Two buzzwords have come to dominate California energy policy circles: overproduction and the ramp.
In the late morning, when solar production is strong and air conditioning has not been called into action, there are periods when the state has more electricity than it needs. Then in the late afternoon, when the sun is going down as people go home and turn on their appliances, the need for electricity from non-solar resources ramps up sharply.
Laura Gray
Both of these effects are intensified by solar, and both can be solved with energy storage. There is not a moment to lose in developing storage to address these challenges.
This past April, the California Independent System Operator (CAISO) paid renewable energy plants not to produce 85,000 MWh that they otherwise would have generated. That is nearly double the highest monthly curtailment in the previous year. On nearly every spring day this year, CAISO solicited bids from solar plants that were willing to dial down their production.
On an annual basis, curtailment in California was a little more than 1% of solar generation in 2016, so it has not yet become a major market distortion. But as solar penetration grows, the state will need to store energy for use in the evening if it is going to avoid massive curtailments.
For the ramp, the steepest increase in demand that California has seen happened last December, when statewide load increased by nearly 13 GW in three hours. Utilities sign a lot of contracts with peaker plants to prepare for ramps like that. Every megawatt-hour of solar energy that is stored could offset the natural gas peaker plants that kick on as the sun goes down even on ordinary days.
Solar continues to grow
The California renewable portfolio standard (RPS) currently calls for 50% of electricity to come from renewables by 2030. A bill that is moving through the state legislature as of press time would increase the RPS to 60% by 2030. A substantial portion of that could come from out-of-state wind power, but analysis suggests that the majority will be in-state solar.
Because rooftop solar does not count toward the RPS in California, installations on the customer side of the meter are additional. Net-metered systems currently add up to more than 5 GW, or about 3% to 4% of annual consumption. The explosive growth rate of the past few years seems to have slowed as customers adjust to new net metering rules and new peak periods in time-of-use (TOU) rates, but the market may be able to sustain around 1 GW of new behind-the-meter installations per year.
Whether we get to 50% solar by 2030 or years earlier, energy storage has a big job to do.
The National Renewable Energy Laboratory (NREL) recently published a study to determine how much storage will be needed in California to get to 50% solar without excessive curtailment. The lab ran multiple scenarios involving different levels of electric vehicle adoption, demand response capability and interstate trading opportunity. NREL concluded that the storage need is somewhere between 14 GW and 32 GW.
California leadership
The first real market for solar energy was created deep in the woods of northern California. The customers were people who wanted to stop breathing kerosene fumes and had enough cash from certain lucrative farming operations to afford the expensive systems. Back then, batteries were as important as the panels.
Forty years later, California leadership on batteries is needed again, and the state has already made progress ushering in a new era of energy storage.
In 2010, the state legislature passed a bill directing the California Public Utilities Commission (CPUC) to establish a requirement for the utilities to procure energy storage. After three years of debate, the mandate was set at 1.325 GW, to be contracted by 2020 and built by 2024.
The state is already about halfway to that requirement with installed systems. Current installed capacity of utility-scale storage in California is around 620 MW. In 2016, the legislature tacked on an additional 500 MW of utility-procured storage, and CPUC has also considered increasing the mandate further.
For customer-sited storage, data is spotty, but a solid estimate of current installed capacity in California is on the order of 70 MW for commercial and 1.2 MW for residential.
Commercial customers have begun understanding that they can avoid demand charges by installing storage. Combining those savings with rebates available through California’s Self-Generation Incentive Program (SGIP) makes storage a no-brainer for some commercial customers from a financial perspective, but there is still a lot of reluctance to enter into contracts.
That hesitation should surprise nobody. Asking a business that is focused on selling food or renting office space to install a new technology to manage power bills is asking a lot. You have to provide a very attractive offering to get the first customers to jump in.
On the residential side, recent installations have mostly been for techies who want to be first or people who feel strongly about never being without power. Solar companies are now trying to attract a more mainstream audience by giving consumers the power to control their own energy use as TOU rates come online and rates climb ever higher.
Currently, SGIP has a budget of $440 million, which will result in just over 1 GW of installed storage if the full budget can be used at the currently prescribed incentive levels. However, this is not enough to create a long-term program with a gradual reduction in incentive levels. Initial incentive levels have created so much demand that the incentives have needed to be distributed by lottery, which makes it difficult for companies to count on the program and attract investors. Soon, the incentive level will be so low that projects might not be viable if storage prices do not drop quickly enough.
Policy outlook
Incentives are essential to get off the starting line, and we need them to take storage to scale. But another big piece of the puzzle is to create tariffs that value the services that storage can provide to ratepayers, consumers and the grid. Ultimately, we need a functional marketplace.
CPUC has expressed some willingness to consider a rate structure that is designed for storage customers. The commission recently issued a Distributed Energy Resources (DER) Action Plan to coordinate work across different proceedings. The document states a goal of creating “appropriate rate design to absorb renewables oversupply.” The California Solar Energy Industries Association (CALSEIA) has proposed optional rate structures in utility rate cases, including rates that have a wider differential between peak and off-peak rates, have very low charging rates in the wee hours, and line up all demand charges within the peak period.
Beyond TOU, California needs tariffs for voltage support and frequency regulation, along with demand response program rules that work for customer-sited storage. These items are all on the list of the state’s DER Action Plan, but the work to create them has not begun.
Along with the actual tariffs, product offerings will need to be developed by third-party aggregators. Companies may guarantee a fixed monthly payment in exchange for control of battery operation, or they could structure performance-based payments. Smart phone apps will surely be created for millennials to click on a “sell” button when they drink their morning coffee.
While this is happening, we need to bring down the enormous soft costs of installing storage. Everyone involved with selling, designing, installing, permitting, inspecting and financing storage will proceed slowly at first and gain efficiency over time. For this, we need a longer bridge of incentives to make sure the industry is maturing at the same time that the marketplace is being developed.
As of press time, the California legislature is considering S.B.700, a bill that would spin off storage rebates from SGIP into a storage-only program focused on market transformation of storage. The program would bring to scale the local energy storage market in the same way that the California Solar Initiative got us to where we are today for PV.
Companies are already taking advantage of available rebate funding, and the strong demand shows the need for a program with a longer runway. The most recent SGIP solicitations are encouraging. There were 166 storage developers, using equipment from over 50 manufacturers, that applied for rebates in the first two steps of the 2017 program opening – more than double the number of participants the year before. Many other contractors with experience in solar are waiting in the wings.
California policymakers want to see a successful storage market. They are aware of what happened in Hawaii, where a booming solar market was stopped cold. In the age of federal-state skirmishes over the benefits of greenhouse-gas regulation, California does not want to see its renewable energy leadership tarnished.
Even if the state doubles funding for rebates and doubles the utility procurement mandate, the amount of storage that results will be short of what NREL found to be necessary. But these policies can serve as launching points for a market that can continue to grow after rebates and mandates have played their part.
If prices decline steadily and policy pieces get implemented, storage in California can grow fast enough to allow greater penetration of solar without compromising grid stability or increasing curtailment of renewables.
Laura Gray is the energy storage policy advisor at the California Solar Energy Industries Association.
