Arizona proved that, when the circumstances are right, a vibrant energy storage market can spring up despite the absence of supporting policies.
The state has drifted toward purple in national elections, but its state-level politics retain a decidedly Republican bent. That means no climate-change-related policy directives to speak of and no sweeping clean-energy legislation to dictate renewables or energy storage procurement, as seen in several neighboring states.
Even so, the regulators at the Arizona Corporation Commission deserve credit as a laboratory of ideas for clean-grid planning. They came up with the moratorium on new gas-plant construction, back in 2018, justified as a fiscally conservative tool to prevent ratepayer dollars going to large and risky capital investments at a time of rapid technological change. And several commissioners have proposed clean energy overhauls; they just haven’t actually adopted one yet.
Instead, the state’s regulated utilities have gotten there on their own.
Arizona Public Service accelerated from 2-megawatt battery pilots to an unprecedented commitment to pair every major solar plant with a battery to deliver “solar after sunset.” Tucson Electric Power set an early solar-plus-storage price record with NextEra in 2017, pushing that asset class forward at a time when few were thinking ambitiously about it. Salt River Project has announced the state’s largest battery so far: 1,000 megawatt-hours slated for the Sonoran Energy Center by June 2023.
In installed front-of-the-meter storage capacity, Arizona trails only California, Texas, Hawaii and New York, according to Wood Mackenzie's latest Energy Storage Monitor. It also registers on the residential storage leaderboard: In 2019, Arizona delivered the third-most home battery storage capacity, 11.2 megawatt-hours, trailing only California and Hawaii.
The physical characteristics of Arizona lend themselves exceptionally well to cheap solar — so well that it made sense to pay a little extra for batteries to move that generation into more valuable times. But, crucially, the state's regulated utilities have the ability to calculate the usefulness of storage through the grid value chain. They can put it to work as capacity, or renewables integration, or a distribution power quality asset, or a transmission deferral project, or anything else they can think of.
That differentiates Arizona from states where these duties are balkanized by law among different types of companies, where no single owner can actualize all the values storage provides. New York and Massachusetts needed extensive policymaking to get storage off the ground because they had to cover the gaps in the existing patchwork of policies governing storage deployment.
In that sense, Arizona offers other states a glimpse of the future, when storage technology becomes more cost-competitive and customers gain a clearer pathway for monetizing its benefits.
Making the most of the desert sun
Arizona stands out for the clarity of its storage use case, which derives from the regional desert geography. Here’s the basic paradigm, as described by Ken Wilson, a technologist who works on Arizona grid modernization issues for Western Resource Advocates.
“It’s one of the best markets for battery storage in the country,” he told me recently. “They have such a good solar resource, but also a big load from air conditioning in the summer, so they have a need to shift energy into the evening hours after the solar is no longer producing.”
The regional sunshine blesses Arizona with cheap solar power, but that asset can offer only limited help with the chief grid operations problem: late afternoon and evening air-conditioning use in the summer, when temperatures around Phoenix shoot well past 100 degrees.
The conventional approach would be to meet that evening ramp with gas-fired peaker plants. But building out a fleet of new plants to keep pace with creeping peak load forecasts makes for a very expensive proposition.
These structural elements gave storage its first chance to shine in the capacity role, absent a helping hand from policymakers. Tucson Electric Power put its deal together in 2017. Then Arizona Public Service, the largest investor-owned utility in the state, put out a request for proposals for any resource that could deliver a guaranteed five hours of capacity during those summer peaks. The gas peakers showed up, ready for another routine win.
Instead, in February 2018, APS awarded the contract to First Solar for a solar-plus-battery peaker plant. A year later, the company rolled out a plan to install 850 megawatts of storage to super-size this model across its whole solar portfolio.
“It’s totally driven by economics,” said Wilson. “The solar resource is so good that the big utility-scale solar is very cheap. Even when you combine that cheap energy with battery storage, it’s still a very attractive price.”
Another, longer-term geographic push factor for storage: next-door California has its own problem with surplus solar generation. Especially in the shoulder months when AC use is lower, California routinely generates more solar power than it can find a use for, pushing spot prices very low or even into negative territory.
“They’d love to be able to store that for a while and use it on their systems,” Wilson said of the Arizona utilities.
The problem is those utilities have their own solar arrays cranking at the same time; large, cost-effective storage would be necessary to arbitrage the great deal on California electrons and shift them to a time when Arizona could make the most use of them.
It would be wrong to say Arizona’s utilities came around to storage in a vacuum. The state has hosted lively debates on cutting-edge clean energy policy; it just hasn’t adopted it yet.
