Policy Session on the Future
Anastasia Palivos is an Acting Commissioner of the Illinois Commerce Commission. Emily Brumit and Ritta Merza are legal and policy advisors at the ICC.
On June 27, 2018, Acting Commissioner Anastasia Palivos hosted a policy session on the future of energy storage at the Illinois Commerce Commission in Chicago. This article aims to examine the benefits of and barriers to widespread energy-storage deployment, and the legal and regulatory framework required for this endeavor.
As we work toward a more resilient and reliable electric grid, it becomes increasingly important to understand the value of energy storage and its impact on generation, transmission, and distribution of electricity.
Energy storage is not a new concept. However, in 2017, the International Finance Corporation predicted that energy storage deployments in emerging markets worldwide are expected to grow over forty-percent annually in the next decade. This growth could add close to eighty gigawatts of new storage capacity to the estimated two gigawatts existing today.
The anticipated increase in storage deployment is largely due to the emergence of electric generation from intermittent resources such as wind, solar, and other distributed-energy resources. The influx of DERs, coupled with the desire for a more stable electric grid, has highlighted a need for more efficient ways to store energy.
Indeed, intermittent renewables require new methods for planning the daily operations of the electric grid, and there is widespread apprehension concerning the ability to rely solely on these technologies. If renewables have a chance at someday replacing fossil fuels and other non-renewable energy, it is imperative that they are distributed evenly and consistently across the electric grid.
Increased energy storage has many benefits. For example, it has the ability to regulate grid frequency, defer transmission and distribution upgrades, and integrate variable distributed generation. These are just some of the game-changing characteristics that make energy storage an asset to the grid.
Overview of Energy Storage
Energy storage, primarily in the form of conventional and pumped hydropower, has been utilized for many years. Until recently, however, energy storage did not meet the cost-effective standards to be implemented on a utility scale.
Due to recent technological advancements, energy storage is being increasingly viewed as a practical addition to grid modernization. Flywheels and advanced batteries have the ability to provide instantaneous support to the grid through frequency response, voltage regulation, and electricity balancing. Pumped hydropower is a cost-efficient solution with a relatively high efficiency rate but is dependent upon available siting.
These advantages have contributed to the new idea of energy storage as an asset to the grid.
Despite these developments, energy storage is not a one-size-fits-all solution. In order to determine the most efficient use of energy storage, it is important to determine whether energy storage is intended to serve functions such as balancing supply and demand, regulating grid frequency, or merely absorbing excess electricity.
For example, flywheel technology, which stores kinetic energy by spinning a rotator at high speeds, has up to ninety-five percent efficiency. This makes it one of the higher efficiency storage technologies. The downside to flywheel storage is its limited size due to its material strength and rotator speed.
Additionally, the location of where energy storage is intended to be deployed must be considered. While history has proven pumped-hydropower's reliability, it can only be utilized where two bodies of water are at different levels of elevation.
While there are a variety of energy-storage technologies, the most popular technology to-date is battery storage, specifically lithium ion, or li-ion, batteries. This is partially due to its versatility and the increased popularity of electric vehicles and rooftop solar panels. As such, this article will primarily focus on battery storage.
Benefits of Energy Storage
The most cost-effective benefits of energy storage include the following functionalities: regulate grid frequency; energy time shift; defer transmission and distribution upgrades for peak-load growth; integration of variable-distributed generation; and N-1 transmission congestion relief.
Energy storage, distinct from other generation, has the ability to not only act as a supply resource (such as when discharging and injecting power), or as a load asset (such as when charging and storing), but also as a tool to aid the transmission and distribution systems to more efficiently utilize the energy already produced.
Electricity frequency refers to the continuous adjustment of power flow in an electric-power grid. If there is an excess in electricity on the grid, frequency regulation is ramped down. Conversely, if demand exceeds electricity supply, frequency regulation is ramped back up. The U.S. electric grid operates at sixty hertz and can vary in a narrow range. A deviation from standard grid frequency can cause a grid blackout.
Frequency regulation is mainly provided by ramping generation assets up or down, based on the increase or decrease of supply and demand. This process generally occurs in a matter of minutes. For example, if an inclement weather crisis or power plant failure causes a gap between power generation and demand on the grid, and a drop in energy consumption occurs, the grid frequency changes.
As opposed to a conventional power plant, an energy-storage system could ramp up frequency to maintain balance in any interconnected grid in a matter of milliseconds. In the United States, electricity must be balanced always, making it arguably the most unique commodity.
