PG&E projects set new bar for battery size but fall short on transparency
Storage projects can replace peakers, but it's hard to know if they're cost effective without more data.
California set a new benchmark for energy storage earlier this month when Pacific Gas and Electric (PG&E) filed for approval with the state's Public Utilities Commission (CPUC) for four energy storage projects totaling 567 MW, 2,270 MWh, but some details of the benchmark are less clear than others.
The energy storage projects are slated to replace three power plants that would require reliability must run (RMR) contracts from the California ISO to continue to operate, but it remains unclear if they are cost competitive.
What is clear is that the projects are large — some of the largest energy storage projects ever proposed. It is also clear that the projects will, at least in part, replace the need for gas-fired peaking plants.
However, the lack of transparency regarding energy storage costs is a concern for California's Office of Ratepayer Advocates (ORA).
Many of the documents that were filed with the CPUC regarding the energy storage contracts were heavily redacted in order to ensure confidentiality, which is a common practice, but it also limits the visibility into the solicitation process and the awards that come out of that process.
The ORA is asking if PG&E "will at least make the aggregated costs public," Karin Hieta, a supervisor at the office, told Utility Dive. The ORA is also concerned that a lack of transparency could harm the development of a competitive market for energy storage that could help keep costs in check. The ORA is preparing to file comments with the CPUC on those issues by the July 19 deadline.
Battery storage stepping up to bat
The four energy storage projects awaiting contract approvals include a 182.5 MW, 728 MWh energy storage project that PG&E will own and a 300 MW, 1,200 MWh storage project that will be built and owned by Vistra Energy at the site of its Moss Landing plant in Monterey County. Those projects have been touted, respectively, as the largest energy storage project owned by a utility and the largest energy storage project ever.
|Lithium Ion Battery Project (Developer)||Connection Point||Term (years)||Discharge duration (hours)||Power Capacity (MW)||Energy Capacity (MWh)|
|Vistra Moss Landing Energy Storage (Dynegy)||Transmission||20||4||300||1,200|
|Moss Landing Energy Storage (Tesla)||Transmission||20||4||182.5||728|
|Hummingbird Energy Storage (Hummingbird)||Transmission||15||4||75||300|
|mNOC AERS Energy Storage (Micronoc Inc.)||Customