by Julian Spector
September 25, 2020

A year ago, Virginia did not register on the shortlist of interesting storage markets to watch. It didn’t register on the long list either — there simply wasn’t much happening.

That changed suddenly in the spring, when the legislature passed and Governor Ralph Northam signed into law the Virginia Clean Economy Act, which mandates a phaseout of fossil fuels by 2045. The law included an energy storage mandate of 3.1 gigawatts to be installed by 2035, one of the most ambitious targets in the country.

But a storage target is just a number until it finds the market rules to instantiate it. Just look at New Jersey: Gov. Phil Murphy signed a law calling for 600 megawatts by 2021, an ambitious move that would launch the state to the front of the pack for this dynamic, growing industry. But the utility regulator never followed up with the policy to allow storage to happen, resulting in virtually nothing getting built.

In a matter of months, Virginia has done more than New Jersey accomplished in two years: It proposed a set of storage regulations to allow the industry to get started. Now the task is to make sure those rules actually work.

“We have this great target in front of us, but a lot of things need to happen to make things right for the industry,” said David Murray, executive director of regional solar advocacy group MDV-SEIA.

The staff of the State Corporation Commission (SCC) released the draft regulation on September 11 and requested that comments be submitted by November 2. The process is still in its early stages, but it's worth examining for a few reasons.

The target is truly massive relative to the size of current U.S. deployments; if Virginia makes good on its promises, it will become a stronghold of East Coast battery development. That makes this target worthy of interest to developers well beyond Virginia's borders.

Also, it’s rare to see storage policy go from zero to 60 before your eyes. With several early adopters to learn from, Virginia has a chance to model best-in-class storage policy for the states that follow.

The short version

The draft regulation provides a timeline for the two investor-owned utilities to reach the overall goal.

The proposal breaks it down into three interim goals, by which time the utilities must ask for permission to construct or contract for the projects. They don’t have to actually be built and operating by those deadlines.

Dominion Energy will need to hit:

  • 250 MW by the end of 2025
  • Another 950 MW by the end of 2030
  • Another 1,500 MW by the end of 2035

Smaller utility Appalachian Power Company follows the same rubric but with 25, 125 and 250 MW increments.

The utilities must hold at least one competitive storage solicitation per year, starting in 2021.

Most of the development will be led and owned by utilities. But the rules require that 35 percent of the build-out must be carried out by independent developers, which can either sell their projects or contract the capacity. This stipulation, which the clean-energy law called for, carves out modest space for independent development outside the utilities’ orbit.

Then there’s a bit of grid edge policy bingo, based on requests written into the statute.

The utilities must propose behind-the-meter incentive programs, non-wires alternative programs and “peak demand reduction programs related to energy storage.” That last one sounds like it could turn into the kind of “clean peak” policy that was discussed in Arizona and enacted in Massachusetts, and which is sorely needed in California, as evidenced by that state's grid shortages last month. There’s also a procedure for licensing and registering energy storage aggregators.

Lastly, the proposal describes the approval process for battery projects that aren’t owned by utilities, and this is where developers are already raising questions.

The regulation sets a threshold at 100 kilowatts. Below that, a developer simply has to send a letter with basic information about the project to the commission and the local utility. Above that, the developer must either receive a certificate of public convenience and necessity from the SCC or fill out a detailed permit, answering several pages' worth of specific questions and go through a public comment period before it can be approved.

“The order encompasses many of the regulations we proposed to the Virginia State Corporation Commission back in August,” said Dominion energy storage specialist Ricky Elder III, who manages business development for the Regulated Power Generation team. “As such, we are confident that we will be able to deliver energy storage projects for the benefit of our system customers by using the regulations currently proposed by the SCC.”

Too fast or too slow?

According to the proposed timeline, deployments get started in the first five years and accelerate in the next five, but the majority of the target does not have to get moving until 2035. The policy requires annual solicitations, but with deadlines every five years, it’s not clear that those annual events will lead to much construction.

“Annual procurement could be very small without more guidance,” Murray said.

Developers, in general, like to get to work sooner rather than later. Many of them would like to see the timeline shifted up.

The industry is already responding to the Clean Economy Act’s call to action with more than 50 storage projects filed for interconnection in Virginia, said Tyson Utt, Charlottesville-based vice president of development at Apex Clean Energy.

“This market signal indicates that storage is ready to be deployed at a faster rate than the proposed interim targets,” he said in an email.

Then again, the value of storage on the grid will increase as intermittent renewable generation increases its market share. That will take a while, especially for the incipient offshore wind industry. Pushing back the deployment of batteries could allow time for them to become more valuable.

“We are comfortable with the interim targets confirmed by the SCC, which should allow for continued declines in battery storage costs to benefit our system customers in the most effective manner,” Elder said in an email. 

Big scrutiny for small batteries

The draft regulation requires third-party developers to fill out a detailed permit or apply for a certificate of public convenience and necessity for any battery 100 kilowatts or bigger.

For context, that captures the small end of the commercial projects, the kind of thing a modestly sized business might install in a cabinet on its property. It’s conceivable that a Virginia horse ranch seeking backup power could hit that capacity too.

It’s normal for states to scrutinize large-scale electric infrastructure, especially when it is fulfilling a state policy goal, as in Virginia.

But the irony of the SCC imposing this scrutiny on such minuscule projects is that it would be neither convenient nor necessary for the regulator itself. There’s minimal impact on landscape or neighbors from batteries that small. Indeed, Virginia allows a streamlined “permit by rule” for “small” solar projects of 150 MW or less, which is handled by the Department of Environmental Quality. Such projects affect a far broader swath of territory than 100 kW battery packs do.

“This level of scrutiny, if implemented, would slow the development of distributed storage, including aggregations,” said Jason Burwen, vice president of policy at the Energy Storage Association, in an email. “We are unaware of any jurisdiction where 100 kW storage projects require an additional process beyond local permitting and distribution interconnection.”

Safety and reliability are already assessed through other processes, Burwen added, and it is not clear why regulators think another layer of scrutiny is needed.

What will the storage actually do?

The regulations provide very little detail about what role storage is actually going to serve, which is ultimately pretty crucial to ensuring the gigawatts' worth of investment serves a useful purpose.

Dominion is evaluating storage proposals to serve as capacity resources, equivalent to peaker plants, Elder said.

“There is also growing interest in customer-sited storage for resilience, particularly as extreme weather events have proven challenging in various states across the nation in recent years,” Burwen noted.

One way to encourage a diversity of use cases is to break the overall capacity mandate into different categories, Burwen said. For instance, the SCC could ask for a certain amount of transmission-connected storage, distribution-connected storage and behind-the-meter storage.

That kind of breakdown would also lend some structure to the behind-the-meter incentives and aggregation programs the utilities are supposed to create.