Three and a half years into New York's Reforming the Energy Vision grid overhaul, renewable energy has surged but energy storage deployments have merely trickled in.
The government codified its support for wind and solar expansion with a goal of 50 percent renewable energy by 2030. The REV authorities, though, have yet to implement any sweeping commitments to energy storage, which helps balance a highly intermittent grid and achieve better utilization of existing capacity and transmission lines.
REV's storage accomplishments remain limited to a few demo projects, inclusion in some non-wires alternatives projects, and a solar-plus-storage tariff that hasn't been allowed to go into effect yet. A bill that might provide greater clarity for the industry was passed unanimously in June, but Governor Andrew Cuomo has yet to sign it. The storage industry contends that uncertainty in the policy sphere deters private investment, because there's no clear guidance on how storage projects will be compensated over the long haul for their role on the grid.
This situation stands in sharp contrast to fellow clean energy leader California, which passed a storage mandate as part of its decarbonization strategy and now hosts the greater part of the growing storage industry.
"Storage has really been caught in the crossfire, and it’s been all talk and no action, which means New Yorkers will not get the benefits of REV," said Jigar Shah, co-founder of Generate Capital, which invests heavily in storage projects. "You can't will stuff across the finish line unless you have the best and brightest commenting. I think New York is definitely on track for losing the best and brightest on the storage side."
Storage is a "key solution" for REV, and the state needs to deal with structural impediments that prevent this resource from realizing its market potential, said New York Energy Czar Richard Kauffman, who oversees the state's contingent of energy institutions for Governor Cuomo.
A lot of the underlying work has been done, he said: REV has incentivized utilities to improve capacity utilization and allowed them to earn money through shared savings, both of which could help deploy storage.
"We are trying to change a system of systems in order to build this new grid of the future," Kauffman said. "We have made meaningful progress in the last four years, and I think our policy direction is clear, but we still have a considerable distance to go."
New York's storage stasis will soon face a test. While regulators ponder the multiple values storage could provide to the distribution grid, New York City faces a potential local capacity shortfall that storage appears tailor-made to solve.
A clean solution for a capacity shortfall
The city, one of the densest load pockets in the nation, relies on a cohort of decades-old peak power plants to meet surges in electrical demand. Those plants dump deadly air pollutants into disadvantaged neighborhoods, and their retirement age is rapidly approaching. The planned shutdown of nearby Indian Point nuclear plant only exacerbates the capacity shortfall.
A new report commissioned by the local storage industry group -- the New York Battery and Energy Storage Technology Consortium (NY-BEST) -- suggests that this technology could solve this problem.
Storage facilities produce no harmful local emissions, so they can be sited in dense urban areas without contributing to illness and mortality the way the peakers do. The rapid-fire Aliso Canyon procurements in California have shown that storage developers can respond to a grid emergency in a matter of months, rather than years. And deploying storage would help the city meet its own storage procurement target, while setting up the state's grid to better handle the changes it eagerly seeks to make.
Many argue that the state can only realize those benefits, though, if it carves out meaningful space for storage in the ongoing revision of the grid.
FIGURE: Outlook Capacity for NYISO Load Zone
The share of peaker plants in New York City that have reached retirement age will hit 30 percent in the next five years. (Image credit: Strategen Consulting)
Running on fumes
Within five years, 2,860 megawatts of peak capacity representing 30 percent of New York City's generation capacity will have reached retirement age.
That's the age at which 95 percent of plants using this technology nationwide were shut down: the thresholds are 46 years for combustion turbines and 63 years for steam turbines. Those are the New York Independent System Operator's numbers; other sources suggest these plants retire much earlier in practice.
Because transmission lines into New York City are so constrained -- the island geography limits the options -- NYISO requires that the city host a certain percentage of its peak load within its boundaries. The requirement is 81.5 percent for 2017-2018, but changes in methodology could lower it to 77.5 percent in the coming years.
If New York City's peakers retire at the typical age, that will leave a local capacity shortfall of 642 megawatts below the required 77.5 percent of peak in 2021, according to the NY-BEST study. That's the year that nearby Indian Point plant is slated to disappear, adding to the region's capacity crunch and the city's need for self-reliance.
The report's authors at Strategen Consulting dug through data pertaining to the power plants in the interconnection queue that had reached the stage of a facilities study and appear likely to be on-line by 2021. Only 456 megawatts' worth of plants meet those criteria -- not nearly enough to meet the shortfall. What's more, all of the new plants would burn fossil fuels, even as the state moves away from that source of energy.
