Bright Future for Energy Storage

California has set an ambitious target of connecting 1.3 GW of energy storage to the grid by 2020. In October 2013, the California Public Utilities Commission (CPUC) mandated that 200 MW of this goal come in the form of energy storage installed in individual buildings and homes. These energy storage systems have the ability to address one of the most difficult challenges for renewable energy: storing the power created when the sun is shining and the wind is blowing and then accessing that power during peak energy demand periods. Energy storage systems can also improve overall grid capability and efficiency by providing services such as demand response and frequency regulation. (For more on energy storage, see “The Year Energy Storage Hit Its Stride” in the May 2014 issue.)

Battery systems have long offered a means to store renewable energy. But batteries are back in the spotlight due to improvements in technology, falling production costs, and the evolution of electricity markets to reward energy storage. Two recent decisions by California regulators have the potential to accelerate this trend. These initiatives could serve as a roadmap for other states seeking to encourage the further development of energy storage.

Lower Interconnection Barriers

New installation of solar photovoltaic (PV) panels supported by battery systems has been stalled in California in recent years. The states’ utilities were requiring that applicants complete extensive interconnection studies and pay thousands of dollars in additional fees before they approved the connection of battery-backed solar systems to the grid. Such requirements had stifled the interconnection of these types of behind-the-meter energy storage systems.

A May 2014 CPUC decision exempts many solar storage projects from these fees and interconnection study requirements. The decision clarifies existing policy set out in the Renewables Portfolio Standard Eligibility Guidebook regarding the treatment of energy storage systems under the state’s net energy metering (NEM) program. Energy storage systems are to be exempt from interconnection application fees, supplemental review fees, costs for distribution upgrades, and standby charges when interconnecting under the current NEM tariffs, provided these systems: (1) are paired with NEM-eligible generation facilities (such as a rooftop solar installation), and (2) qualify under the guidebook as an “addition or enhancement” to an NEM-eligible system. The decision also places certain limitations on the size of the storage systems and implements metering requirements aimed at protecting the NEM program. These conditions are intended to help ensure that any energy sent onto the grid from these battery systems is truly “green” energy from the solar PV system and not simply “brown” energy that had previously been pulled from the grid.

The CPUC’s decision is widely considered a victory for distributed storage and correspondingly a rebuke to the California utilities for having failed to take “a more proactive and collaborative approach” with customers and companies desiring to interconnect these battery systems.

If the California experience portends the future of energy storage regulation, other state utility commissions should be expected to adopt new policies or clarify existing policies aimed at lowering the barriers to entry for the installation of behind-the-meter battery storage systems.

Distributed Storage Rebate Program

The California legislature has also recently re-approved funding through 2019 for the Commission’s Self-Generation Incentive Program (SGIP). California launched SGIP in 2001 with the goal of reducing peak load demand by supporting emerging distributed energy resources. The SGIP provides rebates for qualifying energy systems installed on the customer’s side of the utility meter. The SGIP was one of the key programs to encourage development of solar PV systems in the state. In fact, these systems became so popular that the CPUC launched a solar PV-only program known as the California Solar Initiative.

The CPUC has confirmed that battery storage systems can qualify for SGIP rebates. While there have been relatively few battery storage projects completed under the SGIP, the pace has increased in recent years. In 2013 alone, the CPUC received SGIP proposals for almost 25 MW of battery storage systems. California’s decision to provide $83 million in annual SGIP funding through 2019 (for a total of $415 million) should further accelerate the pace of customer-sited storage. It offers a necessary “bankable” source of funding for these projects.

Energy Storage Development Across the Country

The federal government is also helping to provide a platform for the development and grid-scale testing of technologies such battery storage. For instance, in 2013, the Department of Energy opened the Energy Systems Integration Facility (ESIF) at the National Renewable Energy Lab in Colorado. ESIF is the country’s first research facility that will help researchers scale up promising clean energy technologies and offer the tools needed to test how they interact with each other and the grid at utility scale.

Many Americans will likely someday rely in part on battery systems to power their appliances and cars, store electricity generated by their solar PV panels, and help regulate the frequency and efficiency of the overall power grid. By setting aggressive targets, reducing the barriers to entry, and providing long-term funding, California has incentivized the development of battery storage systems. If these programs prove successful in California, other states could begin offering similar incentives in the coming years. ■

— Patrick Ferguson ([email protected]) is a senior associate in Davis Wright Tremaine’s energy practice group in the firm’s San Francisco office.