Since ACC regulators are elected statewide and often emerge from the domain of Arizona politics, this commission’s deliberations are livelier than most. Hence the moratorium on new gas plants, which even California regulators have yet to match.
Prior to the moratorium, former Commissioner Andy Tobin proposed a full-blown clean energy overhaul. It would have required 80 percent clean electricity by 2050, a storage deployment target of 3 gigawatts by 2030 and a clean peak standard to deploy market forces toward shifting cheap renewables to higher-value evening hours. After two years of debate, the commissioners have yet to adopt this or any other clean energy reform. In that time, Massachusetts took the clean peak standard concept, passed it into law and honed a rule in the executive branch, which should take effect in a couple of months.
Arizona’s clean-energy debate lives on. Comments at a March workshop suggest that a majority of commissioners support a 100 percent clean energy by 2050 goal.
Last week, Commissioner Lea Márquez Peterson, who took over Tobin’s seat, suggested they vote on a simple policy statement affirming that goal. Coronavirus response has rightfully taken center stage, she told Greentech Media, and hashing out a finely tuned long-term clean energy regulatory regime in the midst of this crisis will take additional time. Passing the policy stance would set a long-term vision for the state that can be fleshed out later with the ACC's ongoing energy rulemaking.
"I think we need to put a line in the sand and say, absolutely, Arizona is committed to a 100 percent clean energy by 2050," she said.
Details to be figured out later include how to change utility resource planning, interim targets for renewables and energy storage, what to do with old coal plants, and more.
This vision has become decidedly less controversial since APS voluntarily adopted it earlier this year. The other major utilities agree that goal is doable, Márquez Peterson added.
“It’s to the credit of utilities that things are moving ahead at a very nice pace even without some bigger statewide goals,” Wilson said.
With the utilities on board and appropriate ratepayer protection language included, it’s hard to see why such a commitment would not pass. Then the question would be determining what changes if the state belatedly adopts the same clean energy goal as its largest utility.
Neighboring New Mexico offers one answer. Various factions got together and passed a clean-energy transition law that balanced 100 percent carbon-free goals with financing tools and funding to ease the economic blow of coal plant retirements. That’s the sort of thing that utilities on their own probably won’t be able to pull off — L.A.’s municipal utility has been importing power from a remote Utah coal plant, and rather than let it retire and crater the local economy, it signed up for a new gas plant of disputed usefulness.
Arizona has a few more coal plants chugging along; with clarity on transitional funding for their communities, retirement dates may be able to move up.
The one big problem
All of this storage acceleration froze last year, however, when one of APS’ early battery facilities caught fire and exploded, injuring several first responders.
The company immediately halted operations at its other battery facilities and paused development of new ones, pending the outcome of an investigation. That process has not wrapped up nearly a year later, leaving the state’s energy storage industry in limbo.
This marked the first U.S. grid battery fire of the industry’s modern era; that it happened at a site supplied by a top-tier integrator, Fluence, and owned by an experienced utility, deepened the impact. It showed that batteries can be dangerous even when handled by experts.
But nobody seems to think this will hold back energy storage development in the long run. In the immediate aftermath of the explosion, APS President Jeff Guldner told regulators that the incident “hasn’t changed our determination to move forward” with the battery plans.
Commissioner Márquez Peterson acknowledged that the battery failure was “horrible,” but said APS has committed to improving safety standards and communications protocols as a result.
“We’ve learned from that situation,” she said. “I think the battery is the future. […] I believe Arizona is still very committed.”
Assuming that is true, and battery deployments resume in the coming months — COVID-19 construction delays are another matter entirely — here are the projects that exemplify Arizona’s approach to storage, hinting at the roles that future projects could play:
- McMicken/Festival Ranch: Before it caught fire, McMicken and its twin performed power quality roles on distribution feeders with a high penetration of rooftop solar. This early utility-owned project, supplied by Fluence, gave APS confidence in further battery development.
- Punkin Center: This battery, also from Fluence, installed capacity in the remote desert town of Punkin Center. The growing population was maxing out bandwidth on the wires during peak times. APS found it could tap the battery for less than half the cost of a conventional wires upgrade, marking an early instance of the non-wires alternative doctrine popping up outside of New York.
- Tucson Electric Power’s solar-storage trendsetter: In the spring of 2017, utility TEP shocked the world by signing a solar-plus-storage PPA with NextEra for a blended price of less than $45 per megawatt-hour over 20 years. This set a precedent that solar paired with storage, at scale, was not just doable but was actually attractive in certain locales. Subsequent Arizona utility-scale development followed a similar model on an even larger scale.