A Growing Market

Energy storage initiatives take centre stage in the US

The US is one of the fastest growing markets for energy storage systems (ESS) in the world. The country’s energy sector, which is in the midst of a transition, is focusing on improving grid resilience and flexibility. Renewables occupy a larger share in the total energy mix and the economics of natural gas-based electricity continues to be more favourable than coal. These factors along with the proliferation of distributed energy resources and prosumers are causing stress to the ageing grid.

In this context, energy storage markets have gained prominence due to their ability to provide multiple services such as demand response, frequency regulation, ramping, reliability, balancing, black start, renewable capacity firming, voltage support, microgrid capability and electric supply capacity. Further, the significant decline in the cost of batteries, increasing availability of efficient storage systems, manufacturing capacity additions, and market and regulatory reforms have contributed to the market growth. The total installed battery energy storage system (BESS) capacity in the US is around 1 GW, which is expected to cross 7 GW by 2022. In fact, the energy storage market grew by 44 per cent during 2018. The annual additions during 2019 are expected to almost double to over 700 MW.

The key drivers for this growth are the requirement to replace peaking capacity on the grid (conventionally provided by gas turbines) and the increasing popularity of solar-plus-storage systems. The incentive offered under the investment tax credit (ITC) for solar-plus-storage systems is the main reason for the increasing popularity of BESS. In fact, lawmakers recently tried to reintroduce stand-alone energy storage to the list of technologies eligible for federal ITC under the Energy Storage Tax Incentive and Deployment Act, 2019.

At a recent forum, the US senate and industry executives concluded that easing transmission permits and increasing federal research and development (R&D) investment in energy storage technologies (with emphasis on advancing long-duration electric storage) are among the top priorities to support a clean energy future. In May 2019, the Better Energy Storage Technology [BEST] Act was introduced in both legislative houses and a support of $89 million for innovative advanced manufacturing R&D projects was announced by the US Department of Energy (DoE). Earlier, in January 2019, the DoE announced a support of $40 million under the Grid Modernisation Initiative for innovations and technologies (including energy storage) required to increase the resilience, reliability and security of an integrated grid.

State-specific policies have played a significant role in shaping the US energy storage market. While California leads the US market, states such as New York, New Jersey and Arizona also established ambitious storage mandates during 2018. Further, noteworthy activity is being witnessed in states like Hawaii, Texas, Minnesota and Colorado. Utilities in several states are ramping up their procurement of behind-the-meter and front-of-the-meter energy storage resources for greater levels of renewable energy integration and provision of additional grid services such as demand response.

Recent developments

Federal support

The BEST Act, introduced in both houses recently, seeks to amend the United States Energy Storage Competitiveness Act of 2007 in order to establish an R&D and demonstration programme for grid-scale ESS. It aims to improve the affordability of technology by directing the DoE to pursue a strategic plan and implement cost targets. The programme will focus on R&D for long-duration ESS and support up to five demonstration projects to advance the commercialisation of grid-scale ESS. It proposes to authorise $60 million annually for the programme from 2020 to 2024.

The DoE’s recent funding opportunity announcement ($89 million support) requests proposals in three areas to improve the global competitiveness of the US by catalysing innovation and reducing the energy intensity of industrial processes. These three areas are manufacturing of advanced materials; lower thermal budget processes for industrial efficiency and productivity; and connected, flexible and efficient manufacturing facilities and energy systems. The DoE expects to make up to 55 awards for up to three years. A cost share of at least 20 per cent will be required for R&D projects. Concept papers are due on June 20, 2019.

On the regulatory front, the Federal Energy Regulatory Commission (FERC) has been making efforts to remove barriers to ESS adoption in wholesale markets. In February 2018, it passed a landmark order that required regional transmission organisations (RTOs) and independent system operators (ISOs) to revise their tariff to establish a participation model for electric storage resources (ESRs). The model will consist of market rules that recognise the physical and operational characteristics of ESRs. FERC Order 841 requires RTOs/ISOs to submit compliance filings 270 days after the effective date, with an additional 365 days to implement the tariff revisions (due end 2019). In April 2019, the FERC issued deficiency letters to all six jurisdictional RTOs and ISOs in response to their compliance filings. In May 2019, the FERC rejected several requests for reconsideration of this order and allowed relevant electric retail regulatory authorities to opt out of their storage provisions. It also dismissed questions raised over its authority to fix the price of the power sold by RTOs to an ESR for resale at the wholesale locational marginal price. The main argument was that ESRs connected to local distribution systems or behind-the-meter resources may be given the option to opt out. Critics argue that the recent order undermines the ability of local utilities and regulatory authorities to manage such ESRs for the benefit of consumers.

