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US Energy Storage Market: Set to take the next big leap [free access]

June 5, 2019

The US market for energy storage systems (ESS) is one of the fastest growing in the world. Recent trends in the US energy sector, which is in the midst of a transition, have brought the focus on improving the resilience of the grid and making it more flexible. Renewables are increasingly playing a greater role and the economics of natural gas-based electricity continues to be more favourable than coal. This along with the proliferation of distributed energy resources (DERs) and prosumers are causing stress to the aging grid.


In this context, energy storage markets have gained prominence due their ability to provide multiple services such as demand response, frequency regulation, ramping, reliability, balancing, black start, renewable capacity firming, voltage support, micro grid capability and electric supply capacity. Further, the significant decline in the cost of batteries, availability of more efficient storage systems, increasing manufacturing capacity as well as market and regulatory reforms have contributed to the growth of the market. The installed battery energy storage system (BESS) capacity is around 1GW in the US and is expected to cross 7GW by 2022. In fact, the energy storage market grew by 44 per cent during 2018. The annual additions during 2019 are expected to almost double to over 700 MW.


The key drivers for the huge growth are the requirement to replace peaking capacity on the grid (conventionally provided by gas turbines) and the increasing popularity of solar-plus-storage systems. The incentive offered under the Investment Tax Credit (ITC) to solar-plus-storage systems is the main reason for its increasing popularity. In fact, lawmakers recently tried to reintroduce stand-alone energy storage to the list of technologies eligible for the federal ITC through the Energy Storage Tax Incentive and Deployment Act, 2019.


At a recent forum, the US senate and industry executives have contended that easing obstacles to transmission permits and increasing federal research and development (R&D) investment for energy storage technologies (with emphasis on advancing long-duration electric storage) are among the top priorities to support a clean energy future. This is evident from the Better Energy Storage Technology (BEST) Act introduced in both legislative houses and the support of USD89 million for innovative advanced manufacturing R&D projects announced by the US Department of Energy (DoE) in May 2019. Earlier, in January 2019, the DoE announced a support of USD40 million under the Grid Modernisation Initiative in 2019 towards innovations and technologies (including energy storage) designed to increase the resilience, reliability and security of an integrated grid.


State specific policies have played a significant role in shaping the US storage market. While California leads the US market as an early starter, states such as New York, New Jersey and Arizona also established ambitious storage mandates during 2018. Further, noteworthy activity is also taking place in states like Hawaii, Texas, Minnesota and Colorado. Utilities in several states are ramping up procurements of both behind-the-meter and front-of-the meter energy storage resources to integrate higher levels of renewables and provide additional grid services such as demand response.


Recent developments


Federal support

The BEST Act, introduced in both houses recently, seeks to amend the United States Energy Storage Competitiveness Act of 2007 to establish an R&D and demonstration programme for grid-scale ESS. It aims to improve the affordability of the technology by directing DoE to pursue a strategic plan and implement cost targets. The programme will focus on R&D on long-duration ESS and support up to five demonstration projects to advance commercialisation of grid-scale ESS. It proposes to authorise USD60 million annually for the programme from 2020 to 2024.


DOE’s recent Funding Opportunity Announcement (FOA) (USD89 million support) requests proposals in three areas to improve the global competitiveness of the US by catalysing innovation around manufacturing of key energy technologies and by reducing the energy intensity of industrial processes. The three areas are innovations for the manufacture of advanced materials; lower thermal budget processes for industrial efficiency and productivity; and connected, flexible and efficient manufacturing facilities and energy systems. DoE anticipates making up to 55 awards for up to three years. A cost-share of at least 20 per cent will be required for R&D projects. Concept papers are due on June 20, 2019.


Earlier in May 2018, the DOE announced a funding programme of up to USD30 million (under its Advanced Research Projects Agency – Energy programme) to support long-duration storage projects that could deliver between 10 hours to 100 hours of energy storage. This could result in storage systems that can last days and not just a few hours. The DOE has awarded funding of over USD28 million to 10 projects across a range of technologies to storage projects. In contrast, the existing grid-connected systems, 95 per cent of which are lithium-ion battery-based, are capable of delivering durations of 15 minutes to 4 hours, depending on the application.


