Energy Storage and Renewable Integration

Prepared for the 2011 IEP Annual Meeting

Don Liddell, CESA General Counsel

October 5, 2011

Stay With Me….

“Storage is a potential “game changer” to how we have viewed renewable energy integration thus far. Storage has the potential to provide grid operational support, enable electric energy shifting, provide load following capabilities, etc.

While IEP is supportive of including storage in the mix of resources that can be procured to provide the ancillary services, grid reliability and load following characteristics that will be needed to integrate renewable energy resources, storage should be viewed as only one of the resources that can provide these needed services and products. In fact, other flexible, fast-ramping technologies, e.g. gas-fired generators or gas paired with Variable Energy Resources, can provide many of these “products” as well.”

» Independent Energy Producers Association Comments on the 2011 Integrated Energy Policy Report Committee Workshop on Energy Storage for Renewable Integration, convened April 28, 2011.

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About CESA

» Core principles for a healthy market: Technology neutrality Ownership/business model neutrality

» No advocacy for advocacy sake. We are seeking tangible market results

» Explicit support of renewable energy in our mission…and our membership

» Philosophy of coalition building with all stakeholders – strength in diversity

» Resources are limited, and so must be very focused in our efforts California Legislature CPUC CAISO CEC FERC

Our Mission: Expand the role of storage technology to promote the growth of renewable energy and create a cleaner, more affordable and reliable electric power system

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CESA – Strength Through Diversity & Collaboration

Steering Committee

General Members

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Why California?

» BIG: 13% of US GDP, 8th largest economy in the world

» Foundational Legislation Energy Storage Procurement Targets (AB 2514) Renewables Portfolio Standard (SB X1-2) Solar Energy System Incentives (SB 1) Self-Generation Incentive Program (SB 412, AB1150) Global Warming Solutions Act of 2006 (AB 32)

» Pro-storage policy makers in the Legislature and at key agencies

» CPUC Incentives available for customer-sited applications

» CAISO Renewable Integration Stakeholder Process

» Many energy storage projects currently underway in California

Energy Storage is fundamental to many key California policy initiatives

CESA is advocating results-oriented change in all of these areas

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Energy Storage Is A Very Broad Asset Class

Sodium Sulfur Battery•Electrical energy is stored for later use in chemical form. Existing battery technologies are being improved, and new battery technologies are becoming available.

•Example: 34 MW Sodium Sulfur Battery — 51 MW wind farm, Japan (NGK)

Ice Storage•Air conditioners create ice at night, when power rates are low. This stored ice then runs a cooling system during the afternoon, when power costs are highest and the power grid is most stressed.

•Example: 12 kW Thermal Storage — Napa Community College (Ice Energy)

High Speed Flywheel•Flywheels convert electrical energy to kinetic energy, then back again very rapidly. Flywheels are ideal for power conditioning and short-term storage.

•Example: 3 MW Mechanical Storage for Ancillary Services — NE ISO (Beacon Power)

Below Ground Compressed Air•Electricity is used to compress air into small or large modular storage tanks or a large underground cavern. The compressed air is used to spin turbines when electricity is needed.

•Example: 115 MW Compressed Air Energy Storage — McIntosh, Alabama

Pumped Hydro•Excess electricity is used to pump water uphill into a reservoir. When power is needed, the water can run down through turbines, much like a traditional hydroelectric dam.

•Example: 1,532 MW Pumped Hydro — TVA’s Raccoon Mountain

Technology Classes Energy Storage Technologies

Chemical Storage

ThermalStorage

MechanicalStorage

Bulk Mechanical

Storage

Bulk Gravitational

Storage

Pumped Hydro, 123,390 MW

Batteries, 14,296 MW

Solar Thermal, 72 MW Molten Salt, 142 MW Flywheels, 42 MW Compressed Air, 740 MWThermal Storage, 1,002 MW

Capacitors; 0.5 MW

Source: Strategen Consulting, LLC

Estimated Global Installed Capacity of Energy Storage

The Grid-Connected Energy Storage Market is Large

Global Total: 138,683 MW

Non-Pumped Hydro Total: 16,295 MW

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U.S. Energy Storage Market Projections

