By: Dan Vickery, Manager, Energy Storage
Renewable energy is the fastest-growing energy source in the United States, increasing 100% from 2000 to 2018 and recently exceeding coal consumption for the first time since 1885. However, one hindrance of renewables is that they are variable resources, only generating energy when the sun is shining or the wind is blowing, which often does not align during times of peak electricity demand (i.e., when utilities need power the most).
That is why energy storage is becoming increasingly important, especially in areas with high renewable energy penetration like California. Storing energy in batteries to use at later times helps utilities smooth out the imbalance between peak demand and renewable energy production (of which the impact is best depicted graphically in the aptly titled “duck curve”, as shown below for California).
As a renewable energy developer, we see firsthand how energy storage is providing a financial benefit to our clients. Storage is becoming integral to our business as our customers look for alternatives to building thermal generation plants that are expensive, emission intensive, and will be called on to operate only a handful of hours per year. Energy storage is a more economic and cleaner way to provide reliability to their networks. In recognition of the complexity of evolving energy markets and the value that storage can provide in that evolution, many states have enacted or are now enacting policies to incentivize the deployment of energy storage projects.
Four ways policy is driving storage deployment
State policies play a major role in our decision of where to deploy energy storage projects that can provide value to our clients. Here are four ways that policy drives our utility-scale storage portfolio development as well as overall renewable energy and energy storage markets:
1. Deployment mandates and targets: State goals, targets and mandates help drive long-term investments in energy storage by providing a clear vision and timeline to prospective developers. Energy storage is nascent, and clear policy signals through mandates and targets encourage utilities, regulators, and other agencies to think differently, try new technologies, discover optimal paths to deployment, and bring the accompanying (and necessary) rules and processes up to speed. Such policies provide a stable, long-term signal to developers like sPower that buyers of our projects will ultimately be there, which reduces our risk and lowers cost to everyone, and we therefore believe they are amongst the most important first steps for regulators to take.
All state energy storage targets help guide our development. For example, looking to address its duck curve issues due to having so much renewable energy on the grid, California is on track to exceed its mandate of 1,325 MW of energy storage by 2020. sPower is contributing to that number with our 100-MW/400-MWh Luna storage project in Los Angeles County as well a project in Southern California that includes 125 MW of solar and 80 MW/160 MWh of battery storage. On the opposite side of the country, New York has set aggressive targets for 70% renewable energy by 2030. Regulators recognize that New York will soon face duck curve-like symptoms of such rapid renewable energy deployment and that the grid will necessitate energy storage for reliability and timely delivery of clean electricity, and has therefore accompanied their renewable energy targets with a 3 GW energy storage deployment target. We agree that New York will require lots of storage to manage its electricity grid – sPower currently has over 1,000 MW of energy storage projects under development in New York, some of which could break ground next year.
Beyond these two storage hot spots, Virginia just passed the country’s largest state mandate of 3.1 GW by 2035, Massachusetts and New Jersey have established significant targets, and several other states have ongoing proceedings related to setting energy storage targets and mandates.
2. Clean Peak Standards: A Clean Peak Standard is a new regulatory tool for reducing the cost and environmental impact of periods when electricity demand is highest and generation is causing the most pollution. A Clean Peak Standard is similar to a renewable portfolio standard, but further requires utilities to procure a certain percentage of their electricity consumed during peak hours from eligible clean resources like solar and wind power. It therefore encourages the clean energy that is generated to be delivered when the load demands it through a combination of redesigning the energy generation facility itself and/or pairing it with energy storage. We believe that Clean Peak Standards are a natural complement to and extension of Renewable Portfolio Standards.
Massachusetts was the first state to move forward with a Clean Peak Standard in an effort to save ratepayer costs and reduce emissions. The Standard is a novel approach and we expect to see more states follow, delivering clean energy where and when we need it.
3. Financial incentives/long-term contracts: State-driven financial incentives also help drive storage development. Long-term contracts such as renewable energy credits (RECs) or power purchase agreements (PPAs) are critical to sPower because they provide revenue certainty, reduce revenue and project risk, and therefore bring lower-cost financing into projects – therefore allowing us to sell energy and services at lower rates and reducing costs to ratepayers. Our southern California projects both have long-term contracts of 15+ years, and we would like to see similar long-term contracting opportunities in New York and other markets.
4. Clear permitting guidance: With storage development moving closer to the densely populated areas it serves, clear permitting guidance is increasingly helpful. Fire, safety, and other regulations can make developing in a city like New York more complex than building in the California desert. Having clear permitting guidelines upfront is critical to avoiding unresolved cost or design issues that can bring the project to a halt after extensive spending. The sooner regulatory bodies are able to clarify permitting requirements, the better we can understand and have more confidence to move forward with our projects. We are glad to see that more states are forming working groups to streamline permitting.
Energy storage outlook
While sPower has not experienced a significant impact from COVID-19, the pandemic did bring customer acquisition, installation, and interconnection challenges to the overall market. Still, the U.S. energy storage market is set to grow nearly six-fold from 1.2 GW today to nearly 7 GW in 2025. sPower is focused on keeping our workers safe and ensuring a resilient supply chain as we continue to build critical infrastructure.
We have increasingly integrated energy storage into our development business. Ultimately, the grid will require a near 1-to-1 ratio of energy storage to backstop intermittent generation facilities, so my hope is that our energy storage projects will become as widely deployed as our solar work. Economics and proactive state policy will determine how quickly that happens, but as we work toward that goal we will continue to refine our storage strategy looking for market opportunities and maintaining a holistic development mindset to overcome challenges and deliver the best value for our customers.