decision reasonable, with caveats. 

Southern California Edison (SCE), which in my mind can be credited with guiding the discussion by sheer rational thinking, largely agreed with the proposed decision. "Grid `needs' should be expressed as needs for defined operational characteristics rather than any specific type of technology," SCE wrote in its comments. (See "Straight Talk on Energy Storage" for SCE's thinking.) 

For instance, the SCE comments state that "energy storage policy issues fall under the purview of many different regulatory proceedings" and the proposed decision (that favors the CPUC's "staff proposal") "provides a useful method for determining the appropriate regulatory approach to resolve each barrier."

On another point, "SCE agrees with the Commission that `there is a need to divide energy storage applications into separate, discrete functions' but that energy storage `must be considered in a comprehensive manner.' The End Use Framework (in the staff proposal) will facilitate analysis that properly values storage's individual functions while also capturing its total value."

I think the fact that the Clean Energy Storage Alliance (CESA), an association of nearly three dozen vendors involved in storage technology, finds the CPUC's proposed decision relatively reasonable adds a lot of weight to the regulators' work. 

CESA, in its comments on the proposed decision suggested that regulators "proceed expeditiously and aggressively" with their handling of the matter, coordinate the energy storage proceeding with other, related proceedings and set short-term steps with hard and fast deadlines.

CESA would like to see terminology clarified for consistency to prevent time lost to confusion, and it  recommended "further refinement of the specific end uses to evaluate for procurement targets" and the development of cost benefit analysis methodology. The association also recommended that "a robust cost-benefit methodology be developed as soon as possible in Phase 2."

One side note of importance. The Division of Ratepayer Advocates at the CPUC itself requested that the following language be added to the commissioners' proposed decision: "Under AB 2514, of course, we are not obligated to set targets for energy storage, and we will not do so if the record does not support such action." It is the DRA's view that AB 2514 does not demand procurement targets and that the CPUC should expressly recognize that it is not bound to do so. Presumably that is because targets would likely increase costs for ratepayers where least-cost alternatives might serve.

What I'm reading into this set of comments is that the CPUC's staff proposal for a framework to evaluate applications (and alternatives) for energy storage and cost-benefit analyses (again, for alternatives as well) is eminently rational and fair. That said, the energy storage industry needs certainty to remain an attractive investment, it needs clarity for the future and all this needs to happen quickly. Industry needs to know how and when storage's many issues will be resolved so it can continue to serve as a viable means of innovation and, potentially, profits. 

I think we're right to keep our eyes on the California proceedings on energy storage. The biggest upshot of that state's AB 2514 legislation probably won't be procurement targets for storage, but instead will tackle the tedious and necessary process of hashing out the devilish details around if and how storage fits into the grid. And that could provide guidance or even a roadmap for similar deliberations in other states. 

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

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Comments

Storage in California

I'm a party to this proceeding out of general interest rather than on behalf of a client.  As often happens in California regulatory proceedings, the problem gets analyzed to death without making much progress on the more substantive issues.

There are a couple of broad applications for storage, namely time-shifting (storing cheap power that can be sold when prices are high), ancillary services (spinning reserve and regulation), capacity, and as a substitute for wires upgrades at the transmission and distribution level.  There are already markets with at least somewhat transparent prices for the first three broad applications.  For time-shifting, there is a flaw in the wholesale market structure used by nearly every RTO in the US that adds a lot of operational risk to storage investments, but there are no substantive barriers that prevent storage from participating.  The real issue is that storage isn't cost effective at current prices for energy, capacity, ancillary services and the price of the storage devices themselves.  What CESA and other proponents of storage want is either a set-aside or subsidies.

The fourth broad category is a tougher nut to crack, because storage used as a transmission asset can also be used in other applications.  Storage treated like a transmission asset would be entitled to ratemaking treatment that is typically unavailable to merchant generation, so there is a throny issue over how to avoid providing subsidies to storage that are otherwise unavailable to merchant generators.

In my opinion, most of the rest of the discussion is make-work.  Low cost storage ought to be able to stand on its own.  High cost storage needs to work on its...costs.  Subsidies can;t be part of the equation any more.  If California's grid operator really wants storage, it needs to make some changes in the way its wholesale market work.

Jack Ellis, Tahoe City, CA