Source: SANDIA Report SAND2010-0815, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide, Jim Eyer & Garth Corey (February 2010)

Application Lifetime Value ($/kW for 10yr Project Life)

Ease

of D

eplo

ymen

t

The U.S. Market is Estimated at $238B Over 10 Years, but Certain Applications Dominate

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

Market Reference Size = $10,000 M

Electric Energy Time-shift

Electric Supply Capacity

Load Following

Area RegulationElectric Supply Reserve

Capacity

Voltage Support

Transmission SupportTransmission Conges-

tion Relief

T&D Upgrade Deferral 50th percentile

T&D Upgrade Deferral 90th percentile

Substation On-site Power

Electric Bill Cost Management

Electric Service Reliabil-ity

Electric Service Power Quality

Renewables Energy Time-shift

Renewables Capacity Firming

Wind Generation Grid Integration, Short Dura-

tion

Wind Generation Grid Integration, Long Dura-

tion

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Overview of Energy Storage and Solar

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Solar + Storage Potential Value Streams

Base load

Load & Solar Generation

Net Load is Still Coincident with Peak Demand Charges

Storage to Shift Net Peak Load to Off-Peak Periods

» Charge during off-peak and discharge during peak to reduce demand charges. Potential to leverage 30% FITC for both technologies

» Firm up additional demand savings from renewables

» Share inverter / power conditioning equipment with solar and other renewables

» Potential to provide emergency back-up capabilities

*Memorandum to CAISO Board of Governors, August 18, 2011.

Energy Storage is Needed to Meet 33% Renewable Integration Goals

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Energy Storage is a Key Component of the Brown Administration’s Clean Energy Plan

California-based RPS Procurement

• Build 8,000 MW of large-scale renewable generation

• Plan and permit new necessary transmission within 3 years

Energy Efficiency• Adopt Load management

standards • Adopt stronger efficiency

standards• Make existing buildings more

efficient

California-based Clean Distributed Energy Resources Program

• Build 12,000 MW of localized renewable energy generation

• Increase combined heat and power production by 6,500 MW

• Deal with peak energy needs and developing energy storage

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The Key Barrier for Grid-Connected Energy Storage is the Existing Regulatory Framework

» While energy storage is an established industry, grid-connected storage is a new application, with limited organized resources to advocate for regulatory change

» Multiple jurisdictions regulate energy storage systems, and thus compensation mechanisms FERC CPUC CAISO CEC

» Regulatory proceedings are typically divided into specific asset classes, but storage spans all asset classes

Storage is both blessed and cursed with its ability to provide many benefits throughout the electric power system

Regulatory Policy Intervention is Needed

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Open FERC Rulemaking Dockets» November 18, 2010, FERC NOPR issued on Variable Energy Resources (RM10-11-000)

Require intra-hourly scheduling Require VER’s to provide meteorological/forecasting data Create a generic ancillary services rate schedule

» February 17, 2011 FERC, NOPR issued on Frequency Regulation Compensation (RM-11-000) Require a uniform price for regulation capacity and a performance payment Compensate providers of frequency regulation services based on accuracy

» May 19, 2011, FERC, NOI issued on Promoting Transmission Investment Through Pricing Reform (RM11-26-000)

Western Grid qualified battery storage as wholesale transmission facilities. To move away from case by case incentive determination

» June 16, 2011, FERC issued an NOI on Third-Party Provision of Ancillary Services: Accounting and Financial Reporting for New Electric Storage Technologies (RM11-10-000)

To facilitate the development of robust competitive markets for ancillary services. Will address the issue of storage asset classification.

