by Julian Spector
January 29, 2021

It's been an eventful few weeks for the energy storage industry, and nowhere more so than in California. 

Battery developments from years ago have come to fruition, and in a markedly different landscape than when they were first conceived. Even as these new behemoths arrive, the state is scrambling for more to pad its summer arsenal. And California's most recognizable battery brand, Tesla, sold enough capacity last year to supply the entire U.S. market. That's a lot to cover in this week's Storage Plus, so I'll jump right in.

Biggest battery brigade

The deal that in many ways launched the era of mega-batteries has reached completion.

Power producer AES flipped the switch on its Alamitos plant, a battery located next to a revamped combined-cycle natural-gas-fired power plant on the coast at Long Beach, south of Los Angeles. When utility Southern California Edison awarded the 20-year contract to AES in 2014, it was the largest grid battery project on the books. Its purpose was to shore up capacity in the L.A. Basin in the face of power plant retirements, including the San Onofre nuclear plant.

AES confirmed this week that the 100-megawatt/400-megawatt-hour battery is fully operational and participating in the California grid. So far, SCE has dispatched it largely for ancillary services, said Mark Miller, who oversees the plant for AES. But when California's hottest season returns, its capacity will be available for the utility to meet the kinds of peak demand events that tripped up the state last year.

The neighboring gas plant can move quickly to respond to grid demands. But, Miller said, "The battery energy storage can move 100 megawatts in milliseconds." That flexibility is crucial for the evening hours when California's ample solar generation drops off and net demand spikes.

"Energy storage is going to be the enabler for the significant renewable penetration that places like the state of California are going to need," Miller said. In addition to leading AES' Southland plants, Miller is relocating to California to build out AES' presence in that "specific market of interest."

The funny thing about this moment in the storage industry is that Alamitos isn't even the biggest event in recent grid battery news. Power producer Vistra activated an even larger battery, the 300-megawatt/1,200-megawatt-hour Moss Landing system, on December 11. That project yanked the "world's biggest battery" title from LS Power's Gateway facility after about four months in the limelight. Texas-based Vistra also has an add-on battery in the works for August 2021 that's as big as the whole Alamitos system.

California's ratepayer advocate fought the approval of Moss Landing on the grounds that it would cost ratepayers money without any guarantee of the purported goal of shutting down gas plants in the South Bay region. The regulators approved it anyway, asserting that it would reduce reliance on gas power even if it didn't force any particular plant to retire. Then it turned out the whole state was short on firm power, not to mention clean firm power, and suddenly any site that could hold a battery became more sought after than a private quarantine party at French Laundry. 

Massive batteries have lost some of their ability to surprise and impress because there are so many popping up at a scale that dwarfs anything prior to 2020. But I want to call attention to the structural dynamics behind Alamitos and Moss Landing. Both happened because forward-thinking independent power producers realized they could turn legacy assets into prototypes of the future grid. 

AES added a battery next door to a new high-efficiency combined-cycle plant, implicitly symbolizing California's status throughout the energy transition: stepping into an era dominated by solar and batteries, but still largely dependent on gas to make things work.

Moss Landing more neatly captures the hopes of California's energy policy establishment: The batteries literally took over a defunct fossil-fueled turbine hall in a legacy power plant. And the transmission capabilities of that site leave plenty of room to grow.

"With its existing infrastructure and the physical space for potential growth, this world-class industrial-zoned site can support up to 1,500 MW/6,000 MWh of storage capacity should market and economic conditions support it," Vistra noted in a press release, in language sure to stir the heart of the California Public Utilities Commission. "With the development permit already in place and the site in condition for expansion, Vistra will be able to move quickly when that time comes."

Emergency procurement seems destined to disappoint

Vistra chose an opportune moment to tease its ability for rapid battery expansion. The CPUC at this very moment is considering an emergency procurement to get new capacity online for this summer. That's been in the works for a few months now; the latest development was a proposed order released January 8 directing the major utilities to fast-track procurement. The three types of resources the utilities can invest in are:

  • Incremental capacity from existing power plants through efficiency upgrades, revised power purchase agreements, etc.
  • Contracting for generation that is at risk of retirement
  • Incremental energy storage capacity

The first two options mean eking out more power from gas plants. The third option would push forward in the state's mission to build a carbon-free grid. The problem is that the emergency procurement is structured in such a way that it will almost surely benefit gas generators and do little for new battery development.