That expected deficit is harrowing from a grid-planning perspective, but in the meantime, these plants are inflicting serious bodily harm on nearby residents.
The turbines from the '50s and '60s typically lack the modern pollution mitigation systems seen on newer combined-cycle gas plants. The city government has identified them as significant contributors to ozone pollution, which kills an estimated 400 New Yorkers annually, on top of other health impacts. The plants also contribute to the region's non-attainment of federal ozone standards.
Furthermore, almost all of the city's high NOx-emitting plants operate in tracts known to the state as "potential environmental justice areas," which contain high concentrations of minority residents or residents living below the federal poverty line.
The iconic metropolis thus faces two crises: the pending shortfall of required local capacity, and the ongoing harm inflicted disproportionately upon minority and poor neighborhoods by the outdated peakers currently in operation.
The city has an opportunity to tackle both those problems with energy storage, said William Acker, executive director of NY-BEST.
"The solutions can range from behind the meter to in front of the meter, providing capacity at critical times and really alleviating all the emissions that are associated with these high-emitting peaker plants," he said.
But, he added, "There are challenges right now with financing projects. [...] There really is a need to provide some form of better visibility for revenue certainty."
FIGURE: Potential Capacity Shortfall for NYC
If plants retire at their stated retirement age, the city will have a local capacity shortfall in the next decade. (Image credit: Strategen Consulting)
All REVved up and nowhere to go
In the years since New York set about creating a vision for the nimble, clean grid of the future, the state has deployed 4 megawatts and 10 megawatt-hours of energy storage, by GTM Research's count.
For comparison, Arizona Public Service beat that with two projects in just the past year. That means a regulated utility in a red state with little professed interest in fighting climate change has outdone New York on its use of this cutting-edge grid technology.
Tucson Electric Power will blow New York out of the water when its 30-megawatt/120-megawatt-hour solar-paired storage project comes on-line in 2019. Duke Energy in North Carolina is going to beat New York's power capacity with two projects coming in 2019.
Several interlocking factors limit the Empire State's storage empire.
The largest potential market, New York City, holds back storage development via the fire department's permitting process. A streamlined policy is still in the works, so approvals are one-off and take considerable time and effort, complicating efforts to develop.
If you buy the right car, though, you can park 100 kilowatt-hours in a building, no questions asked.
NYISO's wholesale market rules also limit storage's ability to participate, said Ravi Manghani, storage director at GTM Research.
There are rules for storage with less than 1-hour duration to participate in frequency regulation, he noted, and there are capacity market rules written for pumped hydro that cover storage with more than 4 hours of duration. That leaves out the durations in between, plus all the unique benefits that fast-acting battery storage can provide.
"Storage has essentially no role to play in today’s New York capacity market," Manghani said.
Paradoxically, parts of New York have all the conditions of a ripe storage market, he added: high demand charges, high retail rates, high capacity prices and grid congestion.
The small installed capacity isn't due to lack of effort on the part of small- or large-scale developers.
"The need was stated, storage providers showed up and offered real solutions at scale, and we’ve seen minimal activity going forward," said Praveen Kathpal, vice president of AES Energy Storage.
In one example, AES Energy Storage got to the final round of a Long Island Power Authority all-resource RFP from August 2010. The company proposed an ambitious 400 megawatts of 4-hour duration storage, which would have been commissioned in phases across 2016-2018. That proposal lost to a combined-cycle gas plant that ended up not going forward.
And so the local capacity needs of the city grow, as each existing plant marches onward to retirement.
"With the benefit of years of foresight, and now we’re three and a half years into REV, it’s hard to explain why storage as a solution to these local capacity needs isn’t being given its due consideration," Kathpal said. "Energy storage is going to benefit New Yorkers who breathe air and pay electricity bills."
What's REV got to do with it?
The REV proceeding touches every aspect of New York's energy industry through several ongoing regulatory processes and scores of projects and grants.
When it comes to concrete achievements that have allowed storage to compete as a flexible grid asset, REV leaders pointed to three particular successes: demo projects, storage components in non-wires alternative projects, and a nearly finished solar-plus-storage tariff.
Early on, regulators granted utilities the ability to own distributed energy resources for the purpose of demonstration projects; they could also own storage on the distribution grid.
