Technology Advancements Alone Won’t Bring Energy Storage to Market – Regulatory Reform is Equally Important
If one takes a look at news articles regarding advancements in technology in almost any sector of the economy, a common theme emerges: perfecting the technology is merely the first step in actually being able to offer the benefits of that technology to the broader market. The process of obtaining the appropriate regulatory approvals is often as arduous of a path, particularly where technologies are truly groundbreaking and disrupt common notions of how the marketplace in question is regulated. The newly realized potential of cost-effective distributed energy storage brings this issue into particular relief in the electricity sector.
It is widely recognized that distributed energy storage can offer a host of benefits to utilities, storage customers and ratepayers. It is particularly true that energy storage has enormous potential to ease the integration of high levels of renewable energy onto the electric grid. However, as it stands today, the regulatory and market policies in the electricity sector are not yet positioned to enable energy storage developers and customers to deploy the technology in a manner that ensures access to the full range of benefits it can offer.
Take for example the current discussion in California regarding how the state’s interconnection procedures apply to energy storage. At a basic level, the procedures are probably adequate to enable utilities to safely interconnect energy storage projects. But the procedures apply simple notions of traditional generators to these projects without taking into account the technological advances in inverters and energy control devices that could simplify the review of energy storage projects. In addition, energy storage is disruptive in that it is not simply acting as a generator – it also functions as load.
In most if not all states, the processes for reviewing and assigning costs associated with new generation are entirely separate from the processes for reviewing and assigning costs associated with new load. Namely, most distribution upgrade costs associated with accommodating new customer load on a utility’s system are not assigned directly to a single customer and are instead paid for in the aggregate through distribution rates on a customer’s bill.
Distribution upgrade costs associated with accommodating new generation, on the other hand, are paid for under a cost-causer principle and usually assigned directly to the generator that first triggers the need for an upgrade. Thus, California is currently faced with the question about whether to combine this review process, and if so, how to assign the costs of any upgrades that are attributed to the loading function of energy storage.
This interconnection issue is just one of the many dilemmas currently facing energy storage developers as they begin to see increased customer interest in their technology. A number of recent articles have highlighted that it is not subsidies that energy storage needs as much as clear regulatory policies in order to move forward. Recognizing this, the Interstate Renewable Energy Council, Inc. (IREC) just released a report that is designed to help regulators identify the critical near-term regulatory and market policies that need to be addressed in order to enable effective deployment of distributed energy storage.
Deploying Distributed Energy Storage: Near-Term Regulatory Considerations to Maximize Benefits outlines why regulators should be interested in helping to establish foundational policies to enable greater deployment of distributed storage. Building on this discussion, it highlights the specific uses and benefits of distributed storage, and looks at the nature of current state policy efforts to address distributed energy storage in the United States. Finally, taking those insights into account and building upon the research regarding the potential applications, it provides six key regulatory policy considerations.
The report does not strive to identify the specific policy decisions that should be made, but rather to highlight the key areas where regulations may need to be created, clarified or updated in the near term.
Specifically, the report identifies the following six topics for regulators to consider:
- Designing rate structures that send economic signals to energy storage customers to encourage them to operate their system in a manner that benefits the electric grid as well as the customer.
- Creating or modifying markets for ancillary services and demand response to enable energy storage customers to offer those services, either individually, or in the aggregate.
- Updating interconnection standards to ensure that energy storage systems have fair and efficient access to the electrical grid.
- Clarifying eligibility rules for Net Energy Metering (NEM) programs to maintain integrity of those programs while also allowing storage systems to participate.
- Implementing a broader scope for distribution system planning and management than has been seen historically to create an electrical system that fully takes advantage of the benefits of energy storage when deployed with other distributed energy resources.
- Coordinating oversight of energy storage systems with other governmental authorities to ensure safety without imposing duplicative or conflicting regulatory requirements.
While this list is not modest, states are likely grappling with questions in each of these areas already as they make changes to the market to accommodate higher penetrations of distributed renewable generation. The report encourages regulators to proactively include energy storage in those discussions so that the path to realizing energy storage’s benefits can be cleared at the same time that the technologies begin to reach market readiness.
As states begin to take action, IREC will continue to keep regulators informed about the lessons learned by other states and will help to identify best practices as they emerge to ease the learning curve for states.