by Julian Spector
October 15, 2018

PG&E’s Moss Landing battery plant is either the harbinger of a cleaner, more efficient grid, or a dangerous waste of ratepayer money, depending on whom you ask.

The California Public Utilities Commission will vote on the project on October 25. Its Energy Division staff urged approval, arguing that the four battery installations, totaling 567.5 megawatts/2,270 megawatt-hours, would secure grid reliability in a constrained area facing several gas plant retirements in the next few years. Environmental advocates and clean energy groups lauded the project as a step toward California’s climate change commitments.

But the Office of the Ratepayer Advocate, recently rebranded as the Public Advocates Office, wants to put a stop to it. It is joined by Calpine, the gas plant owner that stands to lose from new competition with batteries, as well as the California Direct Access Customer Coalition and California Community Choice Association.

The Public Advocates' mission, according to its website, is “to obtain the lowest possible rate for service consistent with safety, reliability, and the state's environmental goals.”

In bygone years, keeping rates low meant critically assessing additional gas plant proposals to see if they were really necessary. Lately, the ORA/PAO has taken aim at clean energy projects, forcing a conversation on what kind of cost is justified in building a low-carbon grid system, or how heavily the organization should weigh its environmental mission.

ORA/PAO almost scuttled the second Preferred Resources Pilot earlier this year. Those contracts, awarded two years ago, were designed to try out new distributed grid innovations; ORA/PAO argued that Southern California Edison hadn’t demonstrated sufficient need. The regulators ultimately approved the Preferred Resources Pilot over those objections.

Now, PG&E seeks approval for a set of four batteries, two of which exceed anything built or contracted so far anywhere in the world. The project arose when the California Public Utilities Commission (CPUC) rejected reliability must-run payments for three Calpine gas plants and asked the utility to solicit new batteries instead.

We’ve tracked the potential for battery storage to displace gas peaker plants, but this is something different. Moss Landing would fill a hole left by Metcalf, a 580-megawatt combined cycle plant. It would cut into the role of gas power in a day-to-day context, as well as during peak events. And it would help the grid shift abundant renewable generation to times of day when it is more valuable.

But this comes down to money and how best to allocate ratepayer dollars. On that count, the Energy Division calculated ratepayers will save $233 million over a decade with the Moss Landing investment, compared to paying to keep Metcalf open.

As such, the fundamental arguments for and against this monumental endeavor deserve your attention in this week’s Storage Plus. We’ll start with the procedural protests and move onto the critiques of how the batteries would perform for grid operations.

Procedural protests

Wrong/rushed process

The CPUC is evaluating Moss Landing using the advice letter procedure, an expedited process used to address time-sensitive problems, such as the rapid-fire battery procurement after the Aliso Canyon gas leak.

“The advice letter process is ill suited for approval of new storage capacity in excess of 170 percent of existing investor-owned utility battery storage capacity,” the Public Advocates suggest.

There’s no denying the titanic scale of this procurement, and any massive utility procurement deserves careful scrutiny. But the CPUC itself chose to use this mechanism, so it’s hard to see it running the process and then deciding to switch to a different procedure at the last minute.

It now seems that a $14 million transmission upgrade will alleviate the local capacity stress for 2019, relieving some of the time pressure, but drawing out the evaluation of the long-term solution carries risks.

“Transmission could get delayed,” noted Ravi Manghani, energy storage director at Wood Mackenzie Power & Renewables. “If it gets delayed, this could become an emergency situation.”

Insufficient coordination with CAISO

The CPUC directed PG&E to coordinate with the California Independent System Operator to make sure its new tools appropriately address the local capacity problem. The utility got a letter of support from CAISO’s vice president of market and infrastructure development, but the Public Advocates argue that’s not enough coordination.

PG&E responded with a detailed timeline of the meetings and calls it had with CAISO throughout the process of designing and evaluating the request for offers.