As Nitzan Goldberger of the Energy Storage Association explained at the ICC Policy Session, oil, gasoline, water, and food all have an inventory of supply for about ten days. This takes into account extreme weather conditions and other shocks to the electric grid.
The implementation of energy storage allows us to rethink our electric grid, and how to best utilize excess inventory to address the balance of supply and demand. Frequency regulation is one of the best tools for increasing grid stability.
Energy Time Shift
Energy time shift is the ability of a utility scale or residential battery to absorb energy during off-peak hours and deploy the stored energy during peak demand hours, or at any time of the day. Absorbing energy during off-peak hours, at a lower price, and then utilizing that energy during peak demand hours, can save money for consumers. This becomes especially beneficial when customers or utilities use energy-storage technologies that are inexpensive to operate and highly efficient.
If energy-storage deployment increases in interconnected portions of the grid, this buy-low, sell-high pattern could, over time, level out overall peak-demand hours. With high penetration of solar-power generation, this takes the form of charge midday and discharge early evening so that the solar energy production is shifted to the time of greatest demand when solar energy is falling off or absent.
Transmission and Distribution Deferral
Energy storage can also be utilized in the deployment stage by deferring transmission and distribution upgrades for peak-load growth. This is possible due to the ability of energy storage to shift electricity demand on the grid.
As energy storage lightens the peak-demand load, it reduces the need for peaker plants, which in the short-term saves customers from higher energy prices. Additionally, as energy storage is easily paired with other DERs, it alleviates the need for utilities to build and upgrade additional energy facilities and infrastructure in the long-term.
Transmission N-1 Congestion Relief
Energy storage can also serve as a transmission asset for congestion relief. Transmission congestion occurs when there is a shortage of transmission capacity to supply a waiting market. If congestion occurs in a competitive market, there is a risk of market manipulation by utilities that control transmission services.
However, U.S. energy markets employ locational marginal pricing to reflect the marginal cost of off-dispatch generation to avoid contingency overloads on the transmission system. Regulatory entities can also ensure that increases in congestion-related energy costs reasonably reflect the extra costs incurred in alleviating the issue.
Given its ability to respond near-instantaneously, energy storage can be used as an alternative, due to its ability to relieve this congestion and reduce wholesale energy prices in congested parts of the system, usually in urban areas.
Integration of Variable-Distributed Generation
Energy storage can facilitate the integration of variable-distributed generation. For instance, it can help mitigate some of the impacts caused by solar-distributed generation, such as voltage increases and voltage fluctuations, and effectively increase the hosting capacity of distribution systems (such as the amount of distributed generation that can be interconnected to a distribution circuit, substation, or overall system).
Moreover, energy storage can enable the utilization of variable-distributed generation to improve the reliability and resiliency of distribution systems. For instance, this can be accomplished through the implementation of single-customer and community microgrids consisting of energy storage and solar-distributed generation.
These assets may be located behind-the-meter (such as a single-customer microgrid) or in-front-of-the-meter (such as community microgrids). When a fault occurs in the distribution grid that causes a service interruption, these energy-storage-enabled microgrids can operate temporarily as an electrical island and provide service to the customers located within its boundaries.
This type of operation reduces the number of affected customers and improves the reliability and resiliency of the grid. To function properly, this type of storage operation requires modern monitoring, protection, automation, and control technologies.
One of the main benefits of deploying energy storage is its potential to have a positive effect on the environment, although the effect ultimately will depend on how energy storage is used.
Energy storage, alone, does not produce green energy. As Illinoisans still heavily rely on nuclear energy, the electricity stored in energy-storage systems still comes from non-renewable resources.
Despite this fact, Illinoisans will still reap indirect environmental benefits because, through the deployment of energy storage, less generating capacity will be required if storage is utilized during periods of peak demand.
Furthermore, many renewable-energy resources are dependent on external variables. For instance, solar energy can only be produced when the sun shines and wind energy when the wind blows. As such, energy storage can play a key role in making renewable resources more reliable.
Nevertheless, it is a reality that energy storage may only maintain the status quo if used to store energy produced from fossil fuels. Moreover, batteries that use raw materials, like lithium or lead, can present environmental hazards if they are not disposed of properly.
Another issue involves the disposal of battery shells; as the deployment of energy-storage systems increases, it will become even more important to develop methods to dispose of batteries in an environmentally safe way.
Also noteworthy is that most energy-storage systems are less than a hundred-percent efficient.
