The CPUC’s Energy Storage Rulemaking: Developing the Bridge to a Renewable Energy Economy
Energy storage is widely considered to be the missing bridge between today’s electric grid, which is reliant on conventional generation that can be dispatched on demand, and an electric grid reliant on increasing levels intermittent renewable resources such as solar and wind. Unlike water, oil, or natural gas, electric energy on today’s electric grid is not easily stored for later use. At present it is transmitted between the generation source and the consumer’s load in close to real time. In California, experts predict that as increasing levels of intermittent solar generation resources come online, there will be an excess of generation during peak daytime hours. Energy storage can absorb excess generation during peak hours and release it onto the grid in the evening, curbing the need for additional investments in conventional plants and other utility infrastructure.
The development and deployment of commercially viable energy storage technologies to date has been impeded by technical, market and regulatory barriers, not least of which is the lack of motivated buyers. The California Public Utilities Commission (CPUC) is seeking to change that by requiring retail electric utilities to procure a set amount of energy storage capacity. In October 2013, the CPUC established an energy storage procurement target, under which Pacific Gas & Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company must procure a combined total of 1325 megawatts (MW) of energy storage by 2020 with commercial operation commencing no later than 2024.
With the 1325 MW target set, the CPUC is now working to figure out (1) what constitutes “energy storage” and what sorts of technologies it should include and (2) how to value the various products that energy storage systems are capable of providing. Observers could be forgiven for thinking that CPUC’s approach is backwards. After all, it would seem to make more sense to identify the product before quantifying the amount to be procured. But the CPUC’s approach makes more sense when viewed within the context of its primary policy objective, which is to facilitate “market transformation” for energy storage technologies. While this may seem an ambitious goal, this sort of industrial policy for cleantech is not without precedent. Similar policy mandates favoring procurement of renewable generation throughout the US and Europe (most notably in California and Germany) have been credited with creating the demand for solar photovoltaics that led to the historic reductions in solar module costs (a cost reduction of 70-80% from 2007-2012 by some estimates).
There are reasons to be skeptical that procurement targets for energy storage will work as well as renewable generation procurement mandates have. After all, the viability and function of renewable generation was well established and well understood at the time that California instituted its Renewable Portfolio Standard procurement mandate. Compared to renewable generation technologies, “energy storage” includes a wider array of technologies with a wider array of applications and products.
“Energy storage,” as defined by statute and interpreted by the CPUC, could potentially include technologies and systems that store either thermal or electric energy for later use. Examples of such technologies include grid-connected batteries, electric vehicles, electric water heaters, biogas plants, pumped hydro, compressed air storage, thermal energy storage, and even regenerative braking energy storage systems on grid-connected trains. The applications of such systems go beyond simple storage of electric energy for later use. In fact, the CPUC has identified 20 distinct end uses or applications for energy storage systems, including customer-side back-up power, power quality management, time-of-use energy cost management, transmission congestion relief, peak shaving, voltage support, intermittent resource integration, supply firming, resource adequacy, and ancillary services.
How the CPUC will value and compare the various technologies and applications is presently unsettled. The CPUC is faced with the difficult task of balancing its desire to include the broadest array of technologies possible (to avoid picking winners or excluding developing technologies), with the need to give utilities clear and enforceable mandate.
The CPUC’s decision, which will address the utilities’ proposed energy storage procurement plan and determine which energy storage applications will be eligible, is expected in August. Under the current proposed schedules, the utilities will issue request for offers (RFOs) for energy storage projects in December 1, 2014 with execution of resulting contracts likely to happen in mid-2015.
Jack Stoddard is an attorney in the San Francisco office of Manatt, Phelps & Phillips, LLP, where he represents and advises clients on regulatory matters and proceedings, as well as in commercial agreements relating to the purchase and supply of power. He previously served as a legal and energy advisor at the CPUC, where he was lead counsel to the Commission on implementation of the California RPS program. Mr. Stoddard can be reached at (415) 291-7548 and JStoddard@manatt.com.
This column is part of a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice. Earlier columns in the fourth edition of this series discussed EPA’s Proposed Rule for Reducing Carbon Emissions from Power Plants, Nanomaterial Safety Research Plans, the Obama Administration’s Plans to Reduce Methane Emissions, US Ban on Oil Exports and Environmental Risks in Buying Contaminated Properties.
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