California Energy Efficiency and Energy Storage Proposals: Bold Moves But Will They Take?

California has on the table two bold new proposals to boost energy efficiency and energy storage. Which is more likely to see swift and non-controversial adoption?

The storage proposal mandates that California utilities bring to the grid a whopping 1.3 gigawatts (GW) of energy storage by the end of the decade. Earlier in the month, the California Public Utilities Commission released its long-awaited proposal for implementing the mandate, which has been the focus of discussions since 2010.

In spite of utilities’ interest in controlling this storage, the proposal says that third-party providers and customer-owned storage could play a role in meeting the mandate. Utilities may only own 50 percent of the storage to be acquired.

“The decision establishes a mechanism for storage projects to obtain financeable contracts. This is one of the main challenges for developing any storage project,” explained Elliot Hinds, a Los Angeles-based attorney for Akin Gump, who specializes in energy. The 1.3-GW goal is significant, but the proposal does grandfather in several already approved projects, including the 50 megawatts already mandated in Southern California Edison’s long-term plan for the West Los Angeles basin, he said.

By January 1, 2014, the three investor-owned utilities must file plans for their first energy storage solicitation.

The move is yet another win for the storage industry this year, said Hinds.

“A July FERC ruling requires independent system operators to open their tariffs to ancillary services that reward technologies that are faster, more accurate and more reliable, such as storage. These developments lift barriers to entry and take important steps toward creating viable market mechanisms that better recognize the true value that energy storage technologies can provide,” Hinds said.

While it may be a win for the industry, it won’t be so easy to implement, said Vincent DeVito, who served as U.S. Assistant Secretary of Energy for Policy and International Affairs and is a partner at Bowditch & Dewey, LLP in Boston. In fact, he said, it could become “vaporous” because it’s so difficult to achieve.

“The problem is that California is relying on utilities because that’s the monopoly that makes these investments into large-scale battery storage,” he said.

The state can require utilities to make this investment, but the utilities still have obligations to their shareholders, to provide reliable supplies, and to show that their investments are prudent, he said.

“A large-scale mandate makes it nearly impossible to check off all of those boxes. It’s unlikely that this will happen quickly,” he said. “There will be more time required to do due diligence. Just because the government puts mandates out, if they become uneconomical, then the mandates become vaporous because they are impossible to achieve.”

DeVito predicted that California’s storage mandate will see lots of moaning and groaning, followed by a smaller, public-private project. “It’s unlikely you’ll see utility investment until it proves out,” he said.

A small pilot would go a long way, said Rick Fioravanti, vice president, storage applications, DNV KEMA. “Internally, our team viewed this as the first time a utility commission set out to mandate storage procurement and opening the door to other states taking similar actions. For such a first time step, even if California agreed to 1 MW, we would view that as impactful. Though we don’t see California’s potential initiatives being the only action necessary to propel the storage market, we see the impact of California’s actions potentially having a greater impact of initiating other states into action more than so the procurement targets that were set – even though we acknowledge that the targets set by California are significant.”

While it’s unclear how or how quickly the energy storage mandate will be enacted, it is likely we’ll see quick adaption of California’s new energy efficiency incentive mechanism, said DeVito.

“This proposal won’t be as hard to push through – as long as the energy efficiency is viewed as supply, and people understand that it doesn’t mean they have to turn out the lights,” he said. “Ramping up energy efficiency is not unique. It only happens when it’s a sound business model.”

The mechanism, called the Efficiency Savings and Performance Incentive, rewards utilities for focusing on long-lived energy savings, as opposed to the cheapest savings. The longer-lived savings are generally achieved through deeper and more comprehensive energy upgrades, according to the National Resources Defense Council (NRDC). It should lead to innovative and comprehensive approaches to energy efficiency, said the NRDC.

For 2013 and 2014, California’s investor-owned utilities – Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, and Southern California Gas – can earn rewards of up to $89 million total, for all the utilities.

The maximum reward is about one-quarter of one percent of consumers’ total annual cost for electricity and natural gas, and about two percent of the utilities’ recent pre-tax profits, according to the NRDC.

An NRDC summary can be found here:
http://switchboard.nrdc.org/blogs/dwang/Summary%20of%20CA%20EE%20Incentive%20for%202013-14%20and%20Beyond2.pdf

It’s great news that California has the guts to propose such precedent-setting proposals, in spite of the potential for moaning and groaning. Once again, California takes the lead, a move that’s likely to inspire others to take risks and invest seriously in energy storage and energy efficiency.