Energy Storage Opportunities From Hawaii to New York City

Utilities across the country are currently issuing a number of requests for proposals (“RFPs”) to procure energy storage resources. The reason for the strong demand in energy storage is driven by the dramatic growth of intermittent wind and solar generation, which often time generate power off-peak. Energy storage can smooth out this fluctuation by absorbing surplus base-load generation during off-peak hours for injection back into the grid during peak hours. In addition, energy storage is economical in that it can reduce the amount of expensive network upgrades otherwise needed to handle congestion during periods of peak power flow. These benefits, along with state renewable portfolio standards (“RPS”) and increased customer-sited generation, have increased energy storage demand which has in turn lead to technological advancements as well as reductions in manufacturing costs as the industry scales up. Now that the industry has matured, investors and developers are seeing enormous potential.

Currently, the greatest opportunities for those looking to develop and invest in energy storage projects is in California. This is due to a California Public Utilities Commission (“CPUC”) decision last October, mandating that California’s three large investor-owned utilities, Pacific Gas & Electric (“PG&E”), Southern California Edison (“SCE”) and San Diego Gas & Electric (“SDG&E”) collectively procure 1,325 MW of energy storage by 2020, which coincides with the statewide 33% RPS target date. In order to meet this target, the CPUC set out the following schedule:

The first RFPs takes place at the end of this year, and then each utility will issue an RFP biennially thereafter. To that end, PG&E, SCE, and SDG&E recently submitted applications to the CPUC detailing their 2014 RFPs, which are available here, here, and here. The size of each successive RFP will grow substantially as the 2020 target date approaches. This is due not only to the fact that the scheduled targets increase but also because utilities are allowed to defer a portion of their targeted amount if the bids are not cost-effective to the next solicitation as well as apply certain energy storage projects that were already planned prior to the RFP towards the requirements.

There are important restrictions built-in to the procurement process. Utilities must solicit energy storage technologies within three different domains: (1) transmission, (2) distribution, and (3) customer-sited. The domains are based on where the storage is connected to the grid, and utilities are required to meet energy storage technologies within each specific domain, with some flexibility given between the transmission and distribution domains. Furthermore, the utilities may not own more than 50% of the storage projects that are counted towards their energy storage mandate.

In addition to the energy storage mandate described above, on March 13, 2014, the CPUC required SCE and SDG&E to procure additional energy storage in the Los Angeles area when it approved the utilities’ biennial Long-Term Procurement Plan (“LTPP”). The LTPP cumulatively authorizes SCE and SDG&E to procure up to 3600 MW of generation to replace the moth-balled San Onofre Nuclear Generation Station as well as other generation in the region. The CPUC order authorizing the latest LTPP is available here. As set out in the charts below, there are specific carve-outs for energy storage.

SCE

SDG&E

Although the PG&E, SCE, and SDG&E service territories offer the greatest opportunities for energy storage in terms of the total MWs of development available, there are plenty of other opportunities throughout the U.S. and Canada for investors and developers, as detailed below:

• Kaui – In a recent RFP for energy storage, the Kaua’i Island Utility Cooperate (KIUC) anticipates that by 2015 it will generate approximately 15% of its energy from solar, with up to 95% of daytime demand from solar on sunny days. However, as clouds pass over the island, solar output can drop by 90% within minutes. Accordingly, KIUC issued an RFP for energy storage on March 3, 2014. The deadline to submit RFP responses is April 18, 2014.
• Ontario Canada – The Ontario Independent Electricity System Operator and the Ontario Power Authority recently issued an RFP for 50 MW of energy storage to be procured by the end of 2014. The RFP is broken into two phases. Phase I is for 35 MW of energy storage from technologies that can provide ancillary services as well as other grid services, such as transmission congestion and relief or energy time-shifting. The deadline for submitting an intent to participate in the Phase I RFP is April 22, 2014. Phase II is for the remainder of the 50 MW not already subscribed in Phase I and is intended to consist of 2-3 projects that provide capacity services. The time line for the Phase II process has not been issued; however, the Ministry of Energy has indicated that it will issue a directive enabling the Phase II process soon, with an aim to have the contracts awarded before the end of September 2014.
• New York City (ConEd) – ConEd has released details about its plan to create 100 MW of load reduction, including energy storage, in response to the potential closure of the Indian Point nuclear power plant, which provides New York City with 20% of its base load energy. The load reduction will be jointly administered with the New York State Energy Research and Development Authority (NYSERDA). Initial details are available here. However, it should be noted that the incentives released are not final and subject to change, but as they stand, the new incentive offerings for systems that provide summer on-peak demand reduction are $2,600/kW for thermal storage and $2,100/kW for battery storage systems. Additional bonus incentives are available for large (greater than 500kW) projects. Incentives will be capped at 50% of the project cost (plus a bonus for large projects).
• Southern California Power Authority (SCCPA) – SCCPA recently released a rolling RFP for proposals submitted anytime during calendar year 2014. However, SCPPA strongly encourages that proposals are provided prior to April 1, 2014. RFP responses may propose (i) project ownership by SCPPA, (ii) a power purchase agreement (or, for storage, an “equivalent commercial agreement”) with an ownership option, or (iii) a power purchase agreement (or, for storage, an “equivalent commercial agreement”) without an ownership option.
• Puerto Rico – The Puerto Rico Electric Power Authority and the island’s main utility, the Autoridad de Energía Eléctrica (AEE), recently released minimum technical requirements for new renewable energy projects, which mandates that all new renewable energy projects incorporate energy storage. These requirements were put in place to address power quality concerns, as well as the challenges that grid operators now face due to the intermittent nature of the island’s ever increasing fleet of renewable generators. The new rules will lead to significant energy storage development opportunities as Puerto Rico seeks to procure additional renewable generation.