Navigant Research Blog

Can Colorado Become the Next Big Energy Storage Market?

— March 29, 2018

Having covered the energy storage industry for several years it’s exciting to see my home state, Colorado, making headlines. Aside from a handful of older pumped hydro plants, the storage industry is nascent in Colorado due to a combination of cheap electricity, relatively low demand charges, and little regulatory support. The state has emerged as an attractive market for both wind and solar generation projects, and energy storage has entered the state’s energy planning in a big way. State-level policies and new storage projects are shaking up the market at all levels.

Policies Supporting Growth

Colorado’s first energy storage-specific legislation likely will go into effect this year thanks to Governor John Hickenlooper signing SB 18-009 into law. The bill concludes that customers have a right to interconnect and use batteries without restrictions. The uptake of residential energy storage has been slow in Colorado, partially due to the relatively high permitting and interconnections costs charged by utilities. The bill aims to reduce these barriers and allow customers to benefit from the resiliency and cost savings that can be provided by residential storage.

New Projects and Procurements Highlight Colorado’s Potential

While the prospects for residential storage are improving in the state, recently announced projects have shown that utility-scale energy storage is already viable. In late 2017, northern Colorado utility cooperative United Power announced it will build and own a 4 MW/16 MWh battery energy storage system. What’s unique about this project is the utility’s plan to share the benefits with its customers through an innovative community energy storage program. Commercial and industrial customers can buy into the project for a certain number of kilowatts, and have their peak demand and associated charges be reduced by that amount. For the utility, the real value lies in reducing its overall peak demand, and the charges it pays to the regional wholesale supplier. United Power estimates that its investment can be fully repaid in 7-8 years with a 10% return.

The most noteworthy and well-publicized development in Colorado’s storage market was the announcement from the state’s largest power provider, Xcel Energy, that it received record-breaking low bids for new solar, wind, and storage capacity. Through its all-source solicitation, Xcel received bids for projects offering some of the lowest prices ever seen for wind, wind plus storage, solar, solar plus storage, and all three resources combined in a single project. The following table shows the total bids and median prices received.

Xcel Energy 2017 All-Source Solicitation Bid Summary, Renewables and Energy Storage

(Source: Xcel Energy)

These record low prices highlight the growing maturity of combined renewables plus storage projects, and the relatively low cost to add storage to wind or solar projects as system integration expertise has improved. Although the specific proposed projects and the companies bidding have been kept confidential, the details provided by Xcel list standalone battery storage projects up to 150 MW capacity with a duration of 10 hours. These projects included a rumored bid by Tesla for a 75 MW/300 MWh battery plant—which would be its largest. This wave of recent action on policies and new projects has put Colorado on the map as one of the most attractive states for new storage developments.


FERC’s New Storage Order Signals Focus on Flexibility and Resource Diversity to Improve Resiliency

— February 27, 2018

After over 1 year of speculation and uncertainty, one of the most significant regulatory developments in the energy storage industry was announced last week by the US Federal Energy Regulatory Commission (FERC). In Order 841, FERC aims to remove barriers to the participation of energy storage resources in capacity, energy, and ancillary service markets operated by the country’s regional transmission organizations (RTOs) and independent system operators (ISOs).

With this order, FERC has affirmed its agreement with much of the industry that improving the resiliency of the power grid will come from maximizing its ability to rapidly respond to changing conditions utilizing a diverse range of flexible and increasingly distributed resources. Order 841 directs RTOs and ISOs to devise new tariffs and market structures for energy storage participation.

