by Julian Spector
March 03, 2020

Author's note: This is the second installment in a series profiling the top emerging state markets for energy storage. Last week, we focused on New York.

Massachusetts has spent the last four years bringing an energy storage market to life, and its efforts are starting to produce results.

The state government produced a landmark study on the value of energy storage back in 2016. The State of Charge report clarified the value that storage technology could provide for the grid and pointed out the ways market rules would not allow it to earn compensation for its full range of values. Its comparison to the storage baked into other critical supply chains, like food or water, made for a great conversational pitch on the importance of grid batteries.

That report set the template for the subsequent states that began their journey of storage actualization with a systemwide study. In New York, such efforts justified the Bridge Incentive program. In Massachusetts, it led to an initial round of grant-funded projects, then a storage adder on the new solar incentive and a prompt from the legislature to encourage storage to mobilize clean energy for peak power.

Those policies build toward a 2025 target of 1,000 megawatt-hours. The state counts 108 megawatt-hours installed as of February 15, with 10 times that amount in the pipeline.

That sequence, from study to declining subsidies that taper into market-based storage competition, is exactly what the industry needed from Massachusetts, said Dan Berwick, general manager of development at Borrego Solar.

“They did an amazing job of policymaking on this,” said Berwick, who develops solar and storage in Massachusetts. “It’s a model you should follow if you’re a policymaker.”

On the other hand, Gov. Charlie Baker's administration formulated these policies ahead of an overarching strategy for long-term decarbonization. Baker just proposed a net-zero emissions target for 2050 in his January State of the Commonwealth address, after several years of hashing out specific clean energy programs with extensive stakeholder input.

“These timelines are taking so long because the administration has been unsure of their process for planning,” said Michael Green, executive director at Climate-XChange, a Boston-based nonprofit that advocates for carbon pricing. “There seems to be an interest in saying the right thing, but the process often struggles with intention and lucidity.”

Storage projects are in motion, but the market is still young, and several key dynamics are still being worked out. Interconnection studies weigh down project timelines. Wholesale market revenues remain elusive, except for a few early adopters. The first-of-its-kind Clean Peak policy has yet to take effect.

Still, the storage industry enjoys explicit support from the legislative and executive branches, and Massachusetts has strong cohesion around a vision of a clean energy future. Storage has been tapped for a crucial role in that. It’s in training now, but with a clear pathway to step up for more serious duties.

Massachusetts' key storage policies (in roughly chronological order)

Advancing Commonwealth Energy Storage grants

Not a policy so much as a one-off disbursement, the ACES grants paid out $20 million to put batteries in the field. The roster of winners, announced in December 2017, reads as a guide to the companies with the most interest in the state's nascent market.

SMART with storage adder

This is the center of gravity for storage in Massachusetts today. The state's Department of Energy Resources crafted a storage adder for the Solar Massachusetts Renewable Target, which pays extra for every kilowatt-hour of solar generation when a system is tied to energy storage. That’s not a nuanced price signal — it has little to say about what the storage actual does — but it offers a way to kick-start activity as the business models for storage come into view. It’s supporting business cases like storing power for solar plants that face interconnection constraints or the program cap of 5 megawatts (AC) of capacity; batteries can shift generation for export later, enlarging revenue compared to a standalone solar design.

New energy efficiency includes storage

Massachusetts prides itself on national leadership in energy efficiency. Historically, that focused on old-school, passive reduction efforts like swapping out lightbulbs. But the $3 billion Mass Save program allotted for 2019 through 2021 puts batteries to work for peak-demand reduction.

Enrolled home batteries will receive commands from utilities National Grid or Eversource, dispatching them for up to three hours at a time. The battery owner gets paid based on participation; a 5-kilowatt battery could earn $1,125 per year, according to information published by the program. Combined with an investment tax credit, that goes a long way toward paying down the cost of the battery. It also gives the aggregator companies a path to market.

Clean peak

Peak hours are expensive and tend to be dirty; clean energy generation doesn’t always line up with those hours, especially when the energy is solar and the peak comes in the evening. A "clean peak" rule requires utilities to buy a certain amount of their power for peak hours from clean sources. Several states have talked about this, but Massachusetts signed it into law first; the actual rule, though, is still moving through its procedural steps and has not been officially put into force.

“Because the regulations are not yet finalized, the developer community doesn’t yet have that firm price signal to be able to commit financing to,” said Will Lauwers, emerging technology division director at DOER.

A recent journal article questioned the emissions benefits of this policy, based on modeling of the Massachusetts grid during 2018 and 2019. (Storage Plus covered the strengths and weaknesses of that critique here.)

