by Julian Spector
May 07, 2019

The Puente gas plant procurement, which wrapped up at the end of April, captures the energy storage industry's maturation in one tidy story.

The saga kicked off in 2013, when utility Southern California Edison began looking for capacity to replace coastal gas plants slated for retirement. At the time, storage was just coming on the scene, but there were few developers and the economics for battery power plants were very much up in the air. 

At the time, NRG's Puente gas plant handily won the procurement for reliability in the Oxnard region. No large storage projects even competed. The locals in Oxnard didn't like the idea of a new gas plant taking up space on their coastline, but plenty of gas plants had overcome local opposition before.

Fast-forward to 2019 and the gas plant vanished from the picture, replaced in the end by a portfolio of battery systems spanning a 100-megawatt behemoth down to tiny residential batteries. The host community is happy, SoCal Edison is happy, the grid wonks at the California Independent System Operator are happy, and the clean energy industry scored a major victory.

This outcome was looking likely for the last year or so, but it's worth pausing at this time to reflect on how improbable this series of events was when the story got started. 

The Oxnard case created a series of proof points that validated the previously untested theses of energy storage developers. These proof points should apply just as well to other markets and other utilities. Along the way, the stakeholders in this episode crafted a whole new playbook for how capacity should be procured in an era with new and cleaner resources on the table.

You can count on batteries

Grid batteries have enjoyed robust support in California's legislature and regulatory apparatus, ever since the storage procurement mandate began. This is a special circumstance, although other states are ratcheting up support for storage industries of their own.

The more telling stamp of approval in this story, then, came from the staff of CAISO, the California grid operator. The experts tasked with ensuring that the grid has the resources to do what it needs to do studied the "Moorpark Sub-Area" in the vicinity of Oxnard and determined that "preferred resources," such as storage and distributed energy, could deliver reliability as well as a gas plant could.

In fact, the batteries offer some advantages compared to the gas peaker alternative, said Colin Cushnie, vice president of energy procurement and management at SCE, who's been involved in the Puente saga since the very beginning.

The particular reliability need that Oxnard had was backup for an unexpected event taking out transmission into the area. With California's high frequency of fires, earthquakes and mudslides, that's not a unthinkable occurrence. 

"Typically, when you lose transmission, it happens with very little to no notice, and the energy storage can be immediately turned on," Cushnie said in an interview. "A large gas-fired power plant, like the Puente project…does take a few minutes to get started and synchronized to the grid, and then to ramp up to whatever level of energy production you need."

Relying on a single plant like that can lead to short-term loss of service if it needs to start up unexpectedly, he added. 

Just because batteries work in one grid context does not mean they necessarily satisfy similar needs elsewhere. That said, utilities elsewhere cannot in good faith argue that batteries are an untested, bleeding-edge alternative to natural-gas capacity. The grid operator of California and all the state's investor-owned utilities have chosen storage too many times for that critique to continue to hold water.

That leads to our next lesson.

Every gas plant procurement should scrutinize alternatives

When the bids came back for SCE's gas plant replacements, the results were clear: A robust ecosystem of storage developers and suppliers can source large-scale projects at competitive prices. 

This fits with the story we're hearing from utilities elsewhere, like Arizona Public Service and Xcel Energy: When they started accepting bids for storage, the prices outperformed what anyone expected previously.

That means that any utility planning to meet a capacity need simply by picking the most cost-effective gas plant could be spending more ratepayer dollars than they need to. Wherever that happens, the storage industry now can flood the stakeholder comments with evidence from Puente, and from Arizona and Colorado. Including mechanisms for energy storage to compete pays off for ratepayers.

Of course, it helped that SCE wasn't going to own these resources either way, so it didn't have incentives favoring a higher capital investment to increase the rate base.

"We were very much interested in a clean energy outcome," Cushnie said. "We don’t have a technology preference. We look for the attributes that will meet the defined need."

Other utilities may have more pressure to work the rate base and create value for shareholders. Storage providers can pitch those companies on building and owning the asset, rather than contracting for services.

Other utilities won't want to repeat the less-than-ideal aspects of this procurement, including the confusion and wasted effort of awarding one contract only to have it fall through years later and force a fast-tracked alternative procurement. 

"Having uncertainty around the planning process ultimately adds cost, at the end of the day, to consumers.," Cushnie noted.

