Energy storage market participants often face challenges that are more daunting than those of typical solar developers. Such challenges include that energy storage remains more expensive than other traditional grid solutions to peak demands that currently rely upon natural gas and fossil fuels, the dropping market prices of natural gas and fossil fuels, the lack of well-established financing models, an uncertain regulatory structure (including tax benefits), a schizophrenic love/hate relationship with different technologies and efficiency rates and a lack of sufficient industry data supporting the reliability of energy storage and the increased valuation such equipment provides to an overall solar project.
While the foregoing hurdles have the potential to derail or dampen the excitement with the energy storage industry once again, there is a significant movement both domestically and internationally to avoid such a result. The United States, the European Union, China and India are collectively being asked by the International Energy Agency to invest $380 billion in energy storage (resulting in approximately 310 gigawatts of new projects) by 2050. Federal Energy Regulatory Commission order numbers 755 (Frequency Regulation Compensation in the Organized Wholesale Power Markets) and 784 (Third-Party Provision of Ancillary Services; Accounting and Financial Reporting for New Electric Storage Technologies) have the effect of potentially opening new energy storage markets by mandating (directly and indirectly) energy storage development. California has passed laws and implemented CPUC regulations requiring energy companies to build up to 1.3 gigawatts of energy storage by the end of 2020, and Germany has earmarked approximately $258,000,000 for up to 60 energy storage pilot projects. In November of this year, Southern California Edison (SCE) awarded 250-megawatt energy storage procurement to help make up for the closure of the San Onofre nuclear power plant. Eleven companies entered into a combined 74 contracts to provide a total of 2,220 megawatts of “incremental capacity”. As part of the award, AES Energy Storage has agreed to build a 100-megawatt “in-front-of-meter” battery system in SCE’s West Los Angeles Basin region. In addition, Bay Area start-up, Stem, is providing 85 megawatts of behind-the-meter batteries. And, another start-up, Advanced Microgrid Solutions, has signed up for 50 megawatts of battery-centered “hybrid electric building” projects.
What all this means to the solar and energy storage industries remains to be seen, particularly as technology continues to evolve at its rapid pace and the market establishes, sets and/or validates the true costs with commercial development. Industry experts hope that the regulatory changes will provide new standards for incorporating distributed and customer-owned energy assets into the grid. Energy attorneys, solar developers and storage manufacturers hope that the SCE procurement transactions will offer some guidance on how the industry will finance and document energy transactions at the utility scale while providing a road map for smaller residential and commercial transactions.