State-level developments

California

California is a leader in the deployment of ESS. Way back in 2013, it had set an ambitious target of procuring 1,325 MW of grid-connected storage capacity by 2020. The three investor-owned utilities, Pacific Gas and Electric Company, Southern California Edison (SCE) and San Diego Gas and Electric, have procured close to 1,500 MW, of which over 330 MW is online. One of the key supportive measures being taken by the state is the Self-generation Incentive Program (SGIP), under which $378 million has been set aside for customer-sited energy storage projects for the 2017-21 period. In addition, California Independent System Operator (CAISO) has laid down rules requiring utilities to include the full economic value of energy storage in resource planning.

In 2018, the state had set aggressive mandates of 100 per cent zero-emission electricity by 2045 and 60 per cent renewables by 2030. Two important energy storage bills were also passed during the year. The first is SB 700, which extended the SGIP through January 1, 2026 and augmented it by over $800 million in incremental buy-down incentive funding for behind-the-meter storage. Under the SGIP, 318 MW of behind-the-meter storage capacity has been installed in California. The second law is the SB 1369, which defines green electrolytic hydrogen as an eligible form of energy storage to help meet future long-duration and seasonal storage requirements. These progressive legal changes will ensure that the Californian energy storage market continues to expand in the coming years and maintains its leadership globally.

In February 2019, the SB 772 was introduced in the California Legislative Session 2019-20. The bill requires CAISO to complete the competitive bid process by June 30, 2022, to procure 2,000-2,400 MW of long-duration bulk storage from one or more projects that target commercial operation by 2030. Another 2,000 MW may be procured beyond 2030 from projects that have targeted commercial operation by January 1, 2045.

New York

In 2018, New York announced its ambitious energy storage target of 1.5 GW by 2025 and 3 GW by 2030. In a move to support the state in achieving these targets, the New York governor announced support of $280 million for storage projects in April 2019. This funding is part of the $400 million investment commitment for achieving the 2025 energy storage target. This will also help the state achieve 100 per cent carbon-free electricity by 2040 under its Green New Deal.

The funds will be channellised through the New York State Energy Research and Development Authority’s (NYSERDA) Market Acceleration Bridge Incentive Program that aims to build a self-sustaining storage market. Funding is available under two categories – storage systems over 5 MW that provide energy for the wholesale market or for distribution services ($150 million) and retail storage systems under 5 MW ($130 million). Based on future opportunities, NYSERDA will allocate another $70 million besides the $53 million allocated under the Regional Greenhouse Gas Initiative that will be available to retail and bulk storage projects in Long Island later this year. Further, funds are available for solar-plus-storage projects under the NY-Sun Initiative. To encourage storage deployment across the state, the New York Power Authority, in May 2019, issued a request for information to identify battery storage companies interested in participating jointly in competitive solicitations or other storage development opportunities within New York state.

New Jersey

The state has set a target of 600 MW of energy storage by 2021 and 2 GW by 2030 to achieve its long-term goal of 100 per cent clean energy by 2050. While a few commercial storage systems have been deployed in the state, the market is set to pick up pace with these ambitious targets in place.

On its part, the New Jersey Board of Public Utilities (BPU) awarded a $300,000 contract to Rutgers University in 2018 to conduct a comprehensive analysis of the state’s energy storage needs and opportunities. Further, in early 2019, the BPU invited stakeholder comments on a number of issues to help prepare an energy storage analysis (ESA).

In 2018, the Public Service Enterprise Group, the state’s largest utility, announced plans to invest over $180 million over the next six years to develop 35 MW of ESS in New Jersey.

