by Julian Spector
April 16, 2019

Utilities in the South are craving energy storage in large amounts, in a notable break from the past.

We’ve seen large-scale batteries flourish in California, with ample policy support, and Hawaii, where the imported fossil fuel grid was ripe for disruption by solar and batteries. Procurements spread into the desert Southwest, where utilities already had more solar power than they knew what to do with, and Xcel’s procurement broke open cheap pricing in the Mountain West and Great Plains. The Northeast has been nudging its way into a storage market with grid reforms and policy incentives, but the South has long been quiet on the matter.

No more. In recent months:

  • Alabama Power explicitly included energy storage as a viable technology for its request for proposal for firm capacity.
  • Entergy Arkansas agreed to buy a 100-megawatt solar plant with a 30-megawatt battery that NextEra Energy Resources will build.
  • Duke Energy committed to $500 million of energy storage investment in its 15-year plan, which could produce 300 megawatts or more in the Carolinas.
  • The Tennessee Valley Authority released an April RFP for 200 megawatts of renewables that included specific instructions for bidding paired storage, in order to deliver four hours of continuous discharge.
  • Southern Company subsidiary Georgia Power opened bidding for 540 megawatts of renewables to complete its Renewable Energy Development Initiative, with directions for pairing storage with renewables.
  • Florida Power & Light said it will build a 409-megawatt battery system adjacent to a solar plant in southwest Florida, which would crush the current biggest battery records.

Clearly, the great wave of Southern storage has not yet arrived. Many of these actions are entirely forward-looking; allowing storage to compete in a capacity procurement does not mean it will win.

But allowing storage to compete is the first step, and we’ve seen that utilities that take a serious look at the technology tend to find cost-effective uses for it.

Moreover, these utilities have taken these steps voluntarily, in the absence of policy coercion. Most Southeastern states, including Alabama, Arkansas, Florida, Georgia and Tennessee, lack any renewable portfolio standard to drive renewable adoption. That means the companies see something valuable in storage that they want to pursue, which bodes well for the industry.

“This represents a proving point for the storage market, in much the same way Aliso Canyon proved that 4-hour storage could meet a need quickly and effectively,” said Daniel Finn-Foley, senior storage analyst at Wood Mackenzie Power & Renewables. “With cleantech in the South, there's very much an ‘If you can make it here, you can make it anywhere’ mentality. Making the argument that energy storage is a mature market just got even easier.”

Lastly, this region retained the old-school regulated utility model, which potentially limits the ability of third-party innovators to break into the electricity system. On the plus side, vertically integrated utilities can capture more of the value that storage provides to the grid, which can be hard to quantify in deregulated markets that divvy up responsibility for generation, transmission, grid services and customer value.

Here’s what you need to know about the coming era of big storage in the South.

Upside for the storage industry

Wood Mackenzie Power & Renewables already projects considerable near-term growth for the U.S. storage market: a 14x increase in annual megawatts deployed in 2024 compared to 2018, according to the Energy Storage Monitor.

That forecast includes announced projects, but pays special attention to state policies like storage mandates and incentive structures. The Southeast has been flying under the radar on those metrics, which means a battery boom there could push the forecast even higher.

“Massive announcements at the project level, like Florida Power & Light's, will swing the forecast, but in markets where storage is just being allowed to compete, the upside is less certain,” said Finn-Foley.

At 409 megawatts, the Florida Power & Light project will single-handedly beat out the entirety of U.S. deployments from 2018. It also represents 15 percent of the 2,726 megawatts of deployments WoodMac forecasts for 2021, the year the project will come online. That forecast came out before this project announcement, so expect a corresponding bump in the next quarterly edition.

Mega-projects like the Florida one will be the most tangible source of storage industry growth from the South, but there will only be so many “largest project in the world” announcements. A more lasting source of growth could come from storage working its way into regular utility procurements, but we don’t have enough data to project based on that yet.