As mentioned earlier, the Energy Storage Tax Incentive and Deployment Act, which is an update of the bill introduced in 2016 and was introduced in the House of Representatives in April 2019, seeks the extension of the ITC offered to solar PV systems for commercial, residential and utility-scale storage systems. This implies 30 per cent ITC in 2019, 26 per cent in 2020 and 22 per cent in 2021. While the ITC for residential storage will become zero after 2021, it is proposed that ITC for commercial and utility-scale projects will remain permanently at 10 per cent.


On the regulatory front, the Federal Energy Regulatory Commission (FERC) has been making efforts to remove barriers to ESS participation in wholesale markets. In February 2018, it passed the landmark Order 841 that required Regional Transmission Organisations (RTOs) and Independent System Operators (ISOs)) to revise their tariff to establish a participation model for electric storage resources (ESRs). The model will consist of market rules that properly recognise the physical and operational characteristics of ESRs. The order requires the compliance filings by the RTOs/ISOs to be done 270 days after the effective date, with an additional 365 days to implement the tariff revisions (due end of 2019). In April 2019, FERC issued deficiency letters to all six jurisdictional RTOs and ISOs over their compliance filings.


In May 2019, FERC rejected several requests for a reconsideration of this order and allow relevant electric retail regulatory authorities (RERRAs) the ability to opt out of its storage provisions. It also rebuffed questions raised over its authority to fix the price of power sold by RTO markets to an ESR for resale at the wholesale LMP (locational marginal price). The main argument was that ESRs connected to local distributions systems or behind-the-meters may be given the option to opt out. However, FERC has asserted that the Federal Power Act has given it clear jurisdiction over storage. Critics argue that the recent order undermines the ability of local utilities and regulatory authorities to manage such ESRs for the benefit of consumers.


Another important ruling that opens up new opportunities for storage is Order 845, which revises interconnection rules and procedures for generators larger than 20 MW. Approved in April 2018, FERC clarified its stance on the ruling in February 2019. The idea is to enhance the transparency and speed of the interconnection process for such generators.


State-level developments


California is a leader in the deployment of energy storage systems. Way back in 2013, it set an ambitious target of procuring 1,325 MW of grid-connected storage capacity by 2020. The three investor-owned utilities, viz., Pacific Gas and Electric Company (PG&E), Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E), have already procured close to 1,500 MW of which over 330 MW is online. Supportive measures such as the self-generation incentive program (SGIP), which sets aside USD378 million for customer-sited energy storage projects for the 2017-2021 period, and California Independent System Operator’s (CAISO) rules requiring utilities to include the full economic value of energy storage in resource planning by evaluating its benefits are helping the state keep its lead in the ESS space.


In 2018, the state set itself an aggressive mandate of 100 per cent zero-emission electricity by 2045 with 60 per cent renewables to be achieved by 2030 (through the passage of the Senate Bill 100 – SB 100). Further, two important energy storage bills were passed by the state Senate during the year. The first is the SB 700, which extends the SGIP through January 1, 2026 and augments it by over USD800 million in incremental buy-down incentive funding for behind-the-meter storage. The SGIP has so far successfully contributed 318 MW of behind-the-meter storage procured in California. The second law is the SB 1369, which defines green electrolytic hydrogen as an eligible form of energy storage to help meet future long-duration and seasonal storage requirements. These progressive legal changes will ensure that the Californian energy storage market continues to expand in the coming years and maintain its leadership globally.


In February 2019, the SB 772 was introduced in the California Legislative Session 2019-20. The Bill requires CAISO to complete a competitive bid process by June 30, 2022, to procure 2,000-2,400 MW of long-duration bulk storage from one or more projects that target commercial operation by 2030. Another 2,000 MW may be procured beyond 2030 from projects that have targeted commercial operation by January 1, 2045.                                                                                  


The Integrated Resource Plan (IRP) submitted by SCE to the California Public Utilities Commission (CPUC) highlights the significant role energy storage will play in achieving the state’s 2030 emission reduction goals and estimates that load serving entities would need to procure an additional 9,604 MW of energy storage to achieve that goal.


