California Energy Storage Alliance

1. California Energy Storage Alliance Successful AB 2514 Procurement Target Evaluation Janice Lin, Co-Founder & Executive Director January 14, 2013

2. CESA – Strength Through Diversity & Collaboration Steering Committee General Members

3. Now is a historic time reminiscent of 1970 …. -or- In 1970, a computer was many times more expensive than a typewriter. An evaluation based solely upon typing documents would say that a computer was not worth the money. As we know, the capabilities of the computer were much greater. Investment in computers brought about huge gains for those who saw the capabilities.

4. Computers have diverse and interconnected benefits Energy storage can also enable diverse benefits throughout the electric power system.

5. Introduction and Context • What are we considering? • Setting thoughtful goals for an electric utility energy storage procurement portfolio. • Why are we considering goals? • Allow us to proactively move toward true grid optimization by fully taking advantage of current technological and financial benefits of energy storage. • Accelerate realization of these benefits by advancing “network effects” made possible by energy storage, such as system reliability and renewable integration.

6. AB 2514 • Assembly Bill 2514 created the focus and forum to consider an energy storage procurement portfolio: • Procurement goals should be implemented if they are cost-effective and commercially available. • We think that this proceeding will very likely show energy storage to be cost-effective in many ways today, if all benefits are considered. • Many existing procurement-related rules and policies are roadblocks to fully realizing all benefits of energy storage. • Reasonable and justifiable procurement goals are a good option that can fulfill the vision of AB 2514.

7. Key Question #1 When do procurement goals make sense?

8. When do procurement goals make sense? Procurement goals for a technology class make sense when: All benefits are not monetized through existing rules and policies, but un-captured benefits demonstrate the technology’s cost-effectiveness. Widespread deployment creates net benefits for society and ratepayers. Increasing scale improves cost-effectiveness compared to business-as-usual alternatives. The inertia of business-as-usual procurement must be overcome. Near-term inaction will risk incurring substantial lost opportunity costs.

9. 1: Benefits are not fully monetized Many of these benefits cannot be properly compensated at this time. Benefits span multiple procurement mechanisms and jurisdictions, often with unclear connecting pathways.

10. 2. Widespread deployment benefits society and ratepayers • Environmental and health benefits: reduced fuel use and emissions, local air quality improvement. • Increased system reliability and power quality. • Improved grid robustness in disaster situations • Better planning: more renewables integration, less land use impacts, portfolio diversification. • California economic growth: in-state leadership in an expanding energy storage industry. • Improved utilization of existing assets. Current Grid Infrastructure Future Grid Infrastructure • Built for load and generation peaks that occur only a few times per year • Massive fossil fuel storage and delivery required • Strategic: buffers level generation and load • Result: more efficient & reliable electrical system Fossil Fuel Fossil delivery infrastructure Base Load Generation Oversized Transmission Grid Peaking & Regulation Renewable and Traditional Generation Oversized Distribution Grid Storage-Optimized Regulation & Transmission Storage-Optimized Distribution On-site renewables + storage

11. 3: Scale increases cost-effectiveness Benefits of investment in other industries – renewable energy cost curves • Other renewable energy industries have seen great cost reductions through R&D and increased scale. • Energy storage is just reaching scale to the point of large cost improvements – we should support it to maturity and achieve related benefits. IPCC 2011

12. 4: Inertia must be overcome Existing rules and procurement are oriented toward traditional generation and do not encourage innovation: • Existing longterm purchase agreements do not allow for ROI commensurate with benefits, and do not encourage use of new technologies and business arrangements. • Grid structure and long-term procurement planning are inflexible and unaccommodating of transformation. • Insufficient consideration is given to status quo risks: fuel price/availability, system reliability, environmental externalities, planning restrictions etc. • Ancillary resource capacity minimum requirements are excessive.

13. 5: Near-term inaction has substantial risks Under business as usual, the 33% RPS will not reduce GHGs Procuring only fossil resources exposes ratepayers to considerable fuel risk DOE EIA natural gas price projections have historically underestimated trends. We are procuring capacity now for 2018. Those generators will last for 30+ years. Our decisions today affect the grid for the next half-century.