Arizona

Arizona has set a mandate of 3 GW of storage capacity by 2030. Recently, Arizona Public Service (APS) announced plans to install 850 MW of storage capacity by 2025, the largest procurement by a US utility, to shift the delivery of solar power to the evening (solar after sunset). APS has already awarded a contract to AES for a 100 MW four-hour duration BSESS(400 MWh) as part of the plan. However, a recent fire at an APS storage project (2 MW grid-scale batteries in Phoenix installed in 2017) indicates that safety will be a key challenge for the industry.

BESS projects

Over the past year, several BESS projects have been commissioned and announced. In 2018, a 10 MW, 42 MWh lithium-ion storage system co-located with Luminant’s 180 MW Upton 2 Solar power plant was commissioned. This is the largest energy storage site in Texas. The storage system can make use of both solar power and low-priced grid-connected power (particularly wind energy). In Texas, Duke Energy’s 153 MW Notrees wind farm with battery storage (constructed in 2012 with battery upgrade in 2016) remains the country’s largest wind-integrated battery storage. Duke Energy is setting up two projects worth $30 million to be operational in North Carolina by 2020. The first is a solar and battery-powered microgrid project comprising a 2 MW solar plant and a 4 MW lithium-based battery storage facility in Hot Springs. The second is a 9 MW lithium-ion battery system at the Duke Energy substation in Asheville.

Portland General Electric and NextEra Energy’s partnership has proposed the 1,000 plus MW Wheatridge Renewable Energy Facility in Oregon, to be built in 2020. The facility will comprise a 300 MW wind farm, a 50 MW solar farm and a 30 MW battery storage system.

In recent times, utilities are proposing large grid-scale projects. A significant project is Xcel Energy’s $2.5 billion 1,838 MW renewable (1,131 MW wind and 707 MW solar photo voltaic) and 275 MW battery storage project in Colorado. It will be built to replace its coal-based Comanche Station Units 1 and 2, which will be shut down 10 years ahead of schedule, a plan approved by the Colorado Public Utilities Commission in 2018.

In California, SCE is investing in large-scale and distributed energy storage projects to meet the demand in its Moorpark subarea, northwest of Los Angeles, arising from the retirement of several natural gas-based generators. Through two separate requests for proposals, the company signed a 20-year resource adequacy contract in April 2019 with an affiliate of Strata Solar LLC for its 100 MW/400 MWh Satacoy battery storage project in Oxnard, California. Besides, there are six contracts for another 95 MW. The projects will achieve commercial operations from December 2020 to March 2021.

In January 2019, the Hawaiian Electric Company submitted seven new solar-plus-storage contracts aggregating 262 MW (1,048 MWh) to the state regulator for approval. AES, Innergex, Clearway and 174 Power Global are developing the projects. Significantly, six of these come at a record low price of 10 cents per kWh or below. Past prices of such projects have ranged between 11 cents and 14 cents per kWh. Another unique feature relates to the power purchase agreement (PPA) structure. For instance, AES’s 25-year PPA for 30 MW solar and 120 MWh storage uses a monthly lump sum payment to the developer based on the net energy potential and availability rather than energy delivered.

In February 2019, the Puerto Rico Electric Power Authority filed the final draft of its IRP for 2019-38. It calls for large-scale deployment of solar and storage systems as well as eight distributed minigrids to support the island during disasters. Prepared by Siemens, the IRP entails building 720 MW – 1,200 MW of solar and 440 MW – 900 MW of energy storage during the first four years.

Efforts to improve technology in the battery storage space are under way. For instance, the Consortium for Battery Innovation, which includes over 90 member companies globally, is working on preparing a new technical roadmap designed to extend the performance and lifetime of the core battery. The consortium recently introduced an interactive digital map detailing over 120 lead battery-based storage projects worldwide.

The way forward

This recent growth in the US ESS market has been supported by policy and regulatory initiatives both at the federal and state levels over the past four to five years. The sector is at a nascent stage but recent developments are expected to result in a rapid expansion of the US energy storage market in the coming years. However, the market is facing safety challenges. Moreover, there is a lack of international standards. In this context, Stanford University is working with the DoE’s SLAC National Accelerator Laboratory to make batteries safer by studying hotspots in lithium batteries that could lead to short circuits or fires.

It is important to acknowledge that storage systems are capable of providing multiple services, which need to be appropriately monetised through value stacking or revenue stacking. Energy monetisation will help boost the market for storage systems.

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