Regional grid needs drive battery exploration

Southern utilities have come to see energy storage as the most economic solution to certain problems, or as potentially economic enough that it needs to be in the mix of resources competing for selection.

A major driver for that is the combination of aging fossil fuel plants headed for retirement alongside a newfound growth of solar capacity.

Florida Power & Light explicitly stated that its battery behemoth would help it retire two 1970s-era natural-gas plants in southwest Florida. The regulated utility has already made big moves into renewables, drawing on the market leadership of sister company NextEra Energy Resources. FPL punctuated this trend by promising to install 30 million solar panels by 2030, an unorthodox but emphatic metric.

TVA has cut its coal share in half over the last decade. The organization voted in February to close another coal plant, as it scales up renewable capacity and distributed energy.

Duke oversees North Carolina, the second-largest solar market in the nation. North Carolina hasn’t run into major duck-curve trouble yet, but there’s good reason to get out in front of that trend.

The new Southern solar doesn’t replace gas or coal plants; it needs batteries to become dispatchable on command and offer a reliable alternative to gas peaker plants.

Resilience is top of mind in the hurricane-battered region, too. Batteries deployed for that use case would be smaller-scale, behind-the-meter or in community-scale microgrids. That business model is just getting started, whereas the solar-paired battery plant is already hitting serious scale.

Southern utilities can capture more storage value

In deregulated markets, the baby steps of storage growth get stuck in the mud of market rules that limit who can do or own what.

In Texas, wires utilities can’t own generation, and that’s what storage counts as, despite its many uses in the distribution and transmission space. In New England, concerns over the competitive landscape force complicated arrangements where a utility contracts for storage dispatch without owning it, or gets to own some of it to get the market started, but not too much.

Rules are rules, so what’s exciting for the South is that utilities retain responsibility for the whole affair, and that means they can look at storage holistically across the realms of grid infrastructure, capacity, renewables integration, grid services and customer uses.

“The story of storage's future is always going to be recognition of value,” Finn-Foley said.

Regulated utilities earn profit from putting capital expenses into the rate base, and storage can help there too. Southern utilities are showing their eagerness to build and own storage themselves.

New coal investments aren’t making sense, and even new gas plants have gotten harder to push through some state regulatory bodies. Grid modernization packages, which sound innocuous but ring up billion-dollar tabs, got stopped in North Carolina and Virginia in the past year.

At a time when other large investments are difficult to secure, utilities can find quantifiable arguments for ratepayer benefit if they invest in storage instead of more expensive traditional assets.

Leapfrogging the pilots

The scale of uptake in the South has been particularly rapid.

While New York and Massachusetts spent years tinkering with the right mix of market signals and incentives, the industry there was able to move forward on a range of incentive-based demos and pilots, and a few market-based projects.

Meanwhile, after conducting a handful of sub-megawatt-scale projects to test the technology, Duke Energy abruptly pledged 300 megawatts across the Carolinas as the base case for its integrated resource plan.

A scenario where Duke uses storage in place of some gas combustion turbines calls for 1,440 megawatts in the next 15 years.

Similarly, Arkansas went from having no particular resonance in the energy storage world to building a 30-megawatt system, which ranks among the largest in the nation. Florida had a bit more going on, battery-wise, but will go from a humdrum market to the home of the largest battery on earth, if nobody outdoes its 900-megawatt-hour monster by 2021.

A few projects can’t erect a thriving market all on their own. Duke’s pledge doesn’t have any specific projects attached to it yet, and Alabama Power, Georgia Power and TVA are simply allowing storage to compete at this point.

“It remains to be seen if the utilities that are just opening doors to storage will result in significant deployments,” Finn-Foley cautioned. “Just like FERC Order 841 wholesale market participation, carving out a lane for storage competition doesn't guarantee it will win, but in many regions we have seen that it can.”

Now the onus is on storage companies to show up and make their case, and throw some resources toward a region that until very recently didn’t seem like it deserved them.

Or they could sit back and let NextEra mop up all those beefy utility-owned battery contracts. Someone’s got to do it.