14. When do procurement goals make sense? Procurement goals for a technology class make sense when: All benefits are not monetized through existing rules and policies, but un-captured benefits demonstrate the technology’s cost effectiveness. Widespread deployment creates net benefits for society and ratepayers. Increasing scale improves cost effectiveness compared to business-as-usual alternatives. The inertia of business-as-usual procurement must be overcome. Near-term inaction will risk incurring substantial lost opportunity costs.      Conclusion: procurement goals for energy storage should be set now; to help realize a robust, reliable, sustainable grid of the future

15. Key Question #2 How should goals be established?

16. Criteria Optimum goals should be based upon the following criteria • Sufficient scale to provide network benefits. • Consistency over time -- provide time to allow the market to invest. Policy cannot be changed in short run. • Sufficient volume to spur investment that will reduce cost. • Sufficient volume to overcome existing barriers. • Sufficient deployment over time to allow the technology to stand on its own in the long term. • Sufficient deployment to avoid the lost opportunity costs of inaction. • Deployment in all areas where energy storage makes sense: transmission, distribution, behind the meter. • Simplicity and clarity: • Allow stakeholders to see a clear goal to direct investment. • Allow utilities to determine where energy storage can be deployed to greatest advantage in their systems. Fundamental criteria: similar or superior benefit-to-cost when compared to other viable alternatives OR when societal benefits are both 1) significant and 2) challenging to internalize.

17. California’s RPS represents a successful example • Renewable generation capacity alone has increased by 77% since the RPS began in 2004. • Prior to the RPS, capacity only increased by 33% over the previous 8 years. • California now generates almost 12% of all energy needs from renewableresources. • In contrast: • Vermont has a voluntary RPS generates <1% • Mississippi has no RPS and generates .01% 2004-2011: 77% Growth after RPS 1997-2004: 33% Growth before RPS EIA 2012

18. An appropriate portfolio Specific goals for energy storage have been suggested already “The amount of regulation and imbalance energy dispatched in real time, without storage and using existing control systems to maintain system performance, within acceptable limits during morning and evening ramp hours for 33 percent renewable cases in 2020 was 4,800 MW.” “By comparison, 1,200 MW of storage added to the baseline 400 MW of regulation provided superior results...” KEMA 2010

19. Goal Options Option 1: Statewide Mandate Option 2: Directed procurement, specific to end uses Option 3: Market Tests/Pilots Option 4: Do nothing

20. An appropriate goal structure: CESA’s Recommendation Map goals to Energy Storage Rulemaking Scenarios. Allow utilities to deploy energy storage to greatest advantage within their systems, while diversifying their investments.

21. CESA recommends a parallel path forward Option 1: Statewide Mandate Option 2: Directed procurement, specific to end uses Details in following slides Option 3: Market Tests/Pilots e.g. 50 MW in Current LTPP Proposed Decision Option 4: Do nothing  

22. Optimum goal setting methodology • Structure goals around previously identified use cases. • Creates appropriate and effective goals for each end use • Accounts for different storage types needed to serve different use cases • Determine the key driver based upon the primary benefit. • Use cases which share a key driver will compete for the same goal. • Next Step: generate percentage-based goals based upon cost effectiveness and feasibility. Goals should be set for 2015 and 2020 per AB2514.

23. Goal ‘Examples’ 2020 Net Supply, CPUC 2020 Managed Demand Net Load CPUC

24. CESA Supports Near Term Market Tests and LTPP Phase 1 PD • Market tests of selected applications should commence Q1, 2013 consistent with LTPP Phase 1 Proposed Decision • “At least 50 MW must be procured from energy storage resources” (for the LA basin) • “Energy storage should be considered along with preferred resources” • Additional near term market tests should be ordered by Q3, 2013 to round out storage portfolio use case experience in California

25. Recommended Process and Timeline • Step 1: Set Cost-Effectiveness Methodology • Decide which methodology is most appropriate for each application • Step 1a: Commence Market Tests • Approve LTPP Phase 1 PD • Approve SDG&E General Rate Case Step 4 – Commission issues Proposed Decision outlining procurement recommendations Commission adopts procurement recommendations based upon the results of Step 3a and Step 3b. Step 3a: Set Goals Discuss and set preliminary goals for cost-effective Applications Sep-Oct Jan-Feb Mar-Apr May-Jun Jul-Aug Step 3b: Pilot Evaluation Applications that do not pass the cost-effectiveness threshold are evaluated for potential pilot procurement based on key criteria such as market transformation, changing market dynamics that will affect future cost-effectiveness, and as yet unforeseen value to California. Step 5 – Commission issues Final Decision implementing procurement recommendations Step 2: Conduct Cost-Effectiveness Evaluation of Each Application Commission and stakeholders conduct cost-effectiveness analysis.

26. Policy options – Cost-Effective Goals are not Sufficient • Multiple energy storage pathways to a cleaner grid: • Goals maintain strong focus and direction: support grid transformation and expand developer confidence. • Richer, more granular transparent pricing for energy, capacity and ancillary services reflecting full value and service delivered. • Procurement rules and policies that empower utilities to deploy energy storage with benefit-to-cost that is comparable or superior to alternatives. • Establish proxy values for societal benefits that utilities can use for benefit-cost valuations.

