By comparison, grid-scale battery projects have comprised a relative fraction of available energy storage capacity and have primarily been relegated to providing wholesale market frequency regulation and other ancillary services.
However, battery projects are poised to play a larger role in the energy storage market going forward. According to the U.S. Energy Information Administration (EIA), large-scale battery storage capacity is anticipated to reach 20 gigawatts (GW) by 2030 and 40 GW by 2050. US EIA, Battery Storage Market Trends, 19, fig. 1 (May 2018). Longer-term growth in wind and solar resources will also drive favorable market conditions for battery storage systems, which can store renewable generation produced under windy or sunny conditions and “shift” the output to peak electricity demand periods. As we discuss below, new state policies, recent federal regulatory changes, and increased utility procurements represent new key drivers for continued battery storage deployments, representing opportunities for utilities, project developers, and regulatory stakeholders.
Federal Regulatory Developments
In 2018, the Federal Energy Regulatory Commission (FERC or Commission) issued a landmark rulemaking that promised to change the regulatory landscape for energy storage participation in competitive electricity markets. The rulemaking, Order No. 841, amended FERC’s regulations to remove barriers to the participation of electric storage resources in the capacity, energy, and ancillary service markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs). To meet that objective, FERC directed the RTOs/ISOs to propose tariff revisions to meet Order No. 841’s minimum requirements by the end of 2018, and to implement those revisions by the end of this year. Those proposals were required to include, among other things, wholesale market designs with qualification criteria for energy storage resources at any interconnection level (transmission, distribution, and behind-the-meter) to be dispatched in a way that recognizes their unique physical and operational characteristics.
Following lengthy stakeholder reviews over the course of the past year, the RTOs/ISOs submitted compliance filings that represent a spectrum of approaches for meeting Order No. 841’s minimum requirements, reflecting the fundamental differences among RTO/ISO market designs. While the compliance filings represent a significant step toward FERC’s goal of a “level playing field” for energy storage, they are also, in some respects, aspirational starting points. Even if approved, the RTOs/ISOs have a significant amount of work to do before implementing their proposals (e.g., complex software changes, operator training). Meanwhile, FERC is separately mulling requests for clarification and rehearing of Order No. 841 on key issues, such as the boundaries of federal and state jurisdiction and opt-outs for states that would prevent distribution-level storage resources from participating in wholesale markets. FERC has also taken steps to evaluate wholesale market participation of aggregated distributed energy resources (e.g., small, residential storage), but, despite urging from some lawmakers on Capitol Hill, has not yet issued any final guidance on this topic. Utilities and developers in any given RTO/ISO with an interest in energy storage are advised to stay tuned for the Commission’s response regarding Order No. 84 and the related RTO/ISO compliance filings, as well as the any steps the Commission may take on aggregated distributed energy resources. .
More than 20 states and the District of Columbia have taken actions to promote energy storage growth, ranging from utility procurement targets to storage development incentives. For example, the New York State Public Service Commission (NY PSC) has issued an order establishing a statewide goal of 3.0 GW of energy storage deployments by 2030—with an interim target of 1.5 GW by 2025—and related reforms to encourage that development.
The order is the latest step in a broader plan being implemented by state authorities to dramatically boost the presence of energy storage in New York. In November 2017, the state legislature enacted a law directing the NY PSC to establish a statewide energy storage goal for 2030. In January 2018, Governor Andrew M. Cuomo announced a target of 1.5 GW of deployed energy storage by 2025. In mid-2018, NY PSC staff and the New York State Energy Research and Development Authority (NYSERDA) jointly developed the New York State Energy Storage Roadmap to provide the PSC with recommendations on the policies, regulations, and initiatives needed to meet those targets. The PSC’s order addresses the legislature’s directive by formally adopting a statewide goal of developing 3.0 GW of energy storage by 2030, along with the governor’s interim target of 1.5 GW of storage deployments by 2025, and setting direct procurement targets for investor-owned utilities in the state.
In California, legislative directives and regulatory programs have driven the procurement of 1.6 GW of new storage capacity between 2012 and 2018 alone, with nearly .5 GW of those resources online today. CPUC, Energy Storage Market Survey and Recommendations (Oct. 24, 2018). Building on its considerable experience with energy storage deployments, regulators and stakeholders in the state are evaluating new applications for those storage resources. Last year, the California Public Utilities Commission (CPUC) issued a decision establishing a set of rules to guide utilities on how to leverage single resources to provide multiple (or “stacked”) services to end-use customers and the wholesale electricity markets, thereby maximizing the value that resource can provide to the grid. Id.; CPUC, Decision 18-01-003 (Jan. 17, 2018). The California Independent System Operator (CAISO) has also been implementing its Energy Storage and Distributed Energy Resources (ESDER) initiative, which sought to solve storage-related issues identified by the CPUC in its policy roadmap.
Spurred by legislative and policy initiatives, these state programs, and many others across the country, enable utilities and utility commissions to shorten the gap between traditional generators and battery storage resources.
Project Development and Utility Procurements
Various utility resource plans in the last year have demonstrated that utilities can procure utility-scale battery storage resources on a competitive basis with less risk to ratepayers than before. Those developments are attributable, in part, to sliding capital costs across most battery storage technologies (however, future declines could be mitigated by rising prices for the natural resources used to produce batteries). Lazard’s Levelized Cost of Storage Analysis, v.4.0 (Nov. 2018).
As battery storage resources become more cost-competitive in resource solicitations, utilities and developers should bear in mind the challenges presented by those resources’ unique physical and operating characteristics. The following is a list of just a few of those important commercial considerations:
- Degradation. Like with traditional generators, degradation in the storage context is a decline in a battery storage system’s performance due to the consistent use of the battery over time. Battery storage units can degrade differently based on how quickly they are charged, the current state of charge, the number and depth of the cycling of the battery, operational life of the battery, and ambient conditions. To mitigate these impacts, developers sometime overbuild the resource by adding more storage capacity than needed for the project, or perform continual, scheduled upgrades to maintain the battery’s performance.
- Operating Limitations. Energy storage resources may be subject to operational constraints that do not affect traditional generation projects. For example, certain battery technologies will degrade more quickly if the state of charge is not actively managed within a certain range. In addition, batteries may be subject to limitations on the number and depth of cycles.
- Performance Measurement and Testing. Due to the unique characteristics of battery storage resources, additional performance measurements may be required to adequately evaluate a project in a solicitation. For example, in addition to the metrics that are typically applied to generators, the performance of battery storage resources also may need to be measured for charging time, charging rate, round-trip efficiency, and self-discharge.
- Safety. Minimum safety and operating requirements are common considerations for energy projects. Energy storage resources present additional safety concerns given their unique technological profiles. In particular, safety requirements should adequately address fire risks for battery storage technologies. Battery fires for utility-scale systems can be especially dangerous, and those concerns are only compounded as battery chemistries evolve to incorporate higher energy densities and operate at higher temperatures. Periodic testing and safety compliance inspections may be prudent depending on the project’s technology, use profile, and ambient surroundings.