Non-Mandate Utility Mechanisms to Deploy Energy Storage
There is a perception that energy storage markets require a Public Utility Commission (PUC) or Public Service Commission (PSC) ruling or mandate to rate-base storage; and until that happens, states can’t make any significant advancement in energy storage deployments. The perception is not invalid, but it isn’t the only way to deploy storage. To be fair, the 1.3 GW mandate in California, for example, set up the regulatory precedent to allow utilities to pay for storage capacity services (via a “resource adequacy agreement” with a developer) and recover the cost of these contracts.
The mandate model is being followed in some states, while others offer tax incentives (Maryland), grants for pilots and demonstration (Massachusetts), or slower but more comprehensive ground up approaches like New York’s Reforming the Energy Vision (REV).
In general, it helps to simplify the main mechanisms of utility capital deferral and how energy storage can be used in these mechanisms. A utility professional may scoff at my simplification, but for the sake of discussion let us use this. In Figure 1, I attempt to demonstrate that energy storage deployment can fall in one of two bins of capital deployment that are familiar to a utility.
A Faster and Cheaper Alternative to Distribution or Transmission Upgrades
This value proposition is a no brainer. When compared to the cost of wires or substations, energy storage can almost always be built faster and cheaper, thus deferring large capital expenditures and meeting short term congestion needs. Because the rates must maximize benefits to the ratepayer, a faster and cheaper solution makes a good case for approval. Rather than approaching storage with a state mandate, utilities can instead ask for cost recovery on storage with tangible economic benefits on a project by project basis.
Efficiency Rebate Programs
The most commonly deployed technology on efficiency programs is LED lighting. In the last few years, LED lighting costs have dropped almost as fast as solar and storage. Efficiency programs incentivize efficiency upgrades by effectively writing customers a rebate check to do the upgrade. DNV GL manages such efficiency programs for utilities; the utilities put money in a fund to rebate energy efficiency upgrades like LED lighting. DNV GL bids to manage the funds and implement programs. When a utility customer performs a lighting upgrade, DNV GL audits the installation, verifies that it meets the efficiency targets, and administers the rebate based on the performance achieved.
Energy storage can achieve the same peak reduction as efficiency measures, but solar plus storage reduces the peak and the total load. There are novel solutions today such as DC LED lighting with energy storage backup that not only provide emergency lighting, but also demand response. Taking that a step further into an aggregated fleet of software-dispatched storage devices is not impossible to think about. If storage can be included as a viable technology in a demand response or efficiency program, it falls within an established utility business model that is easy to implement and manage. When coupled with solar, the total load is further reduced, thus meeting the same intent as overall efficiency.
Time of Use (TOU) or high demand charges can indirectly encourage energy storage deployments without a state mandate. Once implemented, independent project developers have a market to sell energy storage into to reduce demand charges or avoid TOU charges. Thus, a utility implementation of a new rate structure can indirectly influence storage deployment.
None of this means that a state mandate is required to deploy energy storage, and it may be more amenable for short term progress for utilities with peak capacity challenges.