The Energy Storage North America (ESNA) conference in San Jose, CA last week can be summed up in one word – optimism. The sanguine outlooks on market opportunities and trends were unanimous. Several vendors can’t manufacture their equipment fast enough to meet demand.
California is making the market for energy storage. The ninth largest economy in the world recognized energy storage systems as important technologies in electricity value chains with the passage of AB2514. The CPUC decision 13-10-040 set the regulatory expectations about utility-interconnected and behind the meter energy storage. States like California view energy storage as a critical tool to firm up intermittent forms of renewable generation. State policies in the Northeast USA encourage energy storage systems to deliver resiliency for grids and critical infrastructure. Of course, a credible argument could be proffered that Tesla is making a market for energy storage with its gigafactory in Nevada. The company plans to build 50 GWh in annual battery storage starting in 2017. These combined influences are driving the growth of new storage technologies, services and financing mechanisms.
The comparisons to solar trajectory trends are well-known. Energy storage technologies are expected to rapidly decrease in price in response to increased economies of scale and expertise. Deployment numbers forecast fast growth – particularly in behind the meter solutions that focus on reducing electricity costs due to high demand charges.
But the energy storage ecosystem has to overcome two challenges that could have negative impacts on adoption rates. First, energy storage technologies are diverse. There are chemical and non-chemical categories of storage. There are many subcategories based on different elements such as lithium, zinc, sodium, or iron; and non-chemical storage ranges from pumped hydro to compressed air to flywheels. There is significant variety in number of charges, stability in different environmental conditions, and form factors. You can select an energy storage solution to ensure that your mission-critical devices or operations are not disrupted by power outages – a resiliency function. Storage can help maintain stable grid operations, a reliability function. Storage can reduce electricity use at peak time periods or avoid those demand charges mentioned above – a cost-savings function. The market places very different values on the potential uses for energy storage by function. There’s a lot of confusion that needs to be addressed with education to ensure buyers are making sound decisions that meet and exceed their expectations.
The second challenge is that early stage energy storage technologies and services are usually proprietary and customized engineering solutions. Deployments may include features that aren’t supported on a commercial scale, or may not exist in the future. All of these qualities increase the balance of system costs that go beyond the storage equipment purchases. There is no equivalent to a USB standard for physical connections of different energy storage solutions to the grid. The Byzantine variety of permitting processes and fees is a problem that bedevils the solar industry too, but it’s a brand new learning curve for the energy storage system integrators and installers. In essence, there’s too much complexity in the entire design, development and deployment process for energy storage systems, and it’s an area that’s ripe for innovation.
The good news is that vendors are working collaboratively to solve some of these problems. There’s a new industry initiative called the Modular Energy Storage Architecture (MESA) standard initiative that can help promote more of a plug and play environment. It would be interesting to see similar collaborative efforts between utilities to standardize on interconnection processes. Likewise, the irrationalities of municipal permitting processes should be replaced with national standards – just as we use the NEC (National Electrical Code) to define the safe design and installation of electrical systems in a uniform way across the USA.
The energy storage ecosystem has to rapidly mature, or suffer self-inflicted pain evident in inflexible, non-scalable, and proprietary solutions slowed down with non-standard processes. These challenges could reduce overall investment paybacks for grid scale and behind the meter deployments. Industry optimism must be tempered with pragmatism to create the right technology and policy frameworks that enable continued success to this important segment of Smart Grid solutions.
The news for solar energy in the USA is optimistic, based on recent reports from Navigant Research and statistics compiled by the SEIA and Greentech Media. The first firm indicates that the market for distributed energy resources, of which solar, mostly in PV forms, is anticipated to reach $625 billion USD in cumulative spending in residential generation and storage between 2014 and 2023. The second report projects that PV installations will reach 6.6 GW in 2014, almost doubling in size since 2012.
There are several reasons for these healthy growth projections. First, there are more affinity marketing promotions in your mail and email these days, in which environmental organizations such as the Sierra Club team with solar vendors and combine purchase discounts with donations to environmental or social justice causes. Second, there are more financing options as crowd-sourcing, PACE, third-party ownership via power purchase agreements* (PPAs), and Green Bank and Green Bond options make capital more affordable and available for residential, commercial, and municipal projects.
