One of the best new markets for energy storage might not be in a state with a deregulated market and policies that favor renewable energy, but in Florida, a bastion of traditional, regulated utilities.
States like California, Texas, New York, Hawaii and Massachusetts have either competitive wholesale power markets or policies that support and encourage energy storage, or both, and are among the leaders in energy storage projects. Florida, in contrast, has virtually no energy storage projects. But that could change quickly.
Florida could see $230 million of investment in utility-owned battery systems by 2021, according to a report by researchers from the University of California San Diego (UCSD).
Projects approved or proposed for Florida Power & Light and Duke Energy Florida could make the state a prominent location for energy storage. But electricity rates that track the national average — providing less incentive for storage as a means to reduce demand charges — and a lack of regulatory mandates pose challenges for storage developers, the report said.
Dramatic market change
Florida’s market for energy storage has already changed dramatically, Rick Ferrera, one of the authors of the report, told Utility Dive. "The market is a lot different today than it was a year ago when we started the report."
That shift is being driven by the falling costs of battery storage and a heightened awareness of the need to bolster grid resilience in the aftermath of last year’s hurricane season that brought the devastation of Irma and Maria, Ferrera said.
The report, Battery Energy Storage in Florida, was released by The School of Global Policy and Strategy at the UCSD.
It finds an existing positive investment case for behind-the-meter storage in Florida. The main driver, the authors say, is the ability of battery storage to offset demand charges for utility customers. The scenarios modeled in the report found several battery systems are already “in the money” under a variety of scenarios at the low end of current cost estimates. And, as lithium-ion battery prices fall, even more potential projects could become viable, according to the report.
The demand charge analysis is particularly suited for Florida because it does not require a regulatory scheme to make energy storage viable. That could be an important consideration in a state that does not even have a renewable portfolio standard, Taylor Marvin, one of the report’s authors, said.
GTM Research has also looked at the Florida behind-the-meter market. The firm’s demand charge management analysis of the market from mid-2016 “did not show a rosy picture for standalone storage for demand charge management in 2016, though Florida did show up as one of the states that starts to become promising in 2021 for 1-hour systems,” Brett Simon, an energy storage analyst at GTM Research, told Utility Dive.
“The BTM market in Florida is small, but interest and demand exists,” Simon said. Only a handful of deployments have occurred to date, but “several residential storage players have identified Florida as a market where they're either active or that they are watching closely.”
Renewables drive storage rebate
There are signs that the way Florida’s utilities are viewing alternative investments is changing. In October, JEA, the municipal utility that serves Jacksonville, introduced a rebate program that will offset 30% of the cost of behind-the-meter battery systems up to a cap of $2,000 per system.
The rebate is part of a wider policy shift that includes reducing the net metering rate paid to new distributed solar installations by more than two-thirds and expanding procurement of utility scale solar to include the addition of 250 MW of capacity to its system.
JEA already has 11 MW of solar farms on the drawing board, Steve McInall, director of electricity production and resource planning at JEA, told Utility Dive. “We are at the point where renewables are the most reasonable investment because the price is so attractive,” he said. “It is a way to lock in a fuel price” for the long term.
McInall said the storage rebate is being driven by the muni’s adoption of renewables. “Without storage, renewables would be self limiting,” he said. “Storage allows us to put in solar and still have a capacity component.”
And from a customer’s point of view, a storage device tied to rooftop solar would allow them to get the full retail value for their solar panels, McInall said.
JEA’s net metering program only reimburses retail customers for their excess solar generation at the rate the utility pays for fuel. By storing solar power and using it later in the day, a customer can extract the full value of a solar installation, McInall said.
As positive as McInall is about storage, he still says it does not yet make sense as a standalone investment. “It is really expensive,” he noted. One of the reasons JEA paired its storage rebate with solar installations is because the batteries can take advantage of the federal investment tax credit.
The tax credit, as it now stands, is only available for energy storage projects that are tied to, and are charged by, solar panels.
Seeing value in front-of-the-meter
A lack of deployments and data made the front-of-the-meter market in Florida harder to assess, and the report’s authors drew conclusions from studies done in states where government agencies or utilities have invested in public analysis of the potential value of the energy storage market.
But utilities and the state’s Public Service Commission are beginning to see value in the front-of-the-meter market as well, the report found. While the front-of-the-meter market in states such as California has been driven by regulatory mandates, Florida’s market is different. There, the authors say, momentum could be driven by the inclusion of energy storage in rate case settlements.
In December 2016, Florida regulators approved a rate case settlement with Florida Power & Light that authorized the utility to procure 50 MW of batteries through 2020 and seek cost recovery in its next rate case. “FPL appears to have convinced the PSC that it can deploy the storage to provide benefits to customers,” the report says. And in late 2017, Duke Energy Florida proposed the installation of 50 MW of batteries in a rate settlement.
The PSC refers to both programs as pilots, but the “commission’s willingness to allow cost recovery for so many utility-owned megawatts suggests that it expects the installations to operate somewhat cost-effectively,” the authors say. Taken together, the FPL and Duke storage projects could quickly put Florida on the map for energy storage, they say. “Florida could go from essentially no meaningful storage projects today to dozens within five years.”
“Florida is an interesting market for a lot of reasons,” Daniel Finn-Foley, senior energy analyst at GTM Research, told Utility Dive. The fact that the state’s power sector is highly regulated means that utilities or legislators or regulators will be driving interest in storage. “We are starting to see murmurs in that direction,” he said. And even though the projects currently on the radar screen are being driven by settlement, legislation just introduced this month will heighten storage’s profile.
Representative Holly Raschein (R) on Jan. 2 introduced a bill, HB 1133, in the state legislature that proposes a $10 million pilot program for the installation of solar panels tied to energy storage at strategic public facilities in order to keep them running during natural disasters.
“If there are more significant weather events, I'd see this as a potential driver for a more active market in Florida,” Finn-Foley said.
Despite the recent embrace of storage by some of Florida’s largest utilities, there are still barriers in the Florida market. In many states where energy storage has taken off, such as California and Hawaii, electricity rates are higher than the national average. Higher rates increase the attraction of energy storage by making strategies such as demand charge reduction or load shifting relatively more attractive. Rates in Florida, however, are on par with the U.S. average. That could mean that developers of energy storage projects in Florida could face more challenging conditions than developers in states with higher electricity rates, the authors of the report said.
The report also identifies other barriers energy storage faces in Florida, such as a lack of renewable generation mandates and state restrictions on third party electricity sales.
Despite those challenges, Florida still has the potential to be a “a leader among traditional regulated utilities” in energy storage, Marvin told Utility Dive.