United States: California's New Energy Storage Mandate

Last Updated: February 19 2014
Article by Omar Samji and Daniel Lynch

On October 17, 2013, the California Public Utilities Commission ("Commission") issued its final rule promulgating energy storage requirements intended to encourage emerging storage technologies and progress toward market transformation in a technologically neutral fashion. The storage requirements apply to California's numerous community choice aggregators ("CCAs"), electric service providers ("ESPs"), and three investor-owned utilities ("IOUs"). The Commission issued these rules pursuant to Assembly Bill 2514 (AB 2514), passed by the California legislature in 2010. These rules also serve to forward California's objective of procuring one third of its total procurement from renewable sources by 2020.

Energy storage is seen by policymakers as a means to avoid or defer new fossil power plants, better integrate intermittent renewable power, and reduce greenhouse gas emissions. AB 2514 mandated the Commission with evaluating whether to establish a new energy procurement program, which these rules are a part of.

The Commission established a target for the procurement of 1,325 megawatts of energy storage for the three IOUs—Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company—by 2020. Installation of such energy storage must be achieved by the end of 2024. The IOUs may not own more than 50 percent of the storage projects, with the majority of the storage projects needing to be owned by third-party providers. CCAs and ESPs must procure energy storage equal to one percent of their annual 2020 peak load by 2020, and installation must also be completed by the end of 2024.

What Counts as "Energy Storage." Section 2835(a)(1) of the California Public Utilities Code defines an "energy storage system" as a "commercially available technology that is capable of absorbing energy, storing it for a period of time, and thereafter dispatching the energy." An energy storage system must "be cost effective" and accomplish one of the following: reduce emissions of greenhouse gases; reduce demand for peak electrical generation; defer or substitute for an investment in generation, transmission, or distribution assets; or improve the reliable operation of the electrical transmission or distribution grid. Additionally, an energy storage system must (i) "use mechanical, chemical, or thermal processes to store energy that was generated at one time for use at a later time"; (ii) "store thermal energy for direct use for heating or cooling at a later time in a manner that avoids the need to use electricity at that later time"; (iii) "use mechanical, chemical, or thermal processes to store energy generated from renewable resources for use at a later time"; or (iv) "use mechanical, chemical, or thermal processes to store energy generated from mechanical processes that would otherwise be wasted for delivery at a later time."

The Commission noted that systems in existence prior to January 1, 2010 will not count toward the procurement targets, in compliance with section 2835(c). In an effort to encourage new and emerging technologies, the Commission also excluded large-scale pumped storage projects greater than 50 MW because such projects would "dwarf other smaller, emerging technologies" and "inhibit the fulfillment of market transformation goals."

Intermediate Procurement Targets. The IOU procurement targets are divided into three separate categories, called storage grid domains: (i) transmission; (ii) distribution; and (iii) customer-sited. The storage grid domains are distinguishable by where they interconnect with the grid. The transmission storage grid domain includes co-located energy storage (such as wind and energy storage or gas-fired generation and thermal energy storage) and stand-alone energy storage. The distribution storage grid domain includes distributed generation and energy storage and substation energy storage. Finally, the customer-sited storage grid domain includes electric vehicle charging. The procurement targets for CCAs and ESPs are not divided into the storage grid domains, and these entities may meet their procurement targets in any configuration.

To build up to the 2020 procurement goal, intermediate procurement targets were established for the IOUs. The establishment of these targets was met with opposition from the electric utilities, noting the cost and lack of flexibility in the incremental targets. Nonetheless, the first solicitation to procure energy storage has been slated for December 1, 2014, with the IOUs' first procurement application due March 1, 2014. Additional solicitation periods will be held every two years. CCAs and ESPs do not have intermediate procurement targets.

In an effort to be flexible, the Commission is permitting an IOU to defer up to 80 percent of its procurement target to a later procurement date if the IOU shows that it cannot procure enough viable projects (operationally or economically). Additionally, up to 80 percent of the MW requirements may be shifted between the transmission and distribution storage grid domains. However, no shifting is permitted with the customer-sited domain. Lastly, overprocurement in one period may be "banked" to count toward the procurement target in a later period.

The Commission will conduct a comprehensive evaluation of this energy storage framework by no later than 2016 to determine, in addition to applying lessons learned from its implementation, whether: (i) the energy storage procured under this framework optimizes the grid, integrates renewable, and/or reduces greenhouse gas emissions; and (ii) implementation of the framework progresses California toward market transformation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Omar Samji
Daniel Lynch
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