NewEnergyNews: ORIGINAL REPORTING: BIG STORAGE PROCUREMENTS LEAVE MORE QUESTIONS THAN ANSWERS

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    Tuesday, January 20, 2015

    ORIGINAL REPORTING: BIG STORAGE PROCUREMENTS LEAVE MORE QUESTIONS THAN ANSWERS

    Big storage procurements leave more questions than answers; If storage is such a good idea, why is SoCal Edison buying so much natural gas?

    Herman K. Trabish, November 13, 2014 (Utility Dive)

    November has been energy storage's month, with big purchase announcements captivating the energy industry and its media. Utility Dive was not alone in past weeks expressing excitement and optimism that two big buys out of California and Texas could mean that storage is ready for the big leagues.

    But might it be too soon to celebrate?

    Oncor’s proposed $5.2 million battery purchase for the Texas grid is greatheadline fodder, but it is far from a done deal and could require storage costing $350 per kilowatt-hour.

    Southern California Edison's (SCE) purchase of five times the storage it was obligated to acquire was similarly eye-catching, but looking deeper into the same procurement tranche raises questions about price and storage's ability to assist in decarbonizing the energy system.

    And while California's IOUs—SCE and PG&E principally—are bullish on solar, the same certainly cannot be said for the state's municipally-owned utilities.

    “It is good news that Edison bought more storage than they were required to,” said Center for Energy Efficiency and Renewable Technologies (CEERT) Executive Director V. John White. “Storage has great value to the power system, especially when it is deployed with other things. But why are they buying so much combined cycle natural gas capacity?”

    The SCE Local Capacity Requirements (LCR) buy of 1,892 megawatts was to replace generation from the shuttered San Onofre Nuclear Generating Station and planned closures of once-through-cooling natural gas plants required by water conservation measures.

    What Southern California Edison bought

    Through a competitive bidding process, SCE acquired 130 megawatts of energy efficiency, 75 megawatts of demand response, 44 megawatts of customer-sited renewables, 261 megawatts of energy storage, 1,284 megawatts of combined cycle natural gas capacity, and 98 megwatts of peaking natural gas capacity. The energy storage purchase represents five times more storage capacity than SCE was obligated to purchase under California law.

    “This is a historic event in the history of the grid. We have definitely reached a turning point, or a no-turning back point!” celebrated California Energy Storage Alliance co-founder Janice Lin. “AB 2514 and the subsequent Petermen decision to require California’s IOUs to procure energy storage required stakeholders—the utilities commission, utilities, industry—to focus on how it can be used on the grid. And guess what? They are.”

    Though not a big chunk of California’s electric power system demand, which can be over 50 gigawatts, the 1.325 gigawatts of energy storage by 2020 mandate is big for the storage industry, Lin said. "It is enough to have utilities learn by doing.”

    “We need to try some things out and see how they work and recalibrate,” White agreed. “We need to show regulators and grid operators that preferred resources—renewables, efficiency, demand response, storage—may be pretty and green but they are also smart and capable of supplying a large fraction of the reliability services the system needs.”

    Nagging questions

    But, White added, “we have heard from the CPUC and CAISO and the utilities that we don’t need base load. Yet SCE is buying combined cycle natural gas capacity, the very thing they said they don’t need. It seems odd.”

    “Because they typically have 20 year to 25 year contracts with a utility, new gas plants create long-term commitments to fossil fuels that interfere with California's ability to rapidly decarbonize its energy system,” Sierra Club Environmental Attorney Matt Vespa noted.

    There has been pressure from the Governor’s office to make sure SCE does not compromise reliability in this procurement, said a California utility industry veteran who asked not to be named. But the fact that AES Energy Storage won so much of the battery storage and so much of the combined cycle capacity raises questions. “Was there some tie-in bid so they (SCE) got a good price?” the source wondered.

    It also raises questions because SCE bought the minimum capacity and maximum amount of natural gas under the LCR parameters, the source added.

    “They did the least they had to do, but used the procurement to obtain a big portion of their mandated storage.”

    On the other hand, the source said, “Edison embraced the storage mandate early and bought stuff that could make a difference, and they bought enough of it to test at scale.”

    The cost of storage and California's public utilities

    The estimated $350 per kilowatt-hour price mentioned for the Oncor proposal from a Brattle Group report is very high, the source said. “Batteries are still out of the money. People talk about the prices coming down but they have a long way to go.”

    “By 2018 the cheapest commercial-scale storage options will run about $244 per installed kilowatt-hour,” according to a report from Energy Strategies Group. If that projection is realized, it would be significantly lower than the report’s estimated $348 per installed kilowatt-hour for natural gas peaker plants.

    That is not the collective conclusion of California’s publicly owned utilities (POUs). While AB 2514 mandated that the state’s IOUs acquire storage, it only required the POUs to assess and report by October 1, 2014. Of 31 reports, 29 rejected storage. Burbank Water and Power found it not fully developed and not cost-effective. Sacramento Municipal Utility District found it “not cost effective at this time.”

    On the other hand, Los Angeles Department of Water and Power announced its own target of 178 megawatts of storage by 2021, Lin said. More importantly, she explained, “the competition is not on price, it is on value.”

    Both peaker gas turbines and stored energy provide peaking capacity but storage can be positioned close to load and so delivered more quickly, Lin said. “And when it is not providing capacity, storage could provide frequency regulation, spin, non-spin, and voltage support, and without emitting greenhouse gases. If it is stored renewables generation, there are no emissions at all.”

    Capacity, not energy

    “We are not selling energy, we are selling capacity,” explained Ice Energy CFO James White, whose unique Ice Bear storage technology was awarded 25.6 megawatts of the SCE procurement. “For the higher penetrations of wind and solar being mandated by renewables and emissions policies, you need storage even if it doesn’t beat the price of gas. The economics are not the driver.”

    Renewables and storage can do whatever gas can do and if the economics are competitive, it will make things go faster, White said. “The CPUC order was that technologies should be selected on a price-competitive basis. That SCE took 261 megawatts when its requirement was 50 megawatts shows the storage market is starting to evolve much more quickly than expected. That will push costs down.”

    “It will be cheaper,” Lin said. “When you have inventory in the system, all the fixed assets can be run a lot more efficiently. And if you use the stored energy to meet the peak, you don’t have to have so much excess capacity that is not used. That is going to be a huge savings. It will also result in a more reliable grid because when you have a little storage you are less at risk to things going bad.”

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