New York

During 2018, New York announced an ambitious energy storage target of 1.5GW by 2025 and 3GW by 2030. In a move to support the state in achieving these targets, the New York governor announced support of USD280 million for storage projects in April 2019. This funding is part of the USD400 million investment committed to achieve the 2025 energy storage target. In the long run, it will also help the state achieve 100 per cent carbon-free electricity by 2040 under its Green New Deal.


The funds will be channelised through the New York State Energy Research and Development Authority’s (NYSERDA) Market Acceleration Bridge Incentive Program that aims to build a self-sustaining storage market. Funding is available under two categories, viz., storage systems over 5 MW that provide energy for the wholesale market or distribution services (USD150 million) and retail storage systems below 5 MW (USD130 million). Based on future opportunities, NYSERDA will allocate another USD70 million besides the USD53 million allocated under the Regional Greenhouse Gas Initiative that will be available to retail and bulk storage projects in Long Island later this year. Further, funds are also available for solar-plus-storage projects within the NY-Sun Initiative.


Earlier in December 2018, the New York Public Service Commission (PSC) issued a landmark energy storage order that establishes deployment mechanisms to achieve both goals. Among other things, it focuses on regulatory changes to customer rates and utility solicitations that reflect the environmental benefits and resiliency that energy storage brings to the grid; recommends measures to improve wholesale market design and enable DERs to meet distribution and wholesale system needs more cost effectively; and emphasises continued efforts to streamline permitting and siting challenges, reduce the non-hardware costs of energy storage, and ensure straightforward access to market rules and opportunities. It authorises NYSERDA to use allocated funds to implement storage incentive programmes between 2019 and 2025.


To encourage storage deployment across the state, in May 2019, the New York Power Authority (NYPA) issued a request for information (RFI) to identify battery storage companies interested in participating jointly in competitive solicitations or other storage development opportunities within New York State. Earlier in December 2018, the NYPA board approved a USD600-million revolving credit facility for short-term borrowing (available until January 2022) to support the utility’s energy efficiency programme, including those related to energy storage.


In a significant move, in May 2019, FERC gave approval to the New York ISO (NYISO) to add ESRs to its real-time market settlement rules to increase wholesale market participation. This is in response to its filing with FERC in December in compliance with Order 841.


New Jersey

The state has set a target of 600 MW of energy storage by 2021 and 2GW by 2030 in the run up to its long-term goal of achieving 100 per cent clean energy by 2050. While a few commercial storage systems have been deployed in the state, the market is set to pick up pace with the setting of these ambitious targets.


On its part, the New Jersey Board of Public Utilities (BPU) awarded a USD300,000 contract to Rutgers University in 2018 to conduct a comprehensive analysis of the state’s energy storage needs and opportunities. Further, in early 2019, the BPU invited stakeholder comments on a number of issues to help prepare an energy storage analysis (ESA).


In 2018, Public Service Enterprise Group Incorporated’s (PSEG), the state’s largest utility, announced plans to invest over USD180 million over the next six years to develop 35 MW energy storage systems in New Jersey. In 2018, Viridity Energy Solutions Inc.(VESI), a subsidiary of US-based Ormat Technologies Inc., commissioned two 20 MW/20 MWh utility-scale BESS in Plumsted Township and Alpha, New Jersey. The project was initiated to provide grid ancillary services to assist PJM Interconnection in balancing the electric grid, and serve as a capacity asset. In fact, VESI has an energy storage portfolio of over 70 MW providing frequency regulation, demand response and other grid support services.



Arizona has a set itself a mandate of achieving 3 GW storage capacity by 2030. Recently, Arizona Public Service (APS), the state’s largest utility, announced plans to install 850 MW of storage capacity by 2025, the largest procurement by a US utility, to shift delivery of solar power to the evening (solar after sunset). APS has already awarded a contract to AES for a 100 MW four-hour duration battery energy storage system (400 MWh) as part of that plan. However, a recent fire at an APS storage project (2 MW grid scale batteries in Phoenix installed in 2017) indicates that safety will be a key challenge for the industry to address.


