Massachusetts plans to offer $10-$20 million in energy storage grants this fall, as it positions for a paradigm shift in the economics of electricity.
State officials described the upcoming solicitation in a call Friday with the media, with release of a new report, “State of Charge,” which calls for Massachusetts to add 600 MW of energy storage by 2025.
The New England state is jumping on what industry analysts see as a major opportunity in the power industry. Today’s better and cheaper batteries open a path to correct one of the industry’s biggest economic hurdles: an inability to store its product for later use.
Most other commodity businesses don’t face this problem, as Judith Judson, Massachusetts energy commissioner, pointed out.
“Other commodity supply chains have more storage than electricity. Things like water, oil, food. About 10 percent of daily average consumption is in storage at any point in time. While electricity, today, is less than one percent,” she said.
The statistic is an eye opener, according to Judson. Lack of storage feeds economic inefficiencies that contribute to Massachusetts’ high electricity rates.
With little stored for later use, electricity must be generated, delivered and used almost at once. If there is a threat that the system may go out of balance, prices spike — a common occurance on severely hot days when demand rises.
In fact, 10 percent of hours per year – when power prices are highest –– account for 40 percent of spending on electricity in Massachusetts, or $3 billion.
“Once you can get significant storage deployed across your grid that paradigm changes,” Judson said. “You’re generating energy and using it at a later time, instead of generating energy on demand.”
Credit: State of Charge: Massachusetts Energy Storage Initiative
To that end, Massachusetts wants to attract 600 MW of energy storage projects, which it calculates will save electricity ratepayers $800 million.
Upping the number to 1,766 MW would save $3.4 billion, according to the report, which was released by the Massachusetts Department of Energy Resources and Massachusetts Clean Energy Center (MassCEC).
Unfortunately, ratepayer savings do not translate into profits for energy storage developers – which explains why so little storage has been developed to date, the report said.
“Private investors will simply not invest in building storage projects in Massachusetts without a means to be monetarily compensated for the value the storage resource provides to the system,” said the report.
Double money for energy storage grants?
To jumpstart development, the state plans to offer at least $10 million in energy storage grants through a request for proposals issued at a yet-to-be-specified date this fall.
Gov. Charlie Baker set the $10 million figure last year. But the report recommends doubling it to $20 million because of the early interest stakeholders are showing in the program.
“Given some of the parties that are interested, I imagine a lot of these projects will be large dollar projects. So it may well be that the $10 million will just be a starting point. But we’ll need to assess that as the proposals come in,” said Steve Pike, interim CEO of the MassCEC.
The RFP is being crafted as “very open-ended” in terms of who will be allowed to bid, Pike said.
As it stands now, state officials expect to welcome applications from both utilities and private parties. Utilities are allowed to own energy storage under a law recently signed by Baker.
“I don’t believe we envision limiting it to any one type of market player or type of developer. We’re hopeful that will result in a wide range of proposals,” he said.
Indeed, Massachusetts envisions a variety of projects that could bring a range of benefits. The state hopes to use storage to:
- Reduce wholesale electricity prices
- Lower peak demand and defer infrastructure in new power plants, substations and other energy infrastructure
- Reduce the cost to integrate renewable generation
- Reduce greenhouse gas emissions
- Increase the grid’s overall flexibility, reliability and resiliency
Judson said the state is seeing widespread interest in energy storage. Municipalities want to use storage to improve resiliency. Utilities are incorporating it into grid modernization plans. Commercial and industrial facilities are pairing storage with solar.
Microgrids and energy storage
State officials described energy storage as a kind of swiss army knife, a tool that can be applied many ways in the power grid.
The report modeled 10 use cases for energy storage that range from residential to wholesale market applications. One case looked at microgrids and storage, focusing on the kind of microgrid that might be found at a municipality, campus, medical center or similar facility. Such projects can reduce peak demand, capacity or demand charges, as well as lower the cost of back-up power, according to the report.
Energy storage also “provides energy resilience allowing critical facilities and other loads within the microgrid to ride through prolonged grid outages, maximally leverage renewable resources (such as solar PV), and/or extend limited liquid fossil fuel supplies,” the report said.
When a microgrid is in island mode, storage offers critical load balancing, power quality, and renewables integration. Storage also acts as a bridge when the microgrid switches from one generating resource to another.
A recent report by GTM Research found that energy storage is becoming a cornerstone of microgrids. Half of all operating microgrids employ battery storage.
Massachusetts as energy storage leader?
With the report and upcoming grants, Massachusetts hopes to become a national leader on energy storage. With only 2 MW of advanced storage, it has a distance to go. Today, Massachusetts ranks 23 among the states that have energy storage, well behind the leaders California, Texas and Arizona.
Credit: State of Charge: Massachusetts Energy Storage Initiative Study
But the state has a reputation for pursuing change aggressively once it sets direction. Massachusetts has been a bellwether for energy innovation on several fronts. It was one of the first to restructure electric markets in the 1990s, an early adopter of mandatory greenhouse gas reductions, and a perpetual champion in an annual energy efficiency ranking.
Massachusetts also grew solar at a rapid pace, with over 40,000 distributed solar PV projects operating today and 400 newly installed projects per week. The Solar Energy Industries Association ranked it number six among states last year.
Still, it will take more than just the grant program to integrate large amounts of energy storage into the Massachusetts grid. Policy change is required too, according to the report.
To that end, the state lawmakers recently gave the DOER the ability to set a target for energy storage. Utilities would be required to reach the yet-to-be-set target by 2020. The new law also allows utilities to include storage in their long-term renewable energy procurements.
The report outlined several other policy initiatives that could boost storage. They include:
- Allowing utilities to amend their grid modernization plans to include more storage. The plans are now under review before the Department of Public Utilities.
- Clarifying regulatory treatment of utility storage; creating guidelines for state approval of energy storage, and investigating issues pertaining to sales to the ISO wholesale market.
- Considering changes in DPU benefit-cost test methodology to accommodate storage in utility demand reduction programs.
- Offering various kinds of incentives, such as rebates, resiliency and green communities funds, and money for commercial and industrial facilities to undertake feasibility studies.
- Expanding the kinds of storage eligible to participate in the state’s alternative portfolio standard (APS). Only fly wheel storage is now eligible. (Utilities and retail suppliers must procure a specified amount of their supply from APS resources.)
- Including storage within the state’s solar incentive program.
The state received kudos from several stakeholders for its work on storage.
California-based Stem said in a prepared statement that the storage target will “send a game changing market signal.” The company encouraged the state to expand the energy storage grants to $20 million.
Matt Roberts, executive director of the Energy Storage Association, described the report as “a treasure trove of information” and said that it “sets a course for Massachusetts to be a leader in grid modernization and the advanced energy economy, capitalizing on the system-wide benefits that energy storage provides.”
Todd Olinsky-Paul, a project director for the Clean Energy States Alliance, said that Massachusetts’ comprehensive approach “should serve as a model for other states to develop energy storage markets, grow the industry, and unlock the many benefits of energy storage for utilities, businesses and ratepayers.”
The DOER, MassCEC and their consultants will hold a stakeholder session to review the report findings on September 27. The state also will conduct a stakeholder process on the energy storage target before year’s end.
The Massachusetts’ “State of Charge” report is available here.
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