Some energy is usually lost during the charge-discharge process. This means, when energy is stored in a battery during low-cost periods, less than a hundred percent of that energy is later discharged back onto the grid.
Consequently, more energy production is required to make up for the loss. This becomes a problem when relying solely on fossil-fuel energy, as opposed to renewable energy, because it would increase carbon emissions.
Barriers to Deployment: Value, Competition, and Access
The slow development of distributed-energy storage is due to three key barriers: the inability to capture its value; the inability to compete in grid planning and procurement; and equal and fair access to the grid and electricity markets.
When considering value as it relates to energy storage, it can be thought of in two steps: assigning a value, or a dollar amount, to the individual functions, or benefits, provided by energy storage; and designing a valuation model that accurately includes those assets in a cost-benefit analysis for varying electric providers, locations, and points-in-time.
Once valuation is complete and a cost-benefit analysis shows that energy storage is a positive addition to a state's renewable portfolio, then procurement targets can be set.
Quantifying the value of energy storage is almost impossible unless it can first be categorized, and its functions clearly defined. The trouble with this is that energy storage can serve a multitude of functions, and there are both opportunities and limitations related to which functions a device can contemporaneously serve.
As stated above, energy storage can contribute to frequency regulation and grid flexibility, providing firm capacity to non-firm renewable projects such as solar and wind, transmission and distribution deferral, and myriad environmental benefits. However, these services are valued differently for different electric providers in different areas of the country. As such, creating an overarching value for energy storage is rather difficult.
There are ways to create a more valuable energy-storage system, such as co-locating it with a wind or solar project. Co-located systems create more value, lessening the footprint of the solar or wind project, thus leading to a more sustainable system.
Co-location also increases the value of energy storage by adding system flexibility, multiple price structure options, and other revenue possibilities like energy arbitrage, spinning reserves, frequency regulation, and voltage support.
Financial incentives are also available for co-located projects in the form of rebates, grants, and various tax incentives. Financial incentives can provide a bridge to scalable deployment for energy storage.
For example, customers who install energy storage on a commercial property are eligible for a credit under the investment tax credit as long as the battery is co-located with a renewable energy system, such as wind or solar, more than seventy-five percent of the time.
To claim the full investment tax credit value, the battery needs to be charged by renewable energy a hundred percent of the time. Otherwise, the credit is based on the portion of renewable energy it receives.
A major barrier to widespread energy-storage deployment is that it has not historically been included in integrated-resources plans, which are typically public-planning processes and frameworks within which the costs and benefits of both demand- and supply-side resources are evaluated to develop the least-total-cost mix of utility-resource options.
Energy storage has also not been included in renewable-portfolio standards, which are state regulations requiring retail electric suppliers to supply a minimum amount of retail load with renewable energy. Lastly, it is also not considered a DER.
While DERs like wind, solar, and nuclear have long been included in integrated-resource plans, energy storage has only recently appeared on the radar of most states looking to balance peak demand using renewable energy.
According to the Lawrence Berkeley National Laboratory 2016 Annual Report on U.S. Renewable Portfolio Standards, RPS policies collectively apply to fifty-five percent of total U.S. retail electricity sales.
Additionally, more than half of all growth since 2002 in renewable electricity generation (sixty percent) and capacity (fifty-seven percent) is associated with state RPS requirements. States that include energy storage in their integrated-resource plans include Washington, New Mexico, California, Arizona, and Hawaii.
A third barrier to energy-storage deployment is access to interconnect to the electric grid, and most panelists at the ICC Policy Session agreed that this could be a detrimental barrier to widespread storage adoption.
Indeed, Illinois does not have rules or regulations that explicitly pertain to energy-storage deployment. The state's most recently enacted energy legislation, the Future Energy Jobs Act, known as FEJA, also does not address energy storage.
In order to overcome this barrier, Ms. Goldberger recommended updating interconnection rules and regulations to ensure fair, streamlined, and cost-effective access to storage. Because battery storage serves on both the generation and distribution side, it is also important to update the rules on metering, telemetry, and accounting.
This would ultimately allow customer-sided storage to provide retail and wholesale services and allow consumers to take advantage of all the potential services energy storage is able to provide. States with updated interconnection rules include California, Hawaii, Nevada, Colorado, and New York.
