California Energy Storage: Cost Effectiveness and Beyond



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In October, 2013, the California Public Utilities Commission issued the unprecedented Decision requiring the state’s utilities to meet energy storage procurement targets of 1.3 gigawatts of storage by 2020. The Decision is intended to:

  • Assist in optimizing California’s electricity grid, including peak demand reduction, improving reliability, and deferring investments in transmission and distribution upgrades;
  • Facilitate integration of renewable energy onto the grid;
  • Contribute towards the state’s goal of reducing greenhouse gas emissions to 80 percent below 1990 levels by 2050.

The Decision called for the first procurement by the state’s three largest electric utilities (Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southern California Edison Company) by March 1, 2014, with the first solicitation by December 1, 2014. Further procurements will occur biennially. California’s Community Choice Aggregators and electric service providers will also be required to procure energy storage equal to 1 percent of their annual 2020 peak load by 2020 with installation no later than 2024. The procurements will be competitive solicitations for offers involving RFO(s) for third-party owned or –aggregated resources.

Each energy storage project must be cost effective on a stand-alone basis, with unique factors such as geographic location and multiple storage applications impacting the relative cost effectiveness of each project. The projects will be defined as either transmission-connected, distribution-connected, or customer-side storage. The decision encourages third party ownership of energy storage facilities by limiting utility ownership of storage resources to 50 percent of cumulative target capacity across all three grid domains. The transmission- and distribution-domain storage projects are to be procured in compliance with the CPUC’s Long Term Procurement Planning procedures. Customer-side storage will be procurable via existing programs such as the Self Generation Incentive Program (SGIP), Permanent Load Shifting (PLS), Demand Response, and Vehicle-to-Grid services.

Determining the cost effectiveness of each energy storage project requires complex analyses which include specific costs and benefits particular to the given project. Furthermore, as highlighted by DNV GL (formerly DNV Kema), existing modeling tools do not integrate scenarios that include both customersavings/energy use optimization and grid-performance models.

Our panel of experts will examine the most vexing challenges to quantifying the cost effectiveness of energy storage projects on a case-by-case basis. Some of the issues they will address include:

* What are the most important aspects of the utility procurement procedures?

* Which storage projects are most likely to achieve cost effectiveness?

* What are the key assumptions made when assessing individual energy storage project cost effectiveness?

* Which storage applications typically can be combined at one location to increase a project’s cost effectiveness?

* Should storage be valued for more than cost effectiveness: are there benefits not easily quantified?

* To what extent can energy storage help mitigate the expected mis-match in late afternoon to early evening hours, when over-generation may occur, followed by potential under-generation when solar power decreases significantly and demand peaks? The California Independent Service Operator (CAISO) popular “Duck Graph” exemplifies this challenge, but has also created a bit of controversy.