The market for renewable energy projects paired with storage is gaining momentum. It is poised for large growth in the coming years. That was the consensus of the “Storage and Renewables: Policy and Market Trends” panel discussion during the Renewable Energy Markets conference in Houston on Oct. 9 – 11.
Power purchase agreement (PPA) prices for renewable energy-plus-storage facilities have dropped nearly 60 percent over the past 20 months, according to Anisa Dehamna, associate director of energy at Navigant. As a result of these declines, renewable-plus-storage projects are now competitive in a number of markets.
An Xcel solicitation earlier this year caught attention due to its wind-and-solar-plus-storage bids being far below expectations. Projects responding to that solicitation showed levelized costs similar to standalone wind or solar projects. As battery prices continue to decline in the coming years, combined renewable-plus-storage systems are likely to become even more competitive in many markets than they are now.
According to Dehamna, the battery pack represents approximately 50-67 percent of the all-in cost of a utility-scale storage project. This leaves considerable room for continued improvements in project economics.
In its 2018 Q3 Energy Storage Monitor, GTM Research predicts that the storage market will double between 2018 and 2019 and then double again by 2020. This market expansion will fuel increasing cost declines.
By 2030, Bloomberg New Energy Finance expects battery-pack costs to decline 67 percent from their values today. Coupled with continued cost declines expected for solar and wind technologies, combined renewable-plus-storage projects have a considerable potential for cost savings in the coming years.
Dehamna said there is a virtuous cycle of policy, market and prices working together to accelerate technology-cost improvements. As one market opens up to storage, storage deployment into that market drives down technology costs industrywide. These declining costs serve to open up previously inaccessible markets. This, in turn, further fuels economies of scale and decreases the costs of technology.
In a sign of industry’s enthusiasm and hope for renewable-plus-storage project growth, a poll of the audience of over 50 renewable energy professionals showed that 75 percent believed that storage will be critical for renewable sources to compete cost-effectively with natural gas generation in the United States.
This indicates an alignment of fates between the renewable energy and energy storage industries. As the cost of renewables and storage continue to drop, renewable energy developers see combined generation and storage projects as the best pathway to compete in markets dominated by low-cost natural gas.
Although the panel focused on large grid-scale deployments, the commercial and residential sectors are also poised for explosive growth. GTM Research expects storage deployment will reach nearly 4 GW per year by 2023. Nearly half of that capacity will be installed behind the meter at residential and commercial properties - often paired with renewable generation.
The solar-plus-storage industry received a large boost this year when the IRS issued a private letter ruling that determined that, under certain circumstances, storage assets may claim the Investment Tax Credit (ITC) when paired with solar PV. This has led to a rush among renewable energy-project developers to proactively develop and safe harbor these solar-plus-storage assets before the ITC begins to sunset in 2020.
Recent decisions at Federal Energy Regulatory Commission (FERC) have also created new market opportunities for storage assets.
- FERC Order 841 requires Regional Transmission Organizations (RTOs) to develop market mechanisms by which storage assets may participate fully in wholesale markets for energy resources, ancillary services, and available capacity. This will open up new revenue streams for storage assets.
According to Rob Gramlich, founder and president of Grid Strategies LLC, some RTOs and states are already going above and beyond the requirements of FERC Order 841. States like Massachusetts and California have issued energy storage mandates. Similarly, the State of New York has issued a draft Energy Storage Roadmap that calls for 1.5 GW of storage capacity by 2025.
- FERC Order 845 updated rules for grid interconnection of projects larger than 20 MW. The order created a process for projects to request interconnection service at a capacity lower than the nameplate capacity of the intermittent generation resource. In effect, the order allowed renewable-plus-storage projects to save on interconnection costs by reducing interconnection capacity and arbitraging energy through storage assets.
It also paved the way for adding storage facilities to existing renewable energy projects by allowing storage assets to share an interconnection point with an intermittent generator that isn’t using all of its available capacity at all times.
- Industry eyes are on an ongoing rulemaking at FERC concerning how renewable-plus-storage projects are designated under the Public Utilities Regulatory Act (PURPA) of 1978. The case concerns PURPA-qualifying wind facilities in Montana paired with battery-storage assets.
The eventual outcome could set a precedent that determines whether storage capacity is considered separately from the rated capacity of a renewable asset. The case could hamper many small-to-medium-sized renewable-plus-storage projects that are being developed as PURPA-qualifying facilities.
The panel explored four broad approaches for structuring renewable-plus-storage projects:
- The simplest and most common approach physically pairs storage with the renewable asset behind the point of interconnection so that the grid operator only sees and dispatches a single asset.
- Storage assets may also be located downstream of renewable energy projects in points of transmission constraint to free up transmission capacity. They then facilitate additional renewable project deployment upstream. The storage and renewable assets are operated independently of one another.
- Storage and renewables may be physically co-located but administratively partitioned so that each system is independently dispatched and delivers services separately.
- Hybrid systems are possible. In that case, renewable and storage assets may be physically separated but operated in tandem. These models may include multiple storage assets that are geographically dispersed but operated collectively.
According to Dehamna, the first three structures are currently operating in the market, while the fourth option is hypothetical.
Looking to the future, the panelists agreed that new environmental commodity markets may help spur storage development. This can assist with valuation of the various services storage can provide to the grid.
A key consideration will involve leveraging storage assets to shape the generation profile of renewable energy plants to match the regional load profile. Storage allows utilities and grid operators to store energy from renewable plants when their excess generation is not required and to dispatch that electricity when the grid needs it the most (shaping).
Corporate users such as Google are beginning to express interest in procuring shaped renewable energy products that closely match the time and volume profile of their specific load, according to Colleen Nash, director of ConnectGen LLC.
In 2017, Google announced that it had achieved its corporate goal of procuring enough renewable energy to cover 100 percent of its operations. The company expanded upon its commitment to renewables by announcing a goal of powering its operations with 100 percent renewables procured in the specific region of the load and with a profile that matches that load. This is an important consideration for many companies seeking to minimize their carbon emissions.
Large-scale energy storage will be critical for companies like Google to meet these aggressive time-matched commitments. Meeting these targets may require new market-based mechanisms and commodity markets for storage-enabled attributes, which will provide the platform for large corporate customers to procure renewable energy in real-time to match their loads.
Additionally, developing these markets may further spur the development of renewable-plus-storage products by creating new possible business models and additional revenue streams. For example, this might include valuing attributes like the fast-ramping ability of battery storage.
In their efforts to spur clean energy development and reduce carbon emissions, states like Massachusetts, California and Arizona have implemented or are considering policies that would require clean peak standards. These policies would require that a certain volume of peak generation come from qualifying clean peak resources. What qualifies as a clean peak resource is unique to each state policy, but it typically includes renewable energy generation, energy efficiency, and battery storage.
Achieving these objectives may require developing new environmental commodity markets or valuing unique peaking attributes. These efforts could further encourage the buildout of renewable-plus-storage systems.