Energy Storage Can Create Value in Illinois
Two Illinois utilities, Ameren Illinois Company and Commonwealth Edison Company, are making strides to evaluate and begin utilizing energy storage. To develop smarter energy infrastructure, Ameren is not only investing in a new microgrid, which operates when connected to a larger electrical grid but does not depend solely on it for electricity because it also draws on DERs but is also adding new equipment and technology to reduce outages and improve power reliability.
Ameren's grid modernization initiatives have resulted in an overall seventeen-percent increase in reliability and saved customers an estimated forty-five million dollars each year.
Illinois' largest utility, ComEd, is currently working with Lockheed Martin to supply a GridStar Lithium energy storage system for the creation of a microgrid. In February, the ICC approved ComEd's twenty-five-million-dollar plan to create a microgrid in the Bronzeville neighborhood of Chicago.
This particular project will involve solar panels that will provide renewable energy to the microgrid. ComEd's pilot program will be the first utility-operated microgrid in the country. It will demonstrate whether power-distribution networks can improve reliability by using more renewable energy.
ComEd is also actively studying the ability of energy storage, utilizing a twenty-five-kilowatt-hour lithium-ion battery from Chicago-based S&C Electric Company, to reduce outage frequency and duration through its Community Energy Storage pilot in Beecher, Illinois.
These developments are made possible by the 2011 Energy Infrastructure Modernization Act, or the Smart Grid Bill, one of only two energy-related pieces of legislation passed in Illinois in the last decade.
Part II: Legislation, Regulation, and Financial Incentives
According to GTM Research and the Energy Storage Association's newly released U.S. Energy Storage Monitor 2017 Year in Review, the U.S. market is expected to almost double in 2018 the one thousand and eighty cumulative megawatt-hours of grid-connected energy storage that was deployed between 2013 and 2017, with more than a thousand megawatt-hours of energy storage forecasted to be deployed this year. Despite this deployment projection, the regulation of energy storage is relatively new in the United States.
As previously mentioned, energy storage was developed and deployed over a century ago and has operated in a centralized manner in the form of fossil fuels, nuclear, and hydropower. However, the capital costs of deploying energy-storage systems throughout the grid have historically been very high. Today, energy-storage technology is developing rapidly, and grid resiliency is a primary concern, bringing energy storage to the forefront of the grid-evolution discussion.
Most recently, FERC passed Order 841, which may encourage energy-storage deployment in the wholesale market. Prior to FERC Order 841, energy storage was only considered a distribution asset.
FERC Order 841 now allows utilities to categorize energy storage as generation. This reduces the barriers for electric-storage resources to participate in the capacity, energy, and ancillary services markets operated by regional transmission organizations and independent system operators, and also allows energy-storage devices to be aggregated to participate.
Furthermore, few states have developed regulations and legislation to track and effectively utilize energy storage. For example, while Illinois is piloting energy-storage systems through utilities like Ameren and ComEd, energy storage is not included in the state's RPS, and there is no separate energy-storage procurement target or government or utility-backed financial incentives to support energy-storage systems.
Indeed, Elizabeth McErlean, an energy attorney for McGuireWoods LLP, explained that, "While the enactment of FEJA strengthened the state's renewable portfolio standard by increasing renewable-energy-resources-procurement targets and also expanded energy efficiency by increasing savings goals, the law does not include similar targets or goals for the deployment of energy-storage resources.
Nevertheless, FEJA placed Illinois in a first-mover position in clean-energy policy, and because energy storage can be used as a platform for integrating distributed-energy resources onto the electric grid, FEJA does not appear to limit the ability to deploy energy-storage devices."
Other states, namely California, Nevada, Massachusetts, Oregon, and Maryland, have recently incentivized energy storage via legislation. Both California and Oregon have procurement targets that must be met by 2020.
Nevada and Massachusetts plan to study the necessity for energy storage and, if prudent, develop targets by 2020. Maryland chose a different route and is the first state to offer an energy-storage tax credit.
California's target is the most aggressive. AB-2514, set forth in the 2010 legislation, mandates the state's three investor-owned utilities to procure 1.3 gigawatts of energy-storage capacity by 2020, fifty percent of which can be utility-owned.
A second bill, AB-2868, was signed into law in 2016, and requires each IOU to file applications for the deployment of an additional hundred and sixty-six megawatts of behind-the-meter and/or distributed-energy-storage capacity, for a total of five-hundred megawatts of energy storage.
In 2017, the California PUC approved a financial incentive for energy storage, which provides rebates to support DERs interconnected behind the customer's meter.
