A little-noticed debate in Massachusetts could have a big impact on the trajectory of the state’s energy storage market.
Earlier this month, the Massachusetts Department of Public Utilities (DPU) convened a technical conference on solar and storage facilities participating in ISO-New England’s forward capacity market (FCM).
The question of capacity payments and who is entitled to them is part of a larger debate about how distributed energy resources are going to be deployed in Massachusetts. The key issue in the capacity debate is not the technical issue of qualifying for ISO-NE’s FCM, but the policy question about who will retain ownership and control of a facility's capacity.
"The main issue is who owns the rights once a project is installed and who gets to bid into the FCM," Ted Ko, director of policy at Stem, told Utility Dive. It is an issue that is "extremely important for the storage industry in Massachusetts," he said.
The technical conference took up the issues of qualifications for participation in the forward capacity market by Class II (60 kW to 1 MW) and Class III (1 MW to 2 MW) net metered facilities, and by facilities that participate in the Solar Massachusetts Renewable Target (SMART) program.
The issue goes back to an inquiry last fall, in which the DPU looked into the eligibility of energy storage for net metering when paired with a qualifying net metered resource. In a separate case, the DPU was reviewing whether or not net metered resources are eligible to bid into the ISO-New England’s FCM. Both cases were combined into a single, ongoing docket, 17-146.
ISO-New England maintains a technology-agnostic view of the issue as long as resources meet its reliability criteria.
From a developer’s point of view, the main issue at stake in the Massachusetts debate is the SMART program. The program is the state’s main vehicle for solar power deployment with a goal of adding 1,600 MW. The program also provides an extra payment for combining energy storage with solar, which also makes it a main avenue for the development of energy storage in the state.
Giving energy storage a leg to stand on
A year ago, Massachusetts set a 200 MWh by 2020 energy storage target. The target disappointed some in the energy storage community, who saw it as too low. The state has awarded $26 million for energy storage projects, through its Advancing Commonwealth Energy Storage (ACES) program, moving it closer to reaching the target.
However, the ACES projects are seen as demonstration or pilot projects. Developers are looking at the SMART program as the venue for the first commercial storage facilities in the state. "The SMART program is critically important" Ko said. "It is considered the best opportunity for the storage industry to grow in Massachusetts."
The SMART program should be "the kick-off for a really viable storage market for Massachusetts," Ko said, but "unfortunately policies haven’t caught up with that vision."
Those policies have their roots in the state’s net metering rules, which gave utilities the right of first refusal for capacity payments. The utilities rarely exercised those rights, in part because solar power often has little value as a capacity resource.
However, the equation changes with the prospect of adding energy storage to solar projects under the SMART program. Utilities tend to view the right to sell capacity as an issue akin to the renewable energy credits associated with a distributed energy resource, which goes to the utility in Massachusetts.
A solar project co-located with energy storage has a lot more value as a capacity resource. The storage itself can be available as a capacity resource. Storage capability also makes the solar resource dispatchable, giving it more value as a capacity resource.
When the capacity issue first arose, there was some reluctance on the part of developers to retain the capacity rights. Performance criteria associated with capacity payments raise questions of liabilities that they were not eager to assume.
"Who controls the system is more important than even who owns it."
Policy director, Stem
Solar developers might not want the capacity rights because they do not want to take on risk for performance, said Ko, but "developers who plan to add storage, all of them want capacity rights."
Ko is particularly concerned about how the treatment of capacity in the behind-the-meter energy storage, which is Stem’s main market. Stem’s behind-the-meter batteries manage a customer’s load to cut costs and sell services into the wholesale market or to utilities. "We are already optimizing what storage does, what is best for the customer," Ko said, "but if the utility controls the capacity, we can’t optimize the system for the customer. It is important to control the system," Ko said. "Who controls the system is more important than even who owns it."
Meanwhile, the Massachusetts Senate on June 18 passed a package of energy bills that would set a 100% renewable energy standard by 2047, remove the state's net metering caps and increase its energy storage mandate to 2 GW by 2025.
Capacity payments remain key to developing storage
With the state’s energy storage market just beginning to get off the ground, the treatment of capacity associated with distributed energy resources "is going to be a huge determinant of how much solar plus storage will flourish in the Massachusetts market," Jamie Dickerson, policy analyst at the Northeast Clean Energy Council, told Utility Dive.
For energy storage developers, capacity payments are a major source of revenue. Ko, in fact, said that "almost everything we do with a battery is a capacity payment." In most locations, it is very difficult to make an energy storage project pencil out on the basis of energy payment alone, he said.
"Any order that would constrain or stifle the ability of developers to control the capacity from their projects would affect their ability to secure financing and that would have a huge impact on the market."
Policy analyst, Northeast Clean Energy Council
Problems are going to arise if the rules call for splitting the ownership of a project’s attributes, Dickerson said. Developers need to know what revenues are available to them and have access to those potential revenue sources. "Any order that would constrain or stifle the ability of developers to control the capacity from their projects would affect their ability to secure financing and that would have a huge impact on the market," Dickerson said.
"If they can tell us when we can charge or discharge, we are probably not even going to go there," Ko said.