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Recent California Energy Storage Policy Developments

California Legislature:

» AB 2514 leads to CPUC Energy Storage OIR

» SB 412 leads to including storage in the Self Generation Incentive Program

» AB 1150 guarantees storage a place in the SGIP and funding for 3 years

CPUC:» Energy Storage OIR (R.10-12-007)

» DG Interconnection OIR (R.11-09-011)

» Resource Adequacy (R.09-10-032)

» Long Term Procurement Planning (R.10-05-006)

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1. AB 2514 (Skinner) - Landmark Energy Storage Legislation

AB 2514 provides needed regulatory focus on storage

» Sponsored by Jerry Brown, former California Attorney General, now Governor, and authored by Assembly Member Nancy Skinner, and enacted September 29, 2010.

» Requires CPUC to open a proceeding by March , 2012 to determine, by October 1, 2013, appropriate targets, if any, for load serving entities to procure viable and cost-effective energy storage systems by the end of 2015 and the end of 2020. Must be technology neutral, but viable and cost-effective . Allows utility owned, customer-owned, and third party-owned systems

to be considered. Must consider information from CAISO and integration of storage with

other programs.

2. AB 2514 (Skinner) - Landmark Energy Storage Legislation

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» With a one year lag, requires the same determinations of governing boards of local publicly owned utilities to open a proceeding by March 1, 2013, and make comparable determinations by the end of September 2014 with possible targets by 2016 and 2021.

» Energy storage systems may be used to meet resource adequacy requirements established for load serving entities.

» Applies to systems installed after January 1, 2010.

SB 412(Kehoe) SGIP Implementation - D.11-09-015

Then Now

Eligibility: Cost-Effectiveness GHG Reductions

Size Restriction: 5 MW max No min/max: Must meet onsite load

Discharge Capacity: 4 hours 2 hours

Payment Method: Technology BasedNo PBI

50 % up front50 % PBI

CPUC decision this month is very favorable to energy storage, providing $2/W for energy storage – stand-alone or paired with renewables

Key Comparisons

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SGIP’s Future is Assured - AB 1150 (Perez)

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» Enacted September 22, 2011

» Authorizes $83M/year of rate payer-based funding (not PGC) through December 31, 2014 ($249 million, total)

» Clarifies eligibility of energy storage (P.U.Code § 379.6 a(1)):

“It is the intent of the Legislature that the self-generation incentive program increase deployment of distributed generation and energy storage systems to facilitate the integration of those resources into the electrical grid, improve efficiency and reliability of the distribution and transmission system, and reduce emissions of greenhouse gases, peak demand, and ratepayer costs.”

Authorizes new funding and extends the SGIP through 2016

Energy Storage OIR - R.10-12-007 » Implementing AB 2514 more than 1 year ahead of schedule

» Scoping Memo issued May 31,2011 Phase 1: Broad Policy issues Phase 2: Cost-Effectiveness

» Proceeding is very general in scope

» It will develop a cost-benefit methodology for valuing energy storage technology.

Unless additional workshops or requests for comments are required, the next step will be issuance of a Proposed Phase1 Decision for comment.

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DG Interconnection and Storage OIR - R.11-09-001

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» September 22, 2011 CPUC Issued an OIR to improve distribution-level interconnection rules.

» CPUC aims to establish: Interconnection Procedures Queue Policy Data Collection and Reporting Requirements Resource adequacy qualification standards Limits on distributed Generation interconnection penetration

» Review cost allocation for system upgrades, improve cost certainty, and serve as the forum for the Rule 21 Settlement Process.

Comments on the OIR are due on October 27, 2011.

Resource Adequacy - R.09-10-032

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» On October 29, 2009, the CPUC opened a resource adequacy rulemaking to oversee and refine the program and establish local procurement obligations of the utilities.

» Existing capacity needed decreased from 27,094 MW in 2011 to 26,158 in 2012.

» CPUC determined that the counting rules for all resource adequacy qualifying resources, including demand response (and storage), require that they must be available for a block of at least 4 consecutive hours on 3 consecutive days.

» CPUC will open a successor rulemaking proceeding this month In order to provide a forum for future refinements of the RA program, along with local procurement obligations for 2013 and beyond.

Long Term Procurement Planning - R.10-05-006

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» On May 6, 2010, the CPUC opened its long term procurement planning proceeding for the purpose of reviewing and approving the generation and load sides of the utilities’ planning.

