by Julian Spector
June 26, 2018

The past week saw hefty developments in three major existing or developing storage markets.

New York released its long-awaited storage road map, providing detailed guidance on how it plans to make good on the governor’s pledge to deploy 1,500 megawatts by 2025.

California legislators are wrangling over the future of storage incentives and the broader grid decarbonization plan, with crucial implications for the storage industry.

And the long-dormant Texas market heated up with a major new project that will prove out a relatively untapped business model: large-scale storage retrofits.

Empire State of storage

The storage industry got its most hotly awaited summer blockbuster last week — the New York energy storage road map.

I’ve been digging into the document to pull out the bits that are actually new and interesting. I’m looking forward to the day when we're all banned from saying that “Value stacking is essential” counts as a “Key Takeaway,” but we’re not there yet.

More interesting is how the document grapples with “dual market” participation, as in how to define rules of engagement for a battery that plays in both the distribution grid and the wholesale markets.

It’s new to see a deregulated market actively seeking storage to participate in the grid, but that’s happening now in New York and Massachusetts. That means storage could soon be participating in competitive wholesale markets, and this will look different from the California projects participating through resource-adequacy contracts.

The road map doesn't just throw up long-term goals, though. It delivers some hard action items.

The New York State Energy Research and Development Authority wants to allocate $350 million as a market acceleration bridge incentive. Storage currently can’t earn compensation for the full array of values it provides; this bridge incentive can cover that gap until market reforms create a more level playing field. Ideal markets take a maddeningly long time to construct, but this would help the industry get started in the meantime.

New York energy leaders remained skeptical of storage incentives until quite recently, and the road map makes clear that these dollars would be guided by a strict economic calculus intended to create a market that doesn’t need any more incentives.

The money would come from existing but untapped funding sources, meaning no new allocation is required.

Even better, the incentives would pay for themselves by accelerating the storage-cost decline curve by two years. That $350 million upfront could save $400 million on the cost of deploying 3,000 megawatts by 2030.

Tying the near-term storage incentives to future savings frames the conversation around what makes sense for the ratepayers, as opposed to how much money the industry can reserve for itself.

Speaking of ratepayer benefit, the road map further develops the concept of using storage to replace or offset the dirtiest peaker plants, which are known to release harmful pollutants into predominantly low-income and minority neighborhoods.

The concept makes intuitive sense, but we haven’t yet seen a pathway to achieve it.

The road map calls for relevant agencies to create “a methodology for analyzing peakers’ operational and complete emission profiles on a unit‐by‐unit basis to determine best potential candidates for hybridization, repowering or replacement by storage.”

New York first needs a system for deciding how dirty is too dirty, and prioritizing the worst offenders for replacement with zero-emitting batteries. The next step will be figuring out how to replace them in a process that incorporates storage's benefits while ensuring an appropriate level of system reliability.

Now the report heads into a public comment period, culminating in a decision from regulators by the end of the year to set a 2030 storage target and enforcement mechanisms.

What happens in Sacramento…

The political season is heating up in the heart of the world’s fifth-largest economy.

We try not to spend absolutely all our time centered on California, but given the implications of decisions here for the rest of the cleantech industry, I think it’s worth a quick update.

Cleantech political operatives had expected to play defense this season. In granular terms, that means fending off amendments supported by the utility workers’ unions that would make it harder for third-party-owned distributed energy to flourish in the state.

There’s a real tension at play here: If California can rely increasingly on customer-sited resources instead of paying utilities a guaranteed profit to build more distribution assets, that means lost jobs and wages for the utility workers. The vague rhetoric around cleantech jobs doesn’t help if your job is building new substations and the industry wants to offset the upgrades you’d be working on.

The threat of anti-DER amendments helped scuttle the 100 percent clean energy bill last year, and briefly appeared in a grid safety bill this session. But suddenly, the threat seems to have receded.

An energy storage bill that was yanked from the agenda before a vote last year got on the schedule and passed out of committee this week, with a letter avowing explicit support from a top utility union lobbyist. The grid regionalization bill passed out of committee this week too. And sources in Sacramento tell me that the International Brotherhood of Electrical Workers isn’t going to hold up De León’s 100 percent bill this time around.

It’s impossible to know what’s really going on in Sacramento until the final votes are cast, but the subtext seems to be that the utilities and their unions have bigger fish to fry than little distributed energy programs.

Rather than expend political capital on every little distributed energy bill, they have to resolve an archaic liability definition that threatens massive penalties from the fires last year, and try to get the best deal out of the grid regionalization effort moving through the legislature.

The bottom line is that the storage industry might get a long-term funding program modeled after the California Solar Initiative, with clear long-term goals and an incentive mechanism that steps down over time as deployments increase.

The 100 percent clean energy bill would be another potential boon, as the 60 percent carve-out for wind and solar would raise the value of storage and grid flexibility.

Lone Star storage, less lonely now

Texas doesn’t make it easy to sell storage.

The wire-based utilities can’t own it, which rules out a number of use cases. And there is no capacity market, so storage can’t serve that kind of role.

So even though Texas is huge and has a ton of renewables, we’ve seen little large-scale storage advance in the state.

That changed last week with the announcement of Vistra Energy’s battery retrofit for the 180-megawatt Upton 2 solar plant. FlexGen, a former battlefield microgrid supplier for the military, will deliver a 10-megawatt/42-megawatt-hour system, the largest-duration battery in the state.

Storage industry folks often say storage is a great investment, if only market rules compensated it properly. Texas’ competitive landscape would seem to be a good place to test that proposition, though few have to date.

FlexGen made the economics work with its battle-tested design suite, which specializes in rugged project designs for long lifetimes without having to oversize capacity at great expense. In FlexGen’s telling, its controls can respond as well to long-term energy shifting as rapid response grid services.

"We’re giving someone a dump truck that can drive around like a race car," said CEO Josh Prueher, in one of the more memorable quotes of the week. "That's better than a dump truck that just drives around like a dump truck.”

The real key to its leading-edge economics, though, lies in the nature of the retrofit, which is important enough to merit its own sub-heading.

The nature of the retrofit

Storage retrofits are all over the residential space, where they add control and flexibility to existing rooftop solar arrays. That’s the big driver for the AC-coupled storage products that several companies offer.

I hadn’t heard of this approach for utility-scale solar plants until this Texas one. All the attention-grabbing pairings of solar and storage sprang into the world together, brand new.

But retrofits can make a great deal of sense at the larger scale.

They fit best in areas where a customer wants the flexibility services of a battery, but has enough solar power already. Then the battery can make more efficient use of existing assets, most notably when it saves generation that otherwise would be clipped because it surpasses the inverter capacity. Conveniently, the heavy lifting has already been done in the construction of the solar plant; adding a battery on the existing site amounts to a relatively minor operation. 

FlexGen is able to offer retrofit storage for around 7 percent cheaper than the storage component of a new solar-plus-storage installation, Prueher told me.

That leaves the non-trivial question of how to slap a new asset onto an existing contract. That's an obstacle with some customers, but not for everyone. Some PPAs even anticipated adding storage later and included clear guidelines for how to do it, Prueher said.

Just like solar-plus-storage contracts took time to catch on and become acceptable for customers and investors, retrofit contracts will have their own learning curve. Early adopters like the Upton 2 project will inform the paths that future retrofits take.