Utilities did not leap at the opportunity. A Public Service Commission order from March 2017, one of the last acts of Chair Audrey Zibelman before she departed for a new job in Australia, explicitly chided utilities for not moving fast enough.
"The Commission finds that the Utilities have thus far advanced a limited number and variety of energy storage projects," the order states. "Moreover, their [distribution system implementation plans] do not present a robust and comprehensive plan for fully understanding and productively employing energy storage any time soon."
The commission ordered each utility to try out two energy storage projects by the end of 2018.
It's important to note that, even if utilities heed the reprimand and produce demos in the next year and a half, that doesn't begin to create a market. The storage companies that have succeeded elsewhere are the ones that got out of the pilot phase as soon as possible, producing real, repeatable projects rather than learning exercises.
Non-wires alternatives (or solutions, in the new parlance, which avoids confusion with a certain Compton-based musical ensemble), rank as a more concrete achievement. REV gave utilities an ability to make money by avoiding large capital expenses; that was a shift from the status quo where utilities profited from building big.
Con Ed notably pursued this in its Brooklyn-Queens Demand Management project, whereby it paid third-party providers for demand-side management to avoid a $1.2 billion substation upgrade. Some of those projects included storage, like the microgrid developed by Demand Energy at a Brooklyn low-income housing complex.
The NWA approach can provide a reliable revenue stream for storage, which helped make the Demand Energy project possible. But it is not first and foremost a mechanism for deploying storage and valuing its abilities. Storage is simply one way to achieve the goal.
REV has produced a more targeted storage valuation method via its Value of Distributed Energy Resources (VDER) proceeding. This tariff factors in several stacked values for storage on the distribution grid -- locational value, environmental value and others -- but only when it's paired with solar generation.
Even that has not gone into effect. In a September 20 order, the PSC determined the utilities' proposals fulfilled the requirements of the earlier VDER order, but did so with different methodologies. The commission ruled that "a number of issues remain that need to be addressed" and asked for updated proposals by December 20.
As for a standalone storage tariff, which would seem a logical thing to have after affirming that storage has a locational value in certain circumstances -- well, that's still contested.
If it were up to the utilities, storage wouldn't get any stacked values to speak of. The joint utilities' "initial thoughts" on the value stack argue that storage does not deserve compensation for environmental value, demand reduction value or locational system relief value.
"Environmental compensation should only apply to resources capable of producing RECs," the paper asserts. As for the locational value, the utilities think that should be handled through the non-wires alternatives process, which they happen to control and earn money for.
That's not surprising, given the utilities' incentives in a time of grid transition, said Manghani.
"They're trying to wrap their arms around the longer-term consequences," he said. "A non-wires alternative approach is a safer route for them, because at any point in time, there's a way for them to rate-base it and recover costs."
Where's the bill?
The most straightforward action item would be for Governor Andrew Cuomo to sign the storage bill that both houses of the New York legislature passed unanimously three months ago. That bill asks the state's energy agencies to formulate a storage target and a program to meet the target by the end of 2017.
Bills passed unanimously by legislatures typically become law via the normal functioning of democracy. This bill, though, "hasn't been sent to the governor's desk," I repeatedly heard. That indicates the governor hasn't asked for it, so I called up the bill's sponsor to learn what's going on.
Such a delay is not unusual, said Assemblywoman Amy Paulin, who chairs the Energy Committee. Once a bill gets sent, it starts a 10-day countdown (excluding Sundays and holidays), so the Assembly tries not to overwhelm the governor's office with a flood of bills before there's time to assess them.
"There’s a certain [number] of lawyers the governor has to review the bills, so they send them in batches so they’re more manageable," Paulin said. "If this bill had issues, I’d maybe hear about it, and I haven’t."
For Paulin, energy storage is vital not just for resilience in the face of storms like Hurricane Sandy, but for achieving the major clean energy goal.
"We can't advance intermittent energy sources without storing their overabundance when they're producing for times when they're not," she said. "In order for New York to meet its ambitious goals, we have to advance storage."
Her bill left the details of the storage program intentionally vague, she said, to give the regulatory agencies wiggle room to define it and adapt as technologies and markets change.
One way forward would be for the executive branch to take the reins and run with it, as it has done with clean energy initiatives before. The major solar incentive program New York Sun, community solar and community choice aggregation all originated in the legislature, but became a reality when the governor or the PSC adopted them as their own.