» The LTPP proceedings operate on a two-year cycle with the utilities responsible for submitting procurement plans that project their need, and their action plans for meeting that need, over a ten-year horizon. All resource planning is to be done in the context of Energy Action Plan II.

» In this cycle, the CPUC is emphasizing standardized resource planning practices, assumptions and analytic techniques; interim standards, uncertain costs of GHG regulations, quantifying energy efficiency in the California Energy Commission’s forecast, firm capacity from demand-side resources, system versus bundled resource need, refinements to the bid evaluation process.

» The CPUC is expected to issue a proposed decision in a few months that will set out the planning assumptions it intends to use going forward for public comment.

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1. Energy Storage Activity at CAISOLong Term Generation Planning Support

» CAISO devotes considerable resource to working hand-in-hand with the CPUC on long-term procurement planning and resource adequacy.

CAISO’s role in long term procurement planning is comprehensive:

» Support the CPUC to identify long term procurement planning, needs and options

» Inform CPUC, and other state agency regulatory decisions related to resource adequacy, RPS rules and once-through cooling schedule

» Inform CAISO and state-wide transmission planning needs to interconnect 33%

renewables 33% » Inform design of CAISO’s wholesale markets for energy and ancillary services to

facilitate provision of integration capabilities

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2. Energy Storage Activity at CAISO

Participating Intermittent Resource Program

» CAISO is updating PIRP eligibility requirements and cost allocation. PIRP will be retained for existing PIRP resources and available to new participation.

» CAISO will lower the bid floor from -$30/MWh to -$150/MWh in the first year and to -$300/MWh in the following year.

» The objective of this program change is to foster additional dispatch flexibility over time from thermal and renewable resources as well as new storage technologies.

» The bid floor is intended to account for the opportunity cost of curtailment faced by wind and solar resources and the scheduling coordinators that bid them into the market.

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3. Energy Storage-Related Activity at CAISO

Regulation Energy Management (RIMPR, Phase 1)

» REM – August 22, 2011: CAISO submitted a proposed tariff amendment to allow storage greater participation in CAISO’s ancillary services markets.

» Without the REM Tariff, storage resources that have less than one hour of storage capacity are severely restricted from participating in CAISO’s ancillary service markets.

4. Energy Storage-Related Activity at CAISO

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Pay for Performance Compensation, (RIMPR, Phase 2)

» CAISO believes that an additional payment to regulation resources should be made based upon movement from their preferred operating point.

» Revised Straw Proposal includes no reference to pay-for-performance, or mileage payments, as was originally planned.

» CAISO is waiting for guidance from FERC.

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Federal Income Taxation

» Under current law, integrated energy storage and renewable energy projects should be eligible for the 30% federal investment tax credit 1978 – Congress enacted 10% ITC for equipment that uses solar and wind energy to

generate electricity 1980 – IRS regulations issued defining eligible “equipment that uses solar energy to

generate electricity, and includes storage devices, power conditioning equipment, transfer equipment, and parts related to the functioning of those items.”

» Storage eligibility remains unclear … likely still requires private letter rulings. There is no clear meaning of ‘storage device’ as used in Treas. Reg. 1.48-9(d)(3) Under Section 48 storage equipment should qualify as Auxiliary Equipment if its use of

non-solar energy is 25% or less based on an annual measuring period.

» Potential ITC for storage 2010 – two storage-focused ITC bills introduced in the House (H.R. 4210 Thompson) and

Senate (S.1091 Wyden) 2011 – new legislation dependent on resolution of current budget issues and bi-partisan

support.

Energy storage MAY be eligible for ITC when integrated with renewables

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General References:

For more information about CESA membership, public filings, and other energy storage educational material, please visit us

online at:

www.storagealliance.org

» Renewable Power in California: Status and Issues, CEC Staff Report, August 2011.

» Electricity Energy Storage Technology Options, a White Paper Primer on Applications, Costs and Benefits, December 2010.