Oregon saddles up to implement trailblazing energy storage mandate

Oregon's mandate is the second in the nation, but novel in the guidance it gives to regulators on storage

In 2016, Oregon’s utilities and energy sector stakeholders will have the chance to set the bar on the value and benefits of energy storage.

In the new year, the Oregon Public Utility Commission (OPUC) will convene a proceeding on the state's new energy storage law, which could produce a template for the rest of the nation. While Oregon's law is actually the second in the nation — California enacted a storage mandate in 2013 — sector stakeholders say the law is special in the guidance it provides to regulators on how to value energy storage technologies.

Utility sector players have largely welcomed the mandate, in no small part because they already have some experience with energy storage. Portland General Electric (PGE) in particular has already proved two big benefits energy storage can offer, officials told Utility Dive

“Our Salem Smart Power Center demonstrated its value to the grid for reliability and for capturing renewables and using the stored electricity when it is needed,” said Portland General Electric Communications Specialist Stan Sittser.

“It has proven so practical that we have taken what was originally a test and turned it into a routine part of our grid,” Sittser added.

Oregon House Bill 2193 (H.B. 2193) requires PGE and PacifiCorp, Oregon’s dominant electricity providers, to have a minimum of 5 MWh of energy storage in service by January 1, 2020. 

Passed by both the state Senate and House and signed by Gov. Kate Brown (D) in June, the bill also requires OPUC to initiate open rulemaking procedures and issue and order by January 2017. 

The law limits the amount of storage a utility can procure or develop at 1% of the company's peak load, although they can obtain waivers from the OPUC for larger systems if more than one utility shares the program and its cost. In 2014, PGE reported a peak load of 3,866 MW in the state, and PacifiCorp's was about 2,377 MW, according to a blog post on the law from K&L Gates attorneys.

Any technology that captures energy, stores and delivers it is considered eligible. That includes batteries, flywheels, compressed air energy storage, thermal storage, and pumped hydro-power, according to a state Senate staff filing. The law is “technology-agnostic, but industry realizes the declining price in battery storage,” it adds.

“Certain types of storage can be cost effective today, and advances in technology are expected to continue this trend,” said Hillary Barbour, policy director of advocacy group Renewable Northwest. “The legislation’s definition of energy storage is broad enough to allow for all types of storage technology.”

Key points in the legislative debates that led to the law's passage include Oregon's need to better integrate renewables by increasing grid flexibility, manage the peak demand strain on the system and to lower greenhouse gas emissions, according to Diane Broad, senior policy analyst at the Oregon Department of Energy (ODOE). 

“Those are all legitimate objectives for developing energy storage,” she said.

Rulemaking issues 

Sittser said a PUC public process involving all stakeholders will convert the law into a rulemaking in 2016 and 2017.

"If the order requires us to provide a proposal, we will do so," Sittser said. 

Broad said that the first interim steps will be workshops led by PUC staff that bring together the utilities and “interested stakeholders." 

“The intent is for the utilities to bring relevant information into the workshops about where and how their operations can benefit from energy storage and for the stakeholders to help develop storage evaluation methodologies and guidelines for utility proposals,” she said.

A key decision, the K&L Gates post points out, will be whether to follow the legislature’s lead and quantify the cap on storage in MWh, rather than MW.

Ken Dragoon, director of Flink Energy Consulting and former Bonneville Power Adminstration resource planner, said how the mandate is denominated could be significant for utilities.

“A 5 MW storage battery capable of storing 50 MWh could supply 5 MW to the grid for up to 10 hours (5 MW X 10 hours = 50 MWh),” he said. “Whether 5 MW can be sustained for a second, a minute, an hour, or a day makes a very large difference.”

The law is “a good starting point,” but could offer more detail on “cost-effectiveness,” Dragoon added. 

Studies show the total benefits from storage to utilities and power developers may exceed its cost when they can be stacked together, but “none of them individually receives enough benefit to make the investment pay for itself,” he explained.

