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Time for a national energy strategy? The roles of state, federal, and private entities

This author no longer works for DNV GL.

The US DOE produced an energy strategy document in December 2013 in response to a request from the Senate Energy and Commerce Committee at Secretary Moniz’ confirmation hearings last April. However, the DOE alone cannot establish a comprehensive strategy—much less implement one—due to the division of roles and responsibilities among federal agencies, such as FERC, NERC, DHS, EPA, and state agencies, such as public service commissions, research and development agencies, and other regulatory and economic development functions. The DOE can provide leadership in technology research, development, and demonstration (RD&D), and in the communication of that work to policy makers at all levels. In the case of a new technology, such as storage, the DOE RD&D role can include not only the technology itself, but also important related analyses and methodologies around how to apply and use it, as well as how to assess its value and compare it to alternatives. But policy especially around financial support and regulatory affairs are in the province of legislative policy makers and regulatory bodies. In developing its storage report and go-forward strategy, the DOE is constrained by its defined role, and unable to prescribe needed actions by other state and federal agencies. Indeed, the DOE recommendations on policy issues would require an intensive cost-benefit assessment under OMB rules.

The DOE Energy Advisory Committee posted a very relevant document this month, “A National Grid Energy Storage Strategy,” which does indeed speak to these broader issues.  In particular, it identifies other state, federal, and industry groups and the roles they have to play in bringing energy storage into the mainstream. It also identifies commercial and regulatory barriers to the mainstreaming of energy storage today, with some recommendations about how these barriers can be removed or overcome. As such, it is a compelling document worth careful attention from the energy storage community and the electric power sector in general. (Full disclosure: I have had the privilege of chairing the EAC Storage Subcommittee the past several years, and working with the team that drafted the strategy document. That aside, there have already been numerous positive comments about the message in it even as it was in the final approval process).

The EAC National Storage Strategy identified the different entities in the following tables (excerpted from that report), and how they can be reached for education and information dissemination:

Chart 1

The roles of some of these entities in addressing regulatory and commercial barriers to mainstreaming storage are in this table from the national strategy:

Chart 2

These identified entities speak to structural and economic regulatory issues. Beyond these, a host of additional bodies will have to be involved in the development of appropriate technical and safety standards and testing/approval protocols before storage can be mainstream and not ongoing pilot projects. This is especially true for distributed storage and behind the meter storage that is not within a utility substation or grid interconnected footprint.

At the federal level, FERC has been very proactive in removing regulatory barriers to storage adoption.

FERC has issued a number of orders in recent times that directly or indirectly bear on energy storage and begin to develop a regulatory framework for storage participation in the markets.

  • FERC 755 (“pay for performance”) established that regulation resources in wholesale markets be compensated according to the value of their performance (especially precision and speed) to the control area performance.
  • FERC 784 opened ancillary services to market providers in interstate transmission utilities with similar pay for performance provisions
  • FERC 792 allows storage to participate as a small grid connected resource under Small Generator Interconnection Procedures and on a fast track basis.

Additionally FERC is considering whether and how to allow storage to participate as a capacity resource.

At the state level, in late 2013, the California Public Utilities Commission (CPUC) issued a landmark ruling that ordered the state’s utilities to plan for targeted levels of grid connected, distributed, and behind the meter storage—specifying target amounts of each for each utility and totaling 1.3 GW of electric energy storage by 2020. Most significantly, target levels, beginning with 2014 procurements, were established with the proviso that the utilities could vary the actual amounts procured depending upon the cost effectiveness identified in business plans for each procurement. Ground rules for procurements were established as were guidelines for utility, independent developer, and end user ownership. The overall amounts identified in the order are shown below:

Chart 3

The CPUC order was a major success for the energy storage community—the nation’s largest state and the state that often leads the way in environmental, energy efficiency, and renewable energy initiatives had given energy storage a resounding endorsement and made it parts of the state energy strategy.

One important aspect of the CPUC order was an explicit result that it is possible to evaluate the cost effectiveness of storage for a large number of “use cases” or applications.

