Massachusetts is on track to become the third state in the U.S. to pass targets for energy storage procurement.

The legislature passed an omnibus energy bill Monday, which, if signed by the governor, would instruct the Department of Energy Resources to set a storage target for 2020 if they deem it to be necessary. So far, only California and Oregon have passed storage targets. The California goal of 1.3 gigawatts by 2020 has driven that state to the front of the pack in residential and commercial storage, and a similar mandate would likely make Massachusetts a national storage leader as well.

There are many policies that could expand deployment of energy storage, but this approach is one of the most potent because it mandates utilities install a certain amount of capacity, rather than just incentivizing it. That storage can then help more wind and solar come onto the grid, assist in frequency regulation, defer expensive upgrades to transmission and distribution cables and more.

The legislation gives the Department of Energy Resources until the end of the year to decide whether to set a procurement target for “viable and cost-effective” energy storage. If they say yes, they need to adopt the targets by July 2017, and then electric companies will have to comply by the start of 2020. To qualify as energy storage, a system must reduce greenhouse gas emissions, cut demand for peak electrical generation, avoid new investment in generation, transmission or distribution assets, or improve the reliability of the grid. It’s hard to imagine a cost-effective storage project that wouldn’t do at least one of those.

“The biggest thing here is the certainty,” said Matt Roberts, executive director of the Energy Storage Association, the industry group for storage. “People can ramp up operations, people can start to build their businesses because they know this opportunity is going to be there and unfold over the next four or five years.”

If Massachusetts adopts a target similar to California's in its ratio of storage capacity to peak load, it would be somewhere in the range of 300 to 400 megawatts, Roberts estimated.

The bill also specifies that electric distribution companies may own energy storage, which marks a departure from the status quo, Roberts noted. Storage has been categorized as generation for the purpose of bidding into wholesale markets. That designation, though, precluded distribution companies from owning storage in Massachusetts’ deregulated power market, where generation and distribution companies have to be separate.

Distribution companies are the ones that would have to pay for upgrades to the cables, so they have an interest in procuring storage to defer expensive infrastructure upgrades. The new law would allow them to install and own storage directly, simplifying the process.

The policy would affect companies in related industries, like solar installers that offer solar-plus-storage products. The policy is poised to generate a lot of public benefits, like bringing down costs and giving more stakeholders experience with the services storage can provide, said Betty Watson, director of policy and electricity markets at SolarCity.

“Massachusetts has been a leader in the clean technology industry and certainly in the solar industry as well,“ Watson said. “We think this is a great outcome and that this is a great opportunity to kick-start the energy storage industry in Massachusetts.”

The procurement mandate would apply directly to utilities, but Watson added that she hopes the final policy includes a range of deployment options, including residential, commercial and third-party owned.

“For us, it’s really important that through the program all ownership models and all business models stay on the table to keep the industry really growing,” she said.