"I don’t care if they come back and say 'We vetoed your bill but we’re going to do it our way,'" Paulin said. "I just want the program. I want storage to grow in New York."
The REV not taken
An official demand for a certain amount of storage capacity would give developers greater certainty that it's worth cultivating projects in New York, but it's not the only solution.
In fact, a hard-edged mandate would have to contend with the energy czar's stated preference for competitive selection of solutions, rather than hand-picked technologies.
"Our objective is to build the new grid and not to take bets on specific kinds of technology," Kauffman said. "It's challenging to just pick storage out as a discrete technology, because it really needs to be thought of as embedded in the solution."
Other policies could boost storage without prompting such concerns: longer-term capacity contracts, to ensure developers and their financiers earn back the large upfront investment; a flexible peak standard, which would require that a certain amount of peak energy production come from instantly available, emissions-free sources; or revised wholesale market rules that allow battery storage to compete on a least-cost basis.
The efforts could get a boost from a storage roadmap report underway by the New York State Energy Research and Development Authority. This report will evaluate the value proposition for storage in New York, including best use cases and policy levers that could promote development activity, said recently appointed NYSERDA President and CEO Alicia Barton.
It's like a New York version of the State of Charge report Massachusetts completed over a year ago. But, in yet another setback to storage efforts in the state, the consultant chosen to do the study was the analytics branch of battery company Alevo, which filed for bankruptcy in August.
After some delay, the project is moving forward with the team that was formerly at Alevo Analytics, Barton said. They're shooting for early 2018 release.
NYSERDA also gives out funding to clean energy projects via its Green Bank, but that has yet to help a specific storage project.
"We have not announced any energy storage deals yet, but that’s something I'd say is a focus," Barton said. "Financing models are one of the bigger picture questions that need to be answered."
Earlier landmark policies left storage by the wayside as well.
In 2015, NYSERDA developed a $5 billion Clean Energy Fund. A filing from the agency laid out in detail just how valuable storage could be; if NYSERDA had wanted to go all in on the relationship, earmarking CEF funds for storage deployment would have been a bold way to do it.
Instead, the report reiterated that a special storage tariff would come sooner or later, and proposed to help with pilot projects, soft cost reductions and information sharing.
"NY‐BEST is concerned that the funding provided in the CEF for energy storage may not be sufficient to spur market development of energy storage projects that are necessary to support the State’s GHG reduction and renewable energy goals," the storage group commented at the time, noting the uncertainty that remained around the monetization of storage under REV.
DPS codified the governor's 50 percent renewable goal into a Clean Energy Standard in 2016. This also left out storage, eliminating a chance to co-incentivize grid storage alongside the massive influx of intermittent renewables.
Costs of inaction
Whether or not Jigar Shah's vision of brain drain in the industry has already come to pass, it's clear that storage activity has pulled ahead of New York in other places.
AES' headquarters in Arlington, Virginia puts it just a three-hour Acela ride from New York. But, without business opportunities there, the company has deployed batteries as far afield as California, Ireland, Chile and the Netherlands.
"New York was positioned to be not just a national leader but a world leader in the adoption of storage, and had opportunities to do so at meaningful scale," said Kathpal. "In the meantime, California has really leapt ahead of New York in seizing that opportunity. We’re seeing benefits to consumers there and building an industry at the same time."
For Shah, a mandate is not the optimal means of kick-starting a storage market, but four years of the alternative hasn't produced results. If storage doesn't get a shot at serving the growing need for peak capacity, fossil-fueled generators are the default alternative, despite the local health concerns.
"We need to use mandates to force action and jump-start the market," he said. "If there’s no action, it’s very clear New York City is incentivizing more natural-gas generators, which makes no sense. You have to assume it’s going to run for 40 years."
The crux of the New York storage debate turns on the tradeoff between quick and rough fixes -- make all the utilities buy some storage and figure out the mechanics along the way -- and laborious, holistic reforms.
"We are not asking for the industry to become more patient, but we are asking for the industry to continue to engage with us because we can continue to do better in terms of process," Kauffman said.
The March PSC command to deploy two storage projects per utility started to blur that dichotomy. Similarly, the state takes great pride, evidenced by a steady stream of glowing press releases, in its renewables mandate, which forces the procurement of clean energy. Perhaps extending that program to cover some degree of clean, dispatchable capacity at peak times wouldn't be such a digression.
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