Third, the federal government has a number of initiatives designed to reduce the investment costs in solar and increase the effective energy harvestability of solar technologies. Of the fourteen programs the White House described in its Energy 2030 announcement to double energy productivity this past week, 10 cover renewable energy. Some are already in existence, like the SunShot program to improve technologies and ongoing reporting of solar technology trends and deployments. New activities include industry roundtable discussions intended to improve capital flows and risk assessments for solar projects.
These are all positive incentives that encourage residential, municipal, commercial and industrial building owners and farmers to invest in solar energy to reduce their reliance on local utilities and/or improve their self-sufficiency in light of grid disruptions. And states like California, Massachusetts, and Arizona have been setting the pace for solar deployments. However, a series of events in Northern California, territory for Pacific Gas & Electric (PG&E), could culminate in an unintended perverse incentive that encourages its customer base to embrace solar and other DER assets.
A catastrophic natural gas pipeline explosion occurred on September 9, 2010 in a San Bruno, CA neighborhood. The resulting inferno killed 8 people, injured 66, and destroyed 38 homes. PG&E owned the pipeline, and was ultimately fined $1.4 billion USD, based in part on its failures to maintain pipeline safety and keep accurate records. As a side note, had this pipeline been upgraded with Smart Grid technologies that deliver remote sensing and controls, much of the damage might have been minimized. Instead, a dumb gas grid required manual intervention to shutoff gas, an action delayed for well over an hour as a maintenance truck traversed half of the Bay Area during the afternoon rush hour and first responders battled fires fueled by gas.
The story doesn’t end with the fine. Since then, a number of emails between the utility and the California Public Utilities Commission (CPUC) highlighted a very cozy relationship between the monopoly and the regulatory agency. All these recent revelations have earned the attention of the governing representatives of PG&E customers at the local, state, and federal levels, as well as the customers themselves. A few heads have rolled, but we haven’t seen the last act in this story.
But there’s more. PG&E is also the utility that suffered the still-unsolved April 2013 physical attack to its Metcalfe transmission substation in Silicon Valley. Someone with a high-powered rifle destroyed valuable assets that maintain grid reliability. That event stirred much needed, industry-wide discussion and subsequent actions to upgrade physical security perimeters for critical infrastructure. Yet even after PG&E installed new fence monitoring equipment at the Metcalfe site, on August 27 of this year burglars cut their way into the perimeter and stole construction equipment on site to repair the damages incurred in the previous attack. The fence monitoring alarms worked, but they weren’t addressed, and the fault has been attributed to human error.
PG&E customers are weighing four years of news about this utility’s failures in maintaining the social compact of safe, reliable, and cost-effective electricity and gas distribution. It could add up to become a perverse incentive that motivates people to adopt more solar to generate at least some of the energy they need as confidence in the utility drops. These failures won’t be solved with investments in advertising campaigns about pipeline safety or lobbying the regulatory agency. Focus on running the business on the principles of the social compact.
Most Smart Grid discussions about human impacts address the demographic trends in utility workforces or the influences that Smart Grid technologies and applications have on people in residential and commercial settings. While both are very worthy topics, the subject of job creation doesn’t get the same attention. And that’s a puzzle, given today’s economy. The Smart Grid’s technology, policy, and financial disruptors have happy consequences for the labor market through increased and sustainable local employment opportunities.
Jobs can be defined as direct, indirect, and induced. Direct jobs are the positions created to perform a specific function. Indirect jobs are created in supply chains and the businesses that support those direct jobs. Induced jobs are created based on the savings generated from the results of the direct and indirect jobs.
For instance, one of the most important Smart Grid trends is the growth of distributed energy resources (DER). One important DER asset class is renewable energy such as found in solar generation solutions. The state of California has more than 47,000 people working in this sector – about one third of the nation’s total solar employment. Many of these jobs are focused on installation and maintenance of solar systems – “boots on the ground” or direct jobs that every region of the USA should encourage.
What led to solar generating energy and jobs? It’s not just the natural climate of abundant sunshine in the state. The state renewable portfolio standard of 33% that Governor Jerry Brown stated was a “floor, not a ceiling requirement”; the million solar roofs program, and other regulatory and legislative actions created the business climate, which enabled companies to put certainty to former risks, and led to the establishment or growth of scores of businesses and new direct, indirect, and induced jobs.
