According to the US Energy Information Administration, the installation of solar photovoltaics in the United States increased by more than 400% from 2010 to 2014. Looking towards 2015 and beyond, industry analysts continue to be bullish on solar’s continued growth in residential, commercial and utility scale projects stemming in large part from the drop in silicon prices, the corresponding drop in the prices of solar equipment, increased efficiencies with integrators/installers and equipment, new and creative financing structures that exist in the marketplace and a greater acceptance from consumers and businesses as to the value proposition that solar systems offer the end user. Succinctly stated, solar manufacturers, developers, integrators, finance companies and end-users have a great deal to celebrate.
Notwithstanding the foregoing, the industry as a whole is not without its critics. One of the most common and consistent complaints when compared to non-renewable energy producers is that solar cannot scale in any measurable level for grid usage because it is only an intermittent and variable source of energy that is unable to meet peak demands 24-hours per day. However, this barrier to market acceptance is not insurmountable and regulatory mandates, renewable portfolio standards and venture capitalists are combining forces to drive the industry toward a viable solution – energy storage.
Energy storage for solar and other renewable energy sources is not new, but it is only in the last few years that it has really started to emerge (or re-emerge as the case may be). The types of potential storage vary between residential, commercial and utility scale projects and the specific technologies used. A summary of characteristics often utilized by the market participants include pumped hydro, compressed air (underground and aboveground), flywheels, lead-acid batteries, lithium-ion batteries, flow batteries (Vanadium Redix and Zinc Bromide), Sodium Sulfur, power to gas, capacitors and Super Magnetic Energy Storage (SEMS). As for the market participants themselves, we are seeing multi-national institutions such as General Electric and AES Energy Storage, solar developers and manufacturers such as SolarCity and SunPower, renewable energy integrators such as Magnum Energy and MidNite Solar, start-ups such as LightSail Energy and Aquion Energy and even car companies such as Tesla Motors and Audi. The increase demand for storage has arisen partially as a means to enhance long term relationships with end-users and off-takers with fully integrated solar-storage combinations, while, at the same time, positioning the renewables industry to meet peak energy demands as and when needed.
Energy storage market participants often face challenges that are more daunting than those of typical solar developers. Such challenges include that energy storage remains more expensive than other traditional grid solutions to peak demands that currently rely upon natural gas and fossil fuels, the dropping market prices of natural gas and fossil fuels, the lack of well-established financing models, an uncertain regulatory structure (including tax benefits), a schizophrenic love/hate relationship with different technologies and efficiency rates and a lack of sufficient industry data supporting the reliability of energy storage and the increased valuation such equipment provides to an overall solar project.
While the foregoing hurdles have the potential to derail or dampen the excitement with the energy storage industry once again, there is a significant movement both domestically and internationally to avoid such a result. The United States, the European Union, China and India are collectively being asked by the International Energy Agency to invest $380 billion in energy storage (resulting in approximately 310 gigawatts of new projects) by 2050. Federal Energy Regulatory Commission order numbers 755 (Frequency Regulation Compensation in the Organized Wholesale Power Markets) and 784 (Third-Party Provision of Ancillary Services; Accounting and Financial Reporting for New Electric Storage Technologies) have the effect of potentially opening new energy storage markets by mandating (directly and indirectly) energy storage development. California has passed laws and implemented CPUC regulations requiring energy companies to build up to 1.3 gigawatts of energy storage by the end of 2020, and Germany has earmarked approximately $258,000,000 for up to 60 energy storage pilot projects. In November of this year, Southern California Edison (SCE) awarded 250-megawatt energy storage procurement to help make up for the closure of the San Onofre nuclear power plant. Eleven companies entered into a combined 74 contracts to provide a total of 2,220 megawatts of “incremental capacity”. As part of the award, AES Energy Storage has agreed to build a 100-megawatt “in-front-of-meter” battery system in SCE’s West Los Angeles Basin region. In addition, Bay Area start-up, Stem, is providing 85 megawatts of behind-the-meter batteries. And, another start-up, Advanced Microgrid Solutions, has signed up for 50 megawatts of battery-centered “hybrid electric building” projects.
What all this means to the solar and energy storage industries remains to be seen, particularly as technology continues to evolve at its rapid pace and the market establishes, sets and/or validates the true costs with commercial development. Industry experts hope that the regulatory changes will provide new standards for incorporating distributed and customer-owned energy assets into the grid. Energy attorneys, solar developers and storage manufacturers hope that the SCE procurement transactions will offer some guidance on how the industry will finance and document energy transactions at the utility scale while providing a road map for smaller residential and commercial transactions.
Michael C. Polentz has extensive experience representing solar developers, manufacturers and integrators and is Co-Chair of the Real Estate & Land Use Practice Group at Manatt, Phelps & Phillips, LLP, located in the Palo Alto office.
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 Pharmaceutical Hazardous Waste Regulations, Measures to Address Drought Conditions, Guidance Pending from NEPA on Climate Change, California’s Proposed Overhaul of Standards for Transportation-related Environmental Impact Analysis, CPUC’s Energy Storage Rulemaking, 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.