Five Key Requirements of the Order and Likely Implications

  • Storage must be “eligible to provide all capacity, energy, and ancillary services that it is technically capable of providing.” This requirement makes clear that FERC will require technology agnostic markets without restrictions on what systems can provide which services.
  • Storage “can be dispatched and can set wholesale market clearing prices as both a wholesale seller and wholesale buyer consistent with rules that govern the conditions under which resource can set wholesale prices.” Again, FERC clarifies that equal treatment for storage alongside other technologies must occur.
  • Market structures must “account for the physical and operational characteristics of electric storage resources through bidding parameters and other means.” FERC sets the stage for storage to be considered as a unique resource that may require restrictions or market mechanisms to address its limited duration and operating parameters.
  • The “sale of electric energy from the RTO or ISO market to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price” clarifies a long-standing issue in the industry. When charging for discharge, energy storage systems will not be required to purchase energy when charging at retail rates, and the value of storage will be determined based on local power market prices. The issue of how energy storage system auxiliary power is charged will remain up to the RTO/ISOs, which could affect storage with high thermal cooling loads.
  • The minimum size threshold for the market participation of an energy storage system is 100 kW, which is a major win for distributed energy storage systems that now have clarity to provide services at the wholesale level. The minimum size threshold does not distinguish between front-of-the-meter/customer-sited, or behind-the-meter storage. While behind-the-meter energy storage needs to have capacity injection rights to be compliant with the order, the minimum size threshold appears to be a positive development for distributed energy storage on both sides of the meter.

Who Has the Final Say?

The country’s ISOs and RTOs now have 9 months to file new tariffs, and another year to fully implement the new rules. However, some specifics are left to the interpretation of each system operator, such as pricing for services, and the scheduling requirements for storage systems looking to provide ancillary services alongside other services. Perhaps the most significant effect of this ruling is the FERC’s recognition of the tremendous value that energy storage can provide to the grid to improve resiliency, efficiency, and serve as a driver of innovation in the industry. As the new ruling is implemented, a key effect will be providing greater clarity on the opportunities for new projects to generate revenue through various, well-defined grid services and associated revenue streams.


Is Mobility Key to Unlocking the Maximum Value of Energy Storage?

— December 27, 2017

The ability of distributed energy resources, including energy storage systems (ESSs), to defer investments in new transmission and distribution (T&D) infrastructure has emerged as one of the most attractive uses of the technology. Navigant Research has covered this topic in recent reports, including Energy Storage for Transmission and Distribution Deferral and Non-Wires Alternatives. In some cases, ESSs and other technologies can be used to entirely avoid the need for infrastructure upgrades, though these situations are rare. Most energy storage projects providing these services are designed to defer infrastructure upgrades for a period of 3-6 years on average. A deferral period of this length typically results in costlier T&D projects being profitably deferred with energy storage.

ESS vendors have worked for years to develop mobile storage technologies with the aim of overcoming this barrier and opening a much larger addressable market for potential T&D deferrals. While an ESS project may only defer T&D investments for 3 years, the storage system itself will last much longer. In theory, moving an ESS from one location to another every few years will allow for numerous T&D projects to be deferred and will maximize the value of a single storage system. The challenge with this concept has traditionally been designing a hardware platform capable of being moved from one location to another with relatively low costs, while not damaging sensitive batteries and power electronics. The maturation of the storage industry over the past few years has resulted in new designs for mobile ESSs that can be efficiently moved from site to site.

ESS Solution Product Testing

Con Edison in New York was one of the first utilities in the US to launch a project testing mobile ESS solutions. The mobile systems for this pilot project are designed to optimize existing T&D assets, defer investments and upgrades, and support the grid during emergencies or in response to unanticipated events. When not needed by the utility, the ESSs will be located at the Astoria generation plant, owned by project partner NRG Energy. At this facility, the systems can participate in the New York Independent System Operator (NYISO) markets for frequency regulation, operating reserves, and day-ahead or real-time capacity.

Con Edison and NRG Deployable Storage Asset      

Source: Consolidated Edison

The concept of mobile energy storage is quickly gaining traction in the industry. New Jersey-based startup Power Edison has developed integrated ESS products designed from the ground up for mobility, which it claims can significantly lower the cost of transportable storage. The company’s products come preconfigured in shipping containers, with power ratings from a few tens of kilowatts to several megawatts. The systems are specifically engineered to handle vibrations, changing environmental conditions, and other disruptions due to transportation with a custom-built trailer that can protect sensitive hardware components and not void vendor warranties.