This increased the budget for the Self-Generation Incentive Program (SGIP), by designating an additional one hundred and sixty-six million dollars from the state's annual budget for storage and other technologies through 2020. Eighty-five percent of the funding is allocated for energy storage incentives, while the remaining fifteen percent is for renewable-generation projects.
Oregon followed in 2016 by passing HB 2193. Under this legislation, the Oregon PUC issued guidelines under the 2015 enacted HB-2193, which required Portland General Electric and PacifiCorp to each have a minimum of five megawatt-hours of energy storage in service by January 2020.
While Nevada does not yet have an energy-storage procurement target and is in the process of a cost-benefit analysis to determine such target, the legislature did pass SB-145, which mandates Nevada's PUC to establish energy-storage incentives under the Solar Energy Systems Incentives Program. Unlike other states' legislation, the bill groups storage devices in the same category as solar, wind, and geothermal, on the basis that they all deliver energy.
Maryland is unique in its decision to incentivize energy storage not by mandate or procurement target, but with a tax credit, from a total budget of seven-hundred and fifty-thousand dollars. The state is offering a thirty-percent tax credit for energy-storage systems, with a cap at five-thousand dollars for residential and seventy-five thousand dollars for commercial systems. The credit can be applied to new systems until December 31, 2022, and is issued on a first-come, first-serve basis.
An alternative to enacting legislation or offering monetary incentives, is to propose an energy storage rulemaking. Early this year, the PUC of Texas dismissed a request by one of its utilities to install battery storage units as an alternative to a traditional distribution system expansion.
The Texas utility was essentially attempting to earn a capital expense on its energy storage installation reasoning that the system constituted a distribution-system asset. However, the PUCT dismissed the request due to limited information and instead chose to initiate a rulemaking.
The purpose of the rulemaking is to obtain more information regarding energy-storage deployment within the grid to establish a regulatory framework that is appropriate to Texas' deregulated energy market.
Besides allowing the PUCT to obtain more information on the different functions and values of energy-storage deployment, this rulemaking would also consider whether energy storage falls within the purview of the Texas Public Utility Regulatory Act.
Accordingly, Texas' approach is one that could be implemented in Illinois if it determines to initiate processes to learn more about energy storage. Indeed, Texas and Illinois both have deregulated energy markets and thus the different functions of energy storage require further understanding to optimally integrate energy storage into the grid.
Next Steps for Illinois and Role of ICC
As Ms. McErlean pointed out, “Under the existing legal and regulatory framework, the ICC can use its discretion to hold investigations, inquiries, and hearings to learn about the value of energy-storage resources. Additionally, the ICC has broad regulatory authority over electric utilities’ delivery services, and thus over energy storage if used to support the transmission and distribution functions of the electric grid.”
So, how can Illinois continue the energy-storage conversation? Panelists at the ICC Policy Session agreed on various considerations. First and foremost, a cost-benefit analysis is the most important step in deciding whether to set procurement targets. This process includes moving past major barriers such as value, competition and access.
In leading a cost-benefit analysis, the ICC should seek answers to the following questions: Which functionalities of energy storage would be most useful in Illinois? Who could these functionalities benefit? Of these functionalities, which has the highest value? Legally, what would the relationship among utilities, customers, and energy storage look like? Under what conditions is energy storage appropriate for rate base?
As panelists agreed, the state and utilities should also ensure that any energy-storage projects will complement and enhance FEJA, take full advantage of microgrid projects, and explore different use cases such as frequency regulation, energy-time shift, T&D deferral, and reducing carbon emissions.
Developing robust information sharing to understand potential customer usage, using a method that protects customer data, is also an important step in developing a cost-benefit analysis.
Once the above questions are thoroughly considered and a cost-benefit analysis proves the value of energy storage to Illinois utilities and customers, the state could then pursue procurement policies. Incentives and procurement targets are the fastest way to attract investment and enable real-world learning that will maximize benefits going forward.
While energy storage has become a hot topic across the nation and is being implemented in a handful of states, Illinois has only recently begun the conversation. Illinois’ involvement is giving the state an opportunity to learn from the technology and the various regulatory models across the country.
The ICC’s June 27 Policy Session: The Future of Energy Storage, facilitated a conversation among the experts to educate the public on the benefits, barriers, and future of energy storage.
As the technology continues to develop and grow into a potential asset to our electric grid, it becomes increasingly important to tackle issues such as, determining the value of energy storage, maintaining competition within the market, and providing easier access for energy storage to the Illinois grid.