Operational protests

$14 million transmission fix solves the problem

This whole project got thrown for a loop when it turned out that a $14 million transmission update could alleviate much of the capacity constraint by 2019. Factoring in scale discounts and unusually low soft costs (fast-tracked development, sites and interconnection are all already accounted for), the storage could cost somewhere between $500 million and $800 million, Manghani estimated.

Here’s where the multi-dimensional balancing comes in. The quick fix could replace Metcalf for next year, but the same sub-area has several other gas plants coming off contracts in the next few years, which means they could “exercise market power.” That’s a fancy term for what sounds a lot like blackmail: If the plant owner can’t make money, it threatens closure to extract above-market payments from ratepayers. The wires fix doesn’t alter that dynamic.

“The whole point of putting the stuff in ahead of time is to avoid the exercise of market power,” said Earthjustice staff attorney Matt Vespa, who filed in support of the project.

This process also takes place in a state that passed mandates to procure energy storage and eliminate carbon emissions from electricity in the next 30 years. Moss Landing has an immediate goal of local reliability, but it forms part of that larger system.

“If the transmission projects are going to be completed, you may not need these batteries right away,” Manghani said. “But given the rate at which we’re seeing California adopt renewables, there’s more of a role for the storage to play in managing renewables on the grid.”

This issue will boil down to how narrowly regulators view the task at hand: Do they want a temporary solution to the immediate problem of Metcalf’s closure, or an investment to avoid expensive reliability must-run contracts in the near future?

The CPUC’s Energy Division came down forcefully in favor of Team Moss Landing.

“These [transmission] upgrades do not eliminate the growing reliability problem in the region entirely, however, and do not guarantee that the capacity from Metcalf will not be needed in the future even after the upgrades are completed, given the potential retirement of other gas-fired plants in the subarea,” the draft resolution says.

Are batteries even reliable?

The Public Advocates flag two use limitations that differentiate energy storage from gas plants: Batteries need other generation to charge up, and they could run out of charge when the day’s reliability needs persist. The stakes are high given the sheer size of the proposed storage plants and the constraints on the grid where they would be located.

This wouldn’t be the first time California trusted grid batteries for reliability in transmission constrained regions. It’s been doing that for multiple years now, without incident. The pertinent question, then, is if the size of the proposed systems fundamentally changes CAISO’s ability to operate them effectively.

If it does, why did CAISO send that letter of support?

Could increase GHG emissions

The Advocates say PG&E did not provide evidence that the battery procurement would reduce greenhouse gas emissions. They further contend that “it is more likely that emissions will increase.”

The Advocates decline to provide evidence for that striking assertion, other than to say the transmission-constrained sub-area around Moss Landing relies on natural-gas generation.

It is worth noting that batteries are not inherently clean; if they charged solely from natural-gas generation, with roundtrip efficiency losses, they would produce more emissions than running the gas plant for the same amount of capacity. 

But it would be crazy to operate these batteries that way.

The coalition of environmental advocates, who presumably know something about what is good for the environment, have a different view of the emissions impact. In a filing, Earthjustice, the Union of Concerned Scientists and other allies pointed to CAISO emissions data, which shows the carbon intensity of energy generation spiking from around 4 p.m. to 8 p.m. before dropping off.

The Moss Landing batteries would be dispatched according to market signals, Earthjustice's Matt Vespa noted. That means charging up when power is cheap, unconstrained and likely to be more highly renewable, and discharging at the peak demand hours, which happen to be more carbon-intense.

That scenario seems more plausible than operating the batteries to charge solely on expensive gas during peak events. That said, the emissions impact of storage derives from how it is operated, so the burden of proof is on PG&E to support its claim that buying this big thing will be better for the environment.

There’s a risk of moral hazard when the utility’s major procurements suddenly align with a legislative and regulatory agenda dedicated to promoting the low-carbon grid transition. PG&E has received ample encouragement to build big in storage and preferred resources. 

The ORA/PAO's critiques this year should send all three investor-owned utilities a message: Don't take passage of ambitious clean energy projects for granted; make the case thoroughly for ratepayer and environmental benefits.

Now it's up to CPUC regulators to determine the winner of the showdown at Moss Landing.