ESS Solutions Add Value

A growing number of utilities have expressed interest in these innovative ESS solutions; however, questions remain around the true cost to move systems from one location to another and the potential effects to system hardware. The upfront costs for mobile ESSs are typically much higher than a standard stationary system due to the need for custom-built enclosures, battery mounting hardware, and trailers. Despite these challenges, mobile ESSs present a major opportunity to enhance the value and flexibility of energy storage on the grid.


Energy Storage Association Offers a Call to Action for New Policy

— December 14, 2017

In collaboration with Navigant Research, the Energy Storage Association (ESA) recently published its latest white paper, 35×25: A Vision for Energy Storage, analyzing the evolving needs of the electric grid and the market drivers powering rapid energy storage industry growth. The study introduces the current state of the industry along with a vision where widespread storage deployments result in major economic, environmental, and social benefits.

Key to the paper’s findings is a call to action section outlining policies and programs being implemented around the country to support the growth of the industry. Over the coming years, changes in both government and regulatory policies will have a substantial effect on how the market develops and at what scale. Players in the market should ensure they fully understand the changes that may be coming and how they will shape future opportunities.

ESA’s call to action highlights considerations and actions for both legislators and industry regulators that seek to capitalize on the multitude of benefits provided by energy storage. For legislators, there are four primary categories of initiatives being explored that offer both direct and indirect support as follows:

  • Energy storage impact studies: A strong understanding of the benefits of energy storage is a great first step, allowing local stakeholders to quantify the impacts of storage deployments, such as upfront and ongoing expenses, grid operating cost savings, improved reliability, emissions reductions, and job creation. 
  • Procurement targets or mandates: Multiple states have implemented targets that serve to clarify long-term policy objectives for the industry, spurring action from utilities and providing operational experience for stakeholders. 
  • Incentive programs: Including subsidies, grants, and tax credits, which lower the costs for new storage projects to accelerate market growth and establish a sustainable local industry. 
  • Clean energy standards: A clean energy standard, or clean portfolio standard, is similar to a renewable portfolio standard; however, it often has a broader focus. States including Connecticut and Vermont have implemented standards to ensure storage is compared side-by-side with other resources in planning processes and require electricity providers to implement new technologies.

Many of the legislative actions taken to support energy storage, such as subsidies and procurement mandates, have received significant media attention. However, in many cases, the local regulators have more influence over a market’s growth. Out of an obligation to protect ratepayers and oversee utility investments, regulators must work collaboratively with all stakeholder groups to facilitate constructive dialogue around the deployment and integration of storage systems. ESA’s white paper outlines steps that can be taken by regulators as follows:

  • Clear rules regarding storage: Do current regulations adequately account for energy storage participation? If not, work with utilities, industry participants, and research organizations to better define participation methods and strategies for new technologies.
  • Updated modeling in proceedings: Many of the modeling tools used in integrated resource planning proceedings today lack sufficient granularity and an evaluation methodology that properly incorporates energy storage. For example, models for storage should assess the effect of deployments at specific locations and over sub-hourly time intervals.
  • Streamlined interconnection standards: Despite efforts, current interconnection procedures often pose a significant barrier to new entrants. Streamlining interconnection processes is critical to enable grid modernization.
  • The effects of rate design: New rate structures that accurately reflect the locational and time-based costs and benefits of integrating distributed energy resources, including energy storage, should be explored.

At this stage, it is critical that industry participants with in-depth knowledge on the true costs and benefits of energy storage technologies participate in policy development to ensure a level playing field is created. Along with greater detail on the policy initiatives listed above, ESA’s white paper quantifies the diverse benefits of energy storage and how this disruptive technology can transform the electricity industry.


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