Offshore wind bonanza

Like much of the upper Atlantic Seaboard, Massachusetts wants big growth for its currently nonexistent offshore wind sector. This will work alongside distributed solar and imported Canadian hydropower to supply a highly renewable grid. The general thinking is that, when several gigawatts of intermittent power start washing ashore, they will create economic opportunities for storage to time-shift that power to more valuable hours, dodge transmission congestion or maintain power quality amid the fluctuations.

“Offshore wind is going to be a massive source of clean energy across the Eastern Seaboard, and to me, it’s a no-brainer to pair energy storage with it,” said Daniel Finn-Foley, energy storage director at research firm Wood Mackenzie.

For context on the stakes here, the state has awarded 800-megawatt projects to Vineyard Wind and Mayflower Wind. Together, they will produce the equivalent of 12 percent of the state’s annual electricity consumption. Another 1,600 megawatts of offshore wind could be on the way. The wind farms have to get built first, though, so the ensuing storage opportunity remains a few years away at least.

Key challenges

Slow interconnection

It is a truth universally acknowledged: A storage developer active in Massachusetts must be in want of speedier interconnection.

As new batteries attempt to hit the grid, the study process whereby utilities and the independent system operator calculate a project’s grid impacts frequently results in additional requests, costly requirements and delays. This can set back timelines by a year or more.

The interconnection obstacle materialized most dramatically in May when National Grid froze 1 gigawatt of solar deployments to perform a months-long “cluster study” on transmission system impacts arising from SMART-funded projects. The utility opted to wait until after the incentive went into effect to study whether the entirely predictable flood of developments would have some cumulative effect on the grid.

The first phase wrapped up last fall, releasing 300 megawatts of projects with no additional transmission-upgrade costs. The next phase of the study should wrap up this March. The incident also triggered an investigation into National Grid by the state's Department of Public Utilities.

These and other interconnection delays create real business impacts. Larger regional or national players can generally absorb the cash flow requirements of a longer-than-expected development cycle. But smaller shops that heeded the governor’s call and geared up for the state’s storage push have had a harder time grappling with this barrier.

Revamping the way the grid works brings some inherent complexity. But the state has identified interconnection as an area in need of improvement, and the key stakeholders are working on it, said Engie Storage CEO Chris Tilley.

“It’s been slower than we’d hoped, but we have good parties that are earnestly trying to make the market work,” he said.

Unclear wholesale market opportunities

The consensus view is that the New England ISO offers clearer pathways for batteries to participate compared to much of the country. It wasn’t an accident that rooftop solar installer Sunrun won its first wholesale capacity contract for residential storage in New England, not its home state of California.

But with so few batteries actually providing bulk storage or aggregated storage to the wholesale markets, the industry still has a lot to learn about how to make money there.

“We haven’t seen many of the [large-scale] projects fully developed up to this point, given the timelines with development,” the DOER's Lauwers said.

After completion, battery plants must contend with the volatility of prices. The most recent Forward Capacity Market auction, for instance, cleared at $2 per kilowatt-month in February, declining by nearly half from the previous year’s clearing price.

“That’s definitely a difficult signal for new resources to project revenue against,” Lauwers noted.

A possible upside of that meager price is that it could dissuade new gas-plant investment, squeezing supply until demand pulls up prices. By that time, battery costs will have fallen and developers will have more time to build up their operational capabilities.

Borrego Solar has some assets participating in the wholesale market, said Berwick. But whereas the solar-plus-storage business case is clearly paying off today, wholesale operations for storage are still developing into a workable business proposition.

Engie Storage has a battery in the wholesale market as well. Tilley described it as a “for-profit project” that nonetheless is helping the company learn more about how to operate within market constraints and maximize revenue.

One of the challenges for storage operation is to fulfill multiple, varying values while fulfilling the requirements of each of those programs or markets, said Jonathan Poor, Engie Storage director of business development. The federal Investment Tax Credit requires a certain level of solar charging, which has to be factored in when discharging for demand response or a capacity obligation, for instance.

The shadow of FERC

Massachusetts participates in ISO New England, which is subject to regulation by the Federal Energy Regulatory Commission. That body recently pushed back on state-level clean energy policies in PJM and New York. Both decisions work to raise the bid price of clean energy assets in the market, on account of support they receive from state policies.

“FERC has shown a new, or at least renewed, appetite to intervene in markets where states are trying to incentivize renewables and storage,” WoodMac's Finn-Foley said. “If FERC considers subsidized resources a threat to competition in PJM, I don’t see any reason why they wouldn’t [come to] the same conclusion in New England.” 

This hasn’t happened yet, but it’s a relatively new cloud hanging over the horizon for states including Massachusetts.