The CPUC's "preferred" deadline for new resources to start operating is June 1, but it will also accept offers to deliver more capacity by September. A storage developer needs to win contracts from the utilities, wait for the CPUC to approve said contracts, and then try to actually permit and build something in the remaining few months.

"Summer 2021 will likely be impossible [for storage development] and will only involve existing gas and contracting for them," said Jin Noh, policy director at the California Energy Storage Alliance. 

Starting from scratch right now would put a battery developer several years behind schedule for meeting the June deadline. Local permitting alone could consume the remaining months. But there's also the question of finding battery supplies in a year when they've already been gobbled up by a rapidly growing market.

"If you’re doing tens of megawatt-hours instead of hundreds of megawatt-hours, you’re in trouble right now," one developer said of the global cell supply crunch.

International shipping alone is rife with coronavirus-influenced delays and uncertainty. And banal processes like waiting for industrial-grade concrete to cure can threaten to overwhelm the quick turnaround the regulators want to see.

Rapid changes to the grid run into the very safeguards the state has in place to avoid rapid changes to the grid. Major new power plants have to undergo rigorous interconnection studies to ensure the grid can actually deliver that new power. Those can take a couple of years, and if the studies find a need for physical upgrades, those can take a couple of years more. 

There may be a few existing battery projects that happened to get approval for more grid deliverability than they were using; they may be able to rush something in to make use of that without incurring lengthy grid upgrades. Gas plant operators also could try to swap existing deliverability from gas generators to new onsite batteries, hence Vistra touting its ability to "move quickly" thanks to development permits and ample interconnection at its legacy power plant site.

Keeping the lights on is better than not keeping the lights on, but this last-minute rush is a dubious way to create a sparkling-clean grid of the future.

"This last-minute approach and just-in-time procurement is necessary given the circumstances, but we need to get to the point of planning five to 10 years ahead again," Noh said. "Otherwise, we end up with higher procurement costs on ratepayers and may need to limp along with the gas fleet longer than necessary."

Accelerated procurement timelines limit the number and scope of market participants that might otherwise compete, he added. And they don't allow time for emerging technologies like long-duration storage to help out, because those newer technologies generally have longer lead times than the typical lithium-ion technology.

Battery bonanza

While we're on the topic of California batteries, Bay Area-based Tesla posted its full-year 2020 earnings Wednesday. The car business always gets most of the love, but a few facts jumped out from the energy side. 

Tesla straight-up doubled its energy storage shipments quarter-over-quarter to move 1,584 megawatt-hours in the fourth quarter. For the full year of 2020, Tesla delivered 3 gigawatt-hours of battery storage, which happens to match all the battery capacity installed in the entire U.S. last year, according to Wood Mackenzie's tally. That's not to say Tesla has that kind of market share — it ships all over the world, not just to the U.S. But it's remarkable to see one company moving that kind of volume when stationary storage is essentially its side hustle.

Whether it's a profitable side hustle remains to be seen. Tesla reported $752 million in revenue from solar and storage for the quarter, but the cost of that revenue was $787 million. That performance didn't put much of a dent in the booming vehicle sales, which led to the company's $2 billion gross profit for the year. But it shows that moving lots of units at competitive prices is not the same thing as running a successful business. 

In previous quarters, Tesla's energy business generated slightly more money than it spent. But the company doesn't break out specific data for the division, so it's hard to tell how much the solar or battery side is weighing things down. 

Tesla routinely drives the conversation around battery pack price point. The rest of the industry has to pay attention, even if competitors opt for a higher cost/higher value sales strategy. If the energy business continues to spend more than it makes, it could call into question the wisdom of chasing Tesla on price. Not every storage supplier has a surprisingly successful electric car business to back it up.