July 7, 2011

Workshop at CPUC envisions regulations to support energy storage

By Brian Orion, Cleantech Law Partners

On June 28, 2011, the California Public Utilities Commission (“CPUC”) held the latest in a series of workshops aimed at establishing rules for bringing energy storage into the California energy system. The proceeding was undertaken pursuant to AB 2514, a bill passed in late-2010 calling for the CPUC to consider whether to require the utilities to incorporate energy storage into their energy procurement proceedings.

Energy storage is defined as the ability to capture energy generated at one time for use at a later time. Currently the greatest amount of energy storage exists at hydroelectric plants, which pump water upstream during periods of excess supply to be released through the powerhouse at a later time. In addition to pumped hydro, other leading storage technologies include batteries, Compressed Air Energy Storage (“CAES”), and flywheels.

Energy storage has grown in prominence as more and more variable energy resources – like wind and solar – are incorporated into the grid. The wind blows primarily at night, but demand for electricity peaks during the day and evening hours. The ability to store energy for 12 hours would unlock substantial amounts of new wind potential. And while solar peaks at the same time as demand, the stream of power from solar installations shows tremendous variability over the course of the day. Grid planners need to be sure of a reliable supply of power in advance, so they are looking to energy storage as a potential solution to smooth out the variability in power supply.

For these reasons, AB 2514 called for the CPUC to open a proceeding to consider appropriate targets, if any, for incorporating energy storage into utility procurement proceedings. This workshop was designed to elicit feedback on how the CPUC can use its existing regulatory authority to support the integration of energy storage into the system.

The challenge for regulators is that energy storage has many potential applications, some of which fit neatly into the traditional categories of generation, transmission, and ancillary services, and some of which do not. Deciding what application a given storage project will provide is critical to the economics of the project because the categorization affects whether a utility can recover for its investment (and hence, whether it will invest).

Presentations from researchers at UC Berkeley as well as Southern California Edison made clear that regulators recognize this and are considering an “application-specific” approach to establishing rules for energy storage. Existing rules are being evaluated to determine how they can be revised to reduce the number of regulatory barriers for a given energy storage application. For example, as explained by the presenter from Edison, utilities are required to meet Resource Adequacy (“RA”) requirements annually. This planning process ensures adequate supplies to meet all potential demand. But while RA is a potential application for energy storage, existing RA rules say nothing about how to incorporate energy storage into the RA planning process.

A presentation from the California Energy Storage Alliance (“CESA”) emphasized the need for changes in a number of important public policies. Among other things, CESA called upon the CPUC to establish storage procurement targets under AB 2514, to incorporate energy storage into the Self-Generation Incentive Program (“SGIP”), and to grant energy storage high priority in the CPUC Loading Order (which would place energy storage above new generation for planning purposes, for example).

The CPUC presented a straw-person proposal for potential regulations. The CPUC is considering requiring the utilities to offer Power Purchase Agreements to stand-alone energy storage providers, as well as integrating energy storage systems into renewable energy contracts. The CPUC is also considering whether to allow distributed generators to use energy storage systems for stand-by service, instead of being required to obtain stand-by service from the utility. Recognizing the application-specific value of energy storage, the CPUC is also considering how to compensate energy storage providers for various services, such as allowing greater renewable energy penetration and taking power out of the system at critical times to avoid over-supply problems.

Renewable energy providers will want to keep an eye on this proceeding, as well as one underway at the Federal Energy Regulatory Commission (“FERC”). The presentation from CESA emphasized that reaching California’s goal of 33 percent renewable energy by 2020 will require substantial deployment of energy storage technologies. Meanwhile, FERC is considering whether to place the costs of incorporating large amounts of variable energy resources (i.e., wind and solar) on the sources of the variability (i.e., renewable energy project owners). Those costs are currently borne by ratepayers. Thus, the economics of renewable energy projects are likely to change as energy storage becomes a greater factor. Renewable energy developers will need to consider the application for a given energy storage system to maximize the return on investment in that system.

The CPUC will solicit comments on the straw-person proposal, and interested parties are encouraged to file comments. The CPUC plans to hold 2-3 more workshops over the course of the summer and fall. A draft CPUC decision on energy storage is anticipated around November 2011.

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