Other DER asset classes include energy storage, energy efficiency retrofits, and demand response programs. The California Public Utilities Commission (CPUC) mandated in 2013 that its regulated utilities must incorporate 1.325 GW of energy storage into their grids by 2020, the largest amount of storage in the world today. Energy storage and renewable generation assets go together like peanut butter and jelly – good on their own, but even better together. Like recent solar cost trends, upfront energy storage costs are expected to decrease as deployments increase and benefit from economies of scale. New market entrants with innovations in technologies, processes, and services will bend the cost curves downwards even more. These trends mean more direct jobs for skilled technicians and a labor force that remains in place to respond to maintenance and upgrade requests. Greentech Media estimates that the energy storage market will quadruple every four years, and one of the reasons is California policy, which essentially made a market for energy storage solutions at the transmission, distribution, and behind the meter (consumer and prosumer) points.
Energy efficiency is another promising homegrown employment area. Spurred by the oil embargo and economic shocks of the early 1970s, California has gradually introduced energy efficiency (EE) standards for white goods like refrigerators, electronics like TVs, and commercial and residential buildings themselves. The building standards are updated every three years. Similar policies have been adopted worldwide since then. The latest round of EE building standards will create locally-situated jobs as building owners retrofit structures or deploy the appropriate energy efficiency measures in their new construction. This American Council for an Energy-Efficiency Economy (ACEEE) paper outlines the economic impacts of EE projects in both employment and cost savings. The cost savings benefits of energy efficiency measures are sometimes overlooked too. As less money is needed to pay for energy expenditures, more capital is available to invest in business growth.
There are two centers in California designed to support job training on EE technologies and services. The newest center is a collaboration between the International Brotherhood of Electrical Workers (IBEW) and the National Electrical Contractors Association (NECA). These organizations understand the connection between smart energy policies and sustainable employment. California has often led the way in smart energy policy, although the aftermath of Superstorm Sandy has prompted some eastern states to promulgate innovative energy policies that build and enhance grid and community resiliency. Where these pioneers lead – will other states follow? They would be wise to enact similar energy policies to benefit their regional economies through job creation and reductions in energy costs for citizens and businesses.
The Smart Grid is all about grid modernization and transformation. When we modernize the grid, we update technologies, but leave in place existing energy sources, existing business models, and existing policies. When we transform the grid, we exchange old energy sources for new ones, reinvent business models, and revise policies to support the transformations. Of the two, transformation is ultimately a much more difficult objective but it also holds the greatest rewards. Why? Simply put, transformation delivers energy and economic security.
The current grid has taken modern society as far as it can, but we’ve seen its shortcomings magnified on a global scale over the past few years. Reliance on fossil fuels for electricity generation and transportation has real downsides to the health of the citizens of Beijing. Their ongoing “airpocalypse” of hazardous air quality is a public health emergency. In the USA, reliance on centralized, just in time generation has expensive downsides to our economic vitality as witnessed in prolonged outages caused by derechos and hurricanes. A grid that is built to meet performance expectations based solely on reliability and not on resiliency cannot adequately support an electron-based economy.
Development of alternative energy sources that replace fossil fuels has been a top priority for electric grid transformation. For example, the US military is concentrating on buildouts of microgrids into their fixed and mobile bases that integrate renewables as energy sources. The prime mover, as noted by Vice Admiral Dennis McGinn (USN, ret.), president of ACORE (American Council on Renewable Energy), is that renewable energy is essentially free. That’s real economic security.
We are enjoying the results of several years of advances in solar technologies and services. The costs of panels are doing down as the harvestability ratios go up. We’ll continue to see exciting innovations in technologies and services. The recently announced peel and stick solar cells can make more devices self-generating. Companies like Geostellar create online solar marketplaces that connect potential solar customers with information, suppliers, and services.
Energy storage is a critical technology to aid the transformation to the Smart Grid, and serves two purposes. First, it helps firm the intermittency of renewable energy sources like wind and solar. Second, it can deliver much-needed resiliency to grid operations when it is deployed in distribution grids at points of consumption. Like renewables, energy storage technologies will benefit from enlightened federal and state policies that encourage R&D and pilot deployments that stimulate innovation and build practical knowledge applied to further technological, policy, and market improvements.