While utilities have more interest in grid-scale storage in front of the meter, the most cost effective opportunities are likely on the demand side and need to be included, Dragoon said.

Meredith Roberts, SolarCity deputy director, agreed. 

The law puts Oregon “at the forefront of an emerging energy technology and policy issue” but can be improved by including a focus on and a workable market for customer-sited storage, Roberts said. 

PGE’s Salem installation demonstrated the technology offers important benefits, but was federally funded, Sittser said.

“There are a lot variables at play," she said. "It might be less today because the cost of batteries is coming down. We don’t have an analysis of the economics right now.”

Valuing storage under the mandate

Two parts of the law of particular interest are its list of values energy storage can bring to Oregon, and its call for the PUC to develop a valuation methodology, said Ted Ko, director of policy for battery storage and technology provider Stem. 

“Commissions and consultants in forward-thinking states have been doing studies on how to value energy storage,” Ko said. “It is relatively easier to value solar because it just produces kWh. It is a much bigger challenge to value storage because it can do so many different things.”

The law directs the commission to “examine the potential value” of energy storage in six specific areas:

  • Deferred investment in generation, transmission, or distribution infrastructure,
  • Reduced need for adding peak demand generation capacity,
  • Improved renewables integration, 
  • Reduced greenhouse gas emissions,
  • Improved transmission or distribution system reliability,
  • Reduced price variability of utilities’ generation portfolios. 

The commission is also directed to consider “any other value reasonably related to the application of energy storage system technology. This allows the commission to consider “qualitative things like environmental values,” Ko said.

The law also directs the commission to evaluate how storage would complement any proposal for “an integrated, least-cost combination of resources to meet the expected needs of the electric company’s customers,” he quoted.

“That is the first time I’ve seen a law direct utilities to describe how proposed storage projects would complement other kinds of solutions and other kinds of resources,” Ko said.

Valuing the integration of storage with other resources is something Stem has long urged in proceedings on new utility business models that include distributed energy resources, Ko said. “A portfolio solution to meet a grid need can represent a lot more value than a single technology.”

Ko expects to see three key items the in PUC’s 2016 workshops: Customer-sited behind-the-meter storage, third party-owned storage as well as utility-owned storage, and a deep and rigorous quantification of the values and benefits of storage and how it compliments other technologies.

“Oregon’s more limited electricity market means there are fewer opportunities for different value streams for storage,” Ko said.

But Stem’s winning bid in the recent Southern California Edison local capacity requirement procurement demonstrated that a utility can defer distribution system investments with aggregated small energy storage systems on a circuit in jeopardy of being overloaded, he said.

Stem and other third-party providers can offer such services in Oregon as easily as in Orange County if the economics make sense, Ko said.

Some utilities argue energy storage economics are too complicated to quantify, so a rigorous evaluation of them in Oregon could serve as a template in other proceedings, Ko added.

The signal and the key

Oregon's law is "an important signal...[that it is] committed to the development of energy storage,” according to Renewable Northwest’s Barbour, but where the rubber hits the road will be in implementation.

More than the law itself, it is "an appropriately scaled proposal that allows the Public Utility Commission (PUC) to work with Oregon’s utilities and other stakeholders.”

“We don’t have ancillary services markets or much difference between daytime and nighttime pricing, and therefore price arbitrage does not pencil out,” ODOE’s Broad said. “The development path for energy storage in Oregon will depend on the utilities and stakeholders understanding how energy storage installations can bring the most benefits to the grid and to consumers and that means it has to be more than one thing.”

And understanding that process is key to bringing in developers like Stem. 

In any state, Stem looks at the available value streams and stacks them, Ko said.

“If that adds up to more than the cost of the battery system, then the market is worth going after," he said. "We haven’t look very closely at Oregon in the past, but after looking at this law if there are RFOs that come from the utilities based on it we will be interested.”