  • Notwithstanding this significant progress for storage as an electric power resource,  there are a significant number of open questions and legacy policies that remain as barriers to widespread adoption. The EAC National Storage Strategy identified some key policy and practical barriers to storage mainstream adoption: Utilities investing in rate—based assets plan for long life spans—20 to 40 years. Even if storage is deemed cost effective with a 10 year projected life span,  most new storage technologies lack a history that long in the different electric energy applications. So there is a very real “technology risk” associated with premature failures—how the risk of such failures should be borne by ratepayers or shareholders is a question that naturally has utilities and regulators leery of too much investment too fast. There is an opportunity for some kind of federal backstop insurance to mitigate this risk of premature failure, and for more effort into accelerated life cycle testing  Part of any “Technology Maturity Model” assessment of new storage technologies has to reflect the degree of certainty around life cycle expectations. And new technologies will require clear standards, warranty conditions, or installation and operating rules that reflect constraints and measures needed to ensure a full life realization.
  • Despite the CPUC order, there is much left to do in terms of developing the best control strategies and economic valuation methodologies for electric storage. The DOE can continue to fund R&D in this area, and to communicate what is known and established to utilities, regulators, and policy makers. DOE “funding” research is not the same as “DOE being the source of approved methodologies!” Just as with all other aspects of power system planning, operations, and asset valuation, we should expect that companies that specialize in developing and selling tools will compete to have the best tools for handling storage, and that such will become commercially available on a routine basis. There can be a role for the national labs in conducting the mathematical R&D and validating development—on the same basis as any competent private sector organization or in partnership with such—but not a role for a particular federal entity as “the official” methodology or tool.
  • Increased penetration of inverter based renewable energy resources may lead to a need for additional system inertia and governor response in some regions, depending upon what conventional generation retires or is committed in scheduling in order to maintain needed levels of inertia and governor response. Storage behind an inverter can provide synthetic inertia and governor response. However, there are no markets established in North America for these products (the UK, for instance, has a monthly market in primary frequency response), and NERC standards today would not allow storage to be considered in meeting minimums for these parameters.
  • While there are established tax incentives (the production tax credit for wind and the investment tax credit for photovoltaic energy), there are no incentives today for storage.
  • Safety standards for the packaging, containment, fire suppression, and siting of different storage technologies are needed. Different electrochemistries present different hazards—but diesel fuel, gasoline, and fuel oil all present fire and environmental hazards, and we have long become accustomed to their safe transport and storage in different facilities. Electric storage will be no different once its behavior is well understood and appropriate standards developed.

Where DNV GL  (formerly known as DNV KEMA) has contributed, and will to contribute moving forward
DNV GL has been prominent in the development of tools for modeling, valuing, and operating storage across the full range of applications. We have also been a leader in testing storage technologies and developing test protocols. Some highlights of our involvement:

FERC 755:  DNV GL performed the first valuations of storage for fast regulation service, and established the principle that fast resources were more valuable than conventional resources in regulation duty. The work we did for Beacon and other developers early on was heavily cited by these entities and the ISO community before FERC in the hearings that led to order 755. Following that, we have worked with a number of grid operators on the development of fast regulation protocols, tariffs, and control algorithms.

The CPUC Storage Order: DNV GL performed extensive analysis of storage for a number of the “use cases,” and these results were part of the proceedings that led to the order.  Indeed, in the order the utilities are instructed to use methodologies “similar to those used by DNV GL” (paraphrased here) in assessing storage proposals and preparing business cases. The work done by DNV GL as part of this proceeding established clearly that it is indeed possible today to do the engineering and economic analysis rigorously and produce valuations that reflect the details of a particular proposed installation and application. The tools used have been developed by DNV GL over the past several years via internal R&D funding, and are as advanced as any available today for wholesale market, grid operations and grid connected applications, distribution applications, and end use application.

DNV GL developed the ES Select tool that is available on the Sandia National Lab web site, and which is a survey of the technical and economic characteristics of different storage technologies today.

DNV GL has invested in dedicated storage testing capabilities at its high power laboratories in Arnhem, the Netherlands, and Chalfont, Pennsylvania, and conducted testing of storage technologies for developers and utilities on a commercial basis for several years. We are now the operators of the NY-BEST storage lab facility in partnership with NY-BEST.

We are investing heavily in 2014 on the development of analytical tools to explore storage as a provider of synthetic inertial and governor response, and demonstrating the simulated value of storage for those services.

Additionally, DNV GL is also investing in the development of recommended practices for grid connection of storage and for testing of storage. The development of these recommended practices and demonstration of their application will contribute to the development of standards for grid interconnection and safety testing.

Just as today, the levels of other commodities in storage are a driving factors in their respective markets—perhaps in the future the level of electric energy in storage may be a critical factor in energy markets and reliability assessments. The natural gas market has long had procedures both for reporting levels of gas in storage as well as market mechanisms for the trading and use of storage. Why can’t electrical energy get to the same place—storage is routine, used in markets and operations, and not particularly exotic?

Sign up for DNV GL’s complimentary webinar: What’s ahead for Storage in 2014? Featuring PNM’s Steve Willard with DNV GL’s Richard Fioravanti and Dr. Ali Nourai. The webinar will be held on Thursday, February 20, 12-1 pm EST.

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