On Thursday, October 17, 2013 the California Public Utilities Commission (“CPUC”) unanimously voted in favor of adopting a program that sets energy storage targets for the three-investor owned utilities (“IOUs”), Pacific Gas & Electric Co., Southern California Edison, and San Diego Gas & Electric. Such an action marks the first time that energy storage has been mandated (even as a target) in the United States.
The CPUC issued the initial proposed decision for the Energy Storage Procurement Framework and Design Program on September 3, 2013 and following the period for comment, the five CPUC commissioners unanimously voted to enact the program on October 17, 2013. The decision was issued pursuant to California Assembly Bill 2514, which was signed into law on September 29, 2010 and was aimed, in part, at determining the appropriate target for procuring energy storage systems for each load-serving entity in California. The three main goals of this new CPUC mandated program are to: 1) optimize the electrical grid, which includes reducing peak energy demand and deferring (or avoiding) investment in new fossil-power plants; 2) integrate energy renewable resources like solar and wind power; and 3) reduce greenhouse gas emissions to 80 percent below the 1990 levels by 2050. The CPUC will evaluate the program beginning in 2016 and at least once every three years until 2022 to determine whether the program is meeting the objectives of AB 2514.
The program requires the three IOUs to collectively procure 1,325 megawatts of statewide energy storage capacity by 2020 and further requires that installation of such energy storage systems occur no later than the end of 2024. This mandated target is a considerable increase from the 35 megawatts of currently installed energy storage capacity. The IOUs will be required to install cost-effective storage systems at three “grid domains,” or points of interconnection to the grid: resources connected to the transmission grid, resources connected to the distribution grid, and customer-side behind-the-meter resources. The procurement targets are broken down by the amount of storage capacity that is required to be procured from each of these grid domains. About half of the overall 1,325 megawatt target must come from resources connected to the transmission grid, about one third of the target must come from resources connected to the distribution grid, and the remainder of the target must be met by customer-side resources. Once installed, utilities will be allowed to use energy storage for functions throughout the electric power system, including capacity, ancillary services, and peak shaving. Notably, the decision grants leeway to the utilities, excusing them from meeting the energy storage targets if they are unable to procure viable, cost-effective projects (as determined in the solicitation process below).
To meet their obligations, the utilities must file procurement applications with a proposal for their first energy storage procurement period by March 1. They must then begin to expand their capacity to store electricity by beginning to buy a combined 200 megawatts of energy storage technology by 2014, which may range from batteries to thermal storage. Generally, all mechanical, chemical, or thermal energy storage resources, as defined in California Public Utilities Code Section 2835(a), are eligible to be considered for the IOUs’ procurement targets, with the exception of large scale pumped hydro storage projects of more than 50 megawatts (but the CPUC is expected to further explore the operational characteristics and uses of such projects). In order to be eligible to count toward the targets, a storage project must first demonstrate that it meets at least one of the goals of AB 2514: grid optimization, integration of renewable energy, or reduction of greenhouse gas emissions.
Under the program, projects will be secured through a competitive solicitation process whereby the IOUs will submit request for offer proposals to the CPUC outlining their solicitation methodologies, including a least-cost, best-fit bid evaluation methodology developed by the IOUs in conjunction with the CPUC. After bidding and approval by the CPUC, contracts for projects must be negotiated within one year and then must be operational within four years. If after using this least-cost, best-fit bid evaluation the utilities determine they cannot procure viable, cost-effective projects, they will be excused from meeting the targets (making this program more flexible than the current renewable portfolio standards requirements). Compliance with the program’s targets is estimated to total $3 billion in procurement of eligible energy storage projects. A project will not count toward the procurement target until it has been operational for a year.
This new program does not only pertain to the IOUs, but also to community choice aggregators and electric service providers. These providers must procure energy storage equal to one percent of their yearly 2020 peak load by 2020, with installation no later than 2024. They must also make a filing showing their compliance to meet the targets and describing their approach for cost-effective projects by January 2016.
The first storage facilities could come on line as early as 2015. This comes at a time when the state is looking for replacement power in the wake of the San Onofre Nuclear Generating Station shut down this past June. The decision provides for the evolution of the electrical grid and the growth of the energy storage industry.
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