The recent history of renewable energy illustrates how policy can accelerate grid transformations. California’s Solar Initiative has 1 gigawatt of rooftop solar in production already, and New York’s recently announced NY-Sun program calls for an annual investment of $150 million for 10 years to stimulate solar deployments. The introductions of Green Banks like those forming in Connecticut or announced in New York use public and private funds for energy efficiency and energy generation projects. California may allocate all the revenue from a tax loophole closure to fund energy efficiency and renewable energy projects at primary, secondary, and community colleges, and reduce energy bills.
California took a first step on a similar trajectory for energy storage in 2010, directing the state Public Utilities Commission (CPUC) to study the feasibility of energy storage on a widely distributed scale. The CPUC could set mandates for each state Investor Owned Utility (IOU) to procure energy storage, and the final report is due soon. What remains to be seen is if other states move to consider similar policies, and the forms that financing takes for energy storage as standalone or integrated components in renewable energy projects.
Technology and policy are relatively easy challenges compared to the changes needed to business models and operations. These challenges will get more detailed exploration in future articles.
There are three types of people in the world, the saying goes. Those who make things happen, those who watch things happen, and those who wonder what happened. When it comes to the Smart Grid, this observation applies to businesses and governmental entities too. States like California are making things happen through innovative policies, exemplified in two decisions just enacted in this past week that will influence the state’s three investor-owned utilities’ Smart Grid plans.
The California Public Utilities Commission (CPUC) ruled in favor of an expanded definition and standard calculation to develop the number of residential and small commercial customers who can participate in net metering. Net metering is a tariff that lets participants receive a credit on their bill for excess electricity generated by their solar equipment that is returned to the grid.
What does this mean for California’s investor-owned utilities (IOUs)? The amount of net metered solar that can be added to the grid more than doubles from 2.4 GW to 5.2 GW. That in turn increases pressure on utilities to upgrade their distribution grids for bi-directional power flows, which is one of the primary characteristics of a Smart Grid. This additional power from a clean but intermittent source of energy may spur increased utility focus and investment in solutions that help manage distributed energy resources (DER) and in DER assets like community-based energy storage.
This decision also creates market opportunities for the companies that manufacture, sell, finance, install, monitor, and support solar assets on rooftops and DER technologies. Innovations in business models and tools that reduce the costs of solar deployments will follow as new net metering participants seek the most cost-effective solutions. There are some interesting businesses that are making things happen to wring cost out of business processes to benefit consumers. The CPUC decision also has positive ramifications in terms of making things happen for local jobs, especially blue collar jobs in installation and maintenance.
The California Energy Commission (CEC) just announced a ruling that enhances energy use regulations for residential and commercial buildings. The rules go into effect in 2014 for new construction and major renovations, and are estimated to save the energy equivalent of 6 power plants or electricity for 1.7 million homes. Important residential building changes require that new homes must include insulation on hot water pipes, windows that can filter out heat, and rooftops that are “solar-ready”.
Commercial building regulations also address solar-ready roofs and heat-filtering windows, and include automated lighting controls to adjust to daylight conditions and reflective roof materials to create cool roofs. Making buildings better energy consumers through technology or better construction materials is also an important part of the Smart Grid value chain.
There are two existing state policies influencing these regulations and concomitantly, California’s Smart Grid plans. The first is the Loading Order for state energy decisions, which prioritizes cost-effective energy efficiency and renewable generation as the first actions to meet growing electricity needs. In other words, try something different than building another power plant. The other state policy sets “Zero Net Energy” (ZNE) goals for residential and commercial buildings by 2020 and 2030 respectively. At these dates, new buildings must deliver all of their annual energy needs through energy efficiency and distributed generation from renewables.
Just like the CPUC decision, the CEC action creates market opportunities, and emphasizes the importance of investment in Smart Grid-enabling technologies and practices that support DER in addition to making buildings smarter and stingier in energy use. Utilities and businesses that want to make things happen in the Smart Grid should take note. And regulators and utilities should consider enhanced education and communications outreach so that consumers can watch what happens (and become active Smart Grid participants) rather than wonder what happened.