BESS Projects

In the past one year, several BESS projects have been commissioned and announced. During 2018, the 10 MW, 42 MWh lithium-ion storage system co-located with Luminant’s 180 MW Upton 2 Solar power plant was commissioned, making it the largest energy storage site in Texas. The storage system can make use of both solar power as well as low-priced grid-connected power (particularly wind energy). In Texas, Duke Energy’s 153 MW Notrees wind farm with battery storage (constructed in 2012 with battery upgrade in 2016) remains the country’s largest wind-integrated battery storage.  Duke Energy is setting up two projects worth USD30 million to be operational in North Carolina by 2020. The first is a solar and battery-powered micro grid project comprising a 2 MW solar plant and 4 MW lithium-based battery storage facility in Hot Springs. The second is a 9 MW lithium-ion battery system at a Duke Energy substation in Asheville.


Portland General Electric and NextEra Energy’s partnership has proposed the 1,000 plus MW Wheatridge Renewable Energy Facility in Oregon, to be built in 2020. The facility will comprise a 300 MW wind farm, 50 MW solar farm and 30 MW battery storage system.


In recent times, utilities are proposing large grid-scale projects. A significant project is Xcel Energy’s USD2.5 billion 1,838 MW renewable (1,131 MW wind and 707 MW solar PV) and 275 MW battery storage project in Colorado. It will be built to replace its coal-based Comanche station’s units 1 and 2 that will be shut down 10 years ahead of schedule, a plan approved by the Colorado Public Utilities Commission in 2018.


In California, SCE is investing in large-scale and distributed energy storage projects to meet demand in its Moorpark subarea, northwest of Los Angeles, arising from the retirement of several natural gas-based generators. Through two separate requests for proposals, the company signed a 20-year resource adequacy contract with an affiliate of Strata Solar LLC for its 100 MW/400 MWh Satacoy battery storage project in Oxnard, California in April 2019. Besides, there are six other contracts for another 95 MW. The projects have commercial start dates beginning from December 2020 to March 2021.


In a significant move, in November 2018, CPUC approved PG&E’s proposal to build two large battery systems that once built, will be the largest in the world. This includes the 300 MW/1,200 MWh system and 183MW/730 MWh system in Moss Landing area south of the San Francisco Bay. These projects will replace the grid reliability services provided by the aging Calpine gas plants. The experience at Moss Landing will be important to gauge how the gas to storage transition works in practice.


In January 2019, Hawaiian Electric Company submitted seven new solar-plus-storage contracts aggregating 262 MW (1,048 MWh) to the state regulator for approval. AES, Innergex, Clearway and 174 Power Global are developing the projects. Significantly, six of these come at a record-low price of 10 cents per kWh or below. In comparison, past prices of such projects in Hawaii have ranged between 11 cents and 14 cents per kWh. Another unique feature relates to the power purchase agreement (PPA) structures. For instance, AES’s 25-year, 30 MW solar and 120 MWh storage PPA uses a monthly lump sum payment to the developer based on net energy potential and facility availability rather than energy delivered.


In February 2019, Puerto Rico Electric Power Authority filed the final draft of its 2019-38 integrated resource plan (IRP) that calls for huge deployment of solar and storage systems as well as eight distributed mini grids to support the island during disasters. Prepared by Siemens, the IRP calls for building 720-1,200 MW of solar and 440-900 MW of energy storage during the first four years of the plan.


Efforts to improve technology in the battery storage space are ongoing. For instance, the Consortium for Battery Innovation, which includes over 90 member companies globally supporting research into lead battery technology, is working on preparing a new technical roadmap designed to extend the performance and lifetime of the core battery. The consortium recently unveiled an interactive digital map detailing over 120 lead-battery based storage projects worldwide.


The way forward


This recent growth in the US ESS market has been supported by policy and regulatory initiatives both at the federal and state levels over the last four to five years. The sector is in a nascent stage of development but recent developments are expected to result in a rapid expansion of the US energy storage market over the coming years. However, it faces the challenges of safety and lack of international standards. In this context, Stanford University is working with the DoE’s SLAC National Accelerator Laboratory to make batteries safer by studying hotspots in lithium batteries that could lead to short-circuits or fires.


Importantly, it is increasingly being recognised at the policy and regulatory level that it is vital to acknowledge that storage systems are capable of providing multiple services, which need to be appropriately monetised through value stacking or revenue stacking. Monetisation will help boost the market for storage systems.