It's unlikely these circumstances will repeat, though: batteries are now competing upfront, where they're allowed. They can compete on the first round, rather than waiting for a reconsideration.

Broaden the understanding of reliability

The grid operator determined that, in the specific grid region around Oxnard, a handful of batteries working in concert can provide grid reliability. That came in response to a specific gas plant proposal. 

The next step is systematically adopting this form of reliability into grid-planning processes.

After all, the batteries function differently than gas plants. They respond faster, but they cannot last as long. All the contracted batteries here are free to play in the wholesale markets on their own time, Cushnie noted. That creates a risk that when the utility needs them, they won't be fully charged, which makes for an awkward situation when the use case is delivering power to transmission-constrained areas.

That's part of why SCE chose a portfolio: If one unit runs out, there are more to take its place.

"It will have to be carefully orchestrated to make sure that we’re maximizing the ability of the energy storage to fully meet the local demand in the area," Cushnie said.

"Orchestration" is the right word. This model relies on more moving pieces than a single gas plant, but the risk-averse organizations involved are confident that it will work.

Small batteries can play a bigger role

Strata Solar's Saticoy project draws the eye, as 100-megawatt batteries tend to do. But, notably, massive batteries didn't monopolize the proceeding.

Five midsize batteries will add a collective 81 megawatts to the mix, so that's not too shabby. SCE also made way for the smallest form of grid batteries by awarding 14 megawatts to Swell Energy for behind-the-meter storage. 

Those two companies first partnered up back in 2016. Swell's landmark first contract came in SCE's second Preferred Resources Pilot, to deploy 5 megawatts across roughly 3,000 homes on behalf of the utility. 

SCE could not comment on the details of the latest procurement or the dollar amounts on the bids. What we know, deductively, is that Swell bid capacity from a network of aggregated home batteries and landed at least in the ballpark of the economics from much larger-scale systems. That's surprising, given that the unit cost is going to be notably higher for kilowatts deployed in bite-size increments at thousands of homes compared to 100 megawatts at one location.

Swell has an advantage the other winners lack: multiple contracted revenue streams.

The big batteries can bid into the wholesale markets when SCE doesn't assert control to meet local needs, but that merchant risk does not yet satisfy most investors looking for a dependable return on capital. Swell has contracted revenue from SCE and combines it with revenue from the customer, who pays for a bundled suite of clean energy services. That dual-stream model lets Swell bid competitively even when economies of scale work for their competitors.

Swell is not alone in beating the drum for residential storage as a macro grid asset. Rooftop solar leader Sunrun has staked its strategy on doing likewise, and has published research on how home solar and storage portfolios could deal with pressing grid challenges, like California wildfires or the closure of gas plants in L.A.

It's one thing to say contracted capacity from home energy systems can give ratepayers a better deal than a rarely used, 40-year fossil fuel asset. It's another to say that the smallest scale of energy storage can compete effectively with larger battery facilities. Now we have a data point for that argument.

Local communities can be the storage industry’s biggest ally

I've said this before but it bears repeating: Local community movements and the energy storage industry make for powerful natural allies.

From the get-go, activists and elected leaders on the ground in Oxnard spoke out against the gas plant that NRG wanted to insert on the beach for decades to come. They highlighted the sorts of "significant unmitigable environmental effects" that the California Energy Commission cited when it turned down Puente's application.

Conversely, SCE still needed to keep the lights on in Oxnard, and if there hadn't been a viable alternative, the gas plant almost certainly would have overcome concerns about the damage it would inflict.

The activists and the storage industry made a deal possible by bringing different things to the table: the impetus for a cleaner alternative, and the alternative itself, respectively. 

Looking across the U.S., there is no shortage of environmental justice concerns posed by forthcoming or existing fossil plants. The storage industry could expand its market by more proactively convening with community groups to identify needs for emissions-free capacity, then working together through the stakeholder process at the appropriate regulator.

In New Orleans, Entergy is trying to build a new gas plant within a flood-prone section of the city, for the sake of reliability. In New York City, decades-old peakers spew noxious fumes in disadvantaged neighborhoods, and the state has begun work on replacing the worst of them with storage capacity.

Power producers like NRG understand the value of investing dollars in the communities where they hope to build. Storage providers should take a localized approach too; they have the benefit of selling a product that doesn't release pollutants and greenhouse gases in the neighborhood.