FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
The Efficiency Mandate: Storage Goes Mainstream
New business models make energy storage attractive.
To encourage development of energy-storage systems, the Stimulus Bill provides funding that may be used to develop battery technologies, and includes energy storage among the project types eligible for the bill’s $4.5 billion in matching grants. But notwithstanding this new source of money, energy- storage investments remain difficult under current regulatory structures.
A case in point: In 2006, FERC defined the 500- MW Lake Elsinore Advance Pumped Storage (LEAPS) project as an “advanced transmission technolog[y]” under the 2005 Energy Policy Act (EPAct), which directs the commission to encourage such projects. But when the project’s independent developer, Nevada Hydro, sought cost-based rate treatment and incentive tariffs for the project—as provided under EPAct—the California ISO refused, saying it “cannot support treating LEAPS differently than existing, similar generating units.” FERC upheld CAISO’s decision, effectively leaving storage in a state of limbo.
Large pumped-storage projects like LEAPS face a buzz-saw of siting, permitting and licensing requirements. Smaller, distributed storage projects are easier to site, but because their services are difficult to price in the market, they’re almost impossible to finance on a project basis.
“It’s hard to find a long-term bilateral contract for ancillary services,” Cazalet says. He explains that when a utility enters a long-term power-purchase agreement with a generator, the contract typically bundles ancillary services under a tolling contract or some similar arrangement. “Storage is a different animal,” he says. “It has a different mix of services, and there’s no established forward market for those services that would reveal the prices.” Without the ability to secure customers, battery projects can’t obtain debt financing.
Cazalet’s company is trying to overcome that problem by structuring projects and contracts in ways that quantify and apportion the costs and benefits. In some cases this might result in a hybrid partnership, in which a wires company owns the T&D assets while MegaWatt Storage Farms owns the power assets. In other cases, the company will enter bilateral contracts to provide services to a transmission company or load-serving entity. “You can structure a long-term PPA for the suite of services provided by a given storage technology,” Cazalet says. “A 15-year contract for 1,000 MW of distributed storage would look just like 1,000 MW of resources, except it could be dispatched in one second and ramped from -1 GW to +1 GW. No other machine on the grid can do that today.”
The trick is putting a dollar value on those capabilities, and structuring a contract that accurately reflects that value in a given situation. “We’re happy to do it in any way that makes sense for moving the industry forward,” Cazalet says.
One possible solution is being pursued by Ice Energy. The company’s technology faces some practical limitations— i.e., it only works during the cooling season, and its scale is limited by the amount of rooftop AC capacity in a given area. But Ice Energy’s business model suggests a potential path for expanding efficiency investments in the future.
Since 2003, the Windsor, Colo.-based company has been using ice-making machines as an energy storage device. Ice Energy connects refrigerant