27. Optimum Portfolio Selection This portfolio represents a good fit with the right criteria. • Sufficient scale to provide network benefits. • Consistency over time -- provide time to allow the market to invest. Policy cannot be changed in short run. • Sufficient volume to spur investment that will reduce cost. • Sufficient volume to overcome existing barriers. • Sufficient deployment over time to allow the technology to stand on its own in the long term. • Sufficient deployment to avoid the lost opportunity costs of inaction. • Deployment in all areas where energy storage makes sense: transmission, distribution, behind the meter. • Simplicity and clarity: • Allow stakeholders to see a clear goal to direct investment. • Allow utilities to determine where energy storage can be deployed to greatest advantage in their systems. Fundamental criteria: similar or superior benefit-to-cost when compared to other viable alternatives OR when societal benefits are both 1) significant and 2) challenging to internalize.

28. Appendix • About CESA • Goal Reference Slides • References

29. California Energy Storage Alliance: Overview The California Energy Storage Alliance (CESA) is a membership-based advocacy group committed to advancing the role of energy storage in the electric power sector through policy, education, outreach, and research. Our membership includes technology manufacturers, project developers, systems integrators, consulting firms, and other clean tech industry leaders. We are technology and business model-neutral, and are supported solely by the contributions and coordinated activities of our members. CESA Mission and Membership

30. California Energy Storage Alliance: Overview CESA is an active participant in CPUC proceedings. We advocate for a reliable, environmentally-friendly, and balanced grid that incorporates energy storage at multiple levels. We are involved in the following proceedings, among others: • Demand Response (DR) and Permanent Load Shifting (PLS) • Interconnection Rulemaking • Long-Term Procurement Planning (LTPP) • Renewables Integration • Resource Adequacy • RPS Content Categories • Self-Generation Incentive Program (SGIP) Ongoing Involvement in CPUC Proceedings

31. California Energy Storage Alliance: Overview CESA has been advocating for energy storage in LTPP processes since June 2010 • June 2010: Long-term procurement policy • July 2010: Renewable resource planning • Sep-Oct 2010: Renewable integration modeling • Jan 2011: Planning assumptions & modeling issues • April 2012: Scoping memorandum • Jun 2012: Planning standards • Jun-Sep 2012: LTPP Track 1 (local reliability) • Oct 2012: Storage workshop • Oct 2012: Loading Order Comments Long-Term Procurement Planning Involvement

32. Appendix • About CESA • Goal Reference Slides • References

33. Procurement Goals Should be Measured in MW MW procurement goals are ideal for several reasons: • The grid is composed of various assets with set generation, transmission, and consumption capacities. Procurement goals should be based around this common measurement metric. • MW metrics allow for recognized manufacturing targets and related production/infrastructure investments for storage companies. • As Storage Technology becomes less expensive, capacity-based procurement goals will lead to lower overall costs. • Output time frames can be application-specific (i.e. frequency regulation can require 15 minute capabilities, while demand-side-management can be measured in hours) without converting overall goals to MWh, which can be problematic.

34. Improved Generator Efficiency Example: Gas Turbines and Thermal Energy Storage Effects of Inlet Air Temperature on Gas Turbine Power Output • Gas turbines run at higher power output levels at ideal inlet air temperature. • Because of this, on a hot day the gas turbine loses output and operates less efficiently. Demand is highest during these hot weather conditions. • Thermal energy storage can use cold water to control turbine air temperature, increasing output and efficiency – especially when it’s needed most. 110% 105% ISO TURBINE RATING ADDITIONAL POWER 100% RECOVERED POWER % of Rated Capacity 95% 90% GT POWER OUTPUT Source: TAS Energy 85% 80% 40 45 50 55 60 65 70 75 80 85 90 95 100 Inlet Air Temperature, degrees (F)

35. Improved Generator Efficiency Example: Greater System Efficiency from Optimized Generation • Smoothing from regulation services reduces needed operating reserves & ramping capability. • Individual generators can run at higher capacity factor, stabilize generation, and increase efficiency. Source: E&I Consulting

36. Richer Spectrum of Benefits Over Time • A system which starts out providing one set of benefits may provide other benefits over its lifetime. This is especially true for flexible energy storage systems. • This transition can happen gradually or quickly to best suit the needs of the grid • This increasing spectrum of benefits reduces the risk of deploying a storage asset on the grid and provides long term value for ratepayers.

37. Increased Capacity Value Energy storage combined with solar increases the electricity supply capacity value as much as 80%. Mills 2012

38. 2: Widespread deployment benefits society and ratepayers Energy Storage reduces greenhouse gas emissions • Storage reduces GHG emissions by helping generation run more efficiently. • Fewer startups • Reduced partial load operation • Reduced output variability • More generation when ambient temperature is lower • Offsets need for peaking generation. • Facilitates the widespread integration of renewables. Eyer 2010

39. 2: Widespread deployment benefits society and ratepayers Network Effects: widespread energy storage can help enable increased use of renewable energy in California “Use of storage also avoids greenhouse gas emissions increases associated with scheduling combustion turbines ‘on’strictly for regulation and ramping duty.” “The measurement of the relative effectiveness of storage to a combustion turbine demonstrates that, depending upon system conditions and other factors, a 30 to 50 MW storage device is as effective as a 100 MW CT used for regulation and ramping purposes.” “The 3,000 to 4,000 MW of storage which could be used to address renewables management requires a ramp rate capacity of 5 to 10 MW/second, or 0 to full power charging / discharging in 5 minutes. This equals or exceeds the ramping capabilities of most conventional generating units, and particularly the larger combustion turbines. Smaller combustion turbines in the California ISO database can meet this ramp rate requirement, but there are insufficient quantities of such units to provide the required 3,000 to 4,000 MW of fast ramping.” KEMA 2010

40. 2: Widespread deployment benefits society and ratepayers Reduced Risk: energy storage can diversify our portfolio • Energy storage is a key component of a new, diverse, and cleaner grid. • Energy Storage facilitates the introduction of new generation and T&D technology, diversifying the grid and reducing dependency and vulnerability to disruption. • Especially important with price and availability risk of conventional fuels. Karpinski 2012

41. 2: Widespread deployment benefits society and ratepayers Reliability Forecast Error for Wind • Example: Energy storage reduces output uncertainty attributable to wind forecast errors. • Technology-specific benefits: flywheel or battery spinning reserves free up generators, distributed energy storage provides local backup reliability. • Extends to entire grid: system reliability through load following, demand side management, etc. Denholm 2008

42. 2: Widespread deployment benefits society and ratepayers Additional Social Benefits • California economic growth: in-state leadership in an expanding energy storage industry. • Environmental and health benefits: reduced fuel use and emissions (per kWh), local air quality improvement. • Better planning: more renewables integration, less land use impacts. • Improved cost-of-service, power quality, and reliability for consumers.

43. 3: Scale increases cost-effectiveness Benefits of investment in other industries – renewable energy cost curves • Other renewable energy industries have seen great cost reductions through R&D and increased scale. • Energy storage is just reaching scale to the point of large cost improvements – we should support it to maturity and achieve related benefits. IPCC 2011

44. 3: Scale increases cost-effectiveness Cost curve of solar versus natural gas plants • Solar is becoming cost-competitive with gas and coal. • Installed energy storage cost reductions are likely as economies of scale in manufacturing, project scope, and integration are achieved • As fuel costs rise, the relative benefits of energy storage will further accelerate to the point of grid parity with key peaking and ancillary services resources. Solar Cost Reductions – Time & Scale 1366 Technologies, 2011

45. 3: Scale increases cost-effectiveness Example: Published anticipated cost curve of Li Ion • We are already seeing accelerating price reductions for many forms of storage. • DOE outlines potential for ten-fold improvements for Li-ion in only ten years. • Li ion cost reductions are being fueled by volume purchases for EV’s. • Some technologies are becoming cost-competitive even sooner. Japan New Energy and Industrial Technology Development Organization (NEDO) and DOE, 2010

46. 4: Inertia must be overcome Existing rules and procurement are oriented toward traditional generation. • A few potential changes in California would help enable energy storage development: • Ancillary resource capacity minimum requirements should be lower. • Long-term payment mechanisms for fast response regulation and similar services. • 30-60 minute continuous energy requirement should be reduced or eliminated. • CAISO’s Energy Management System (EMS) should accommodate negative power dispatch, thus accommodating energy-neutral resources. • Utilities should establish long term purchase agreements for ancillary services, which would greatly improve the ability to secure capital for storage financing.

47. 5: Inaction will equal lost opportunity costs Procurement for the future should happen now. • Median age of the California generation fleet is ~30 years, and T&D infrastructure is aging. • Our decisions today will affect the grid for the next half-century. • Construction equals long-term commitment – to financing, grid structure, fuel reliance, environmental impact, etc. California Energy Commission, 2012

48. 5: Inaction will equal lost opportunity costs Volatility from renewable generation backed by Natural Gas plants reverses expected GHG reductions from renewables • GHG/Fuel use INCREASES when 33% RPS happens without grid connected storage available • Smoother energy using grid-tied storage is required to realize the benefits of renewable generation, enabling true GHG reduction CAISO 33% RPS Study of Operation Requirements and Market Impacts

49. 5: Inaction will equal lost opportunity costs Business as usual subjects ratepayers to significant fuel price risk. • DOE EIA natural gas price projections cannot forecast market disruptions and historically have underestimated trends. • Excessive expansion of natural gas-fueled generation bears risks associated with natural gas availability and pipeline and gas storage capacity. • Uncertainties include: • AB 32 auction prices • Fracking regulation • SONGS restarting EIA 2010, 2000, Annual Energy Outlook, content courtesy EnerVault Corporation

50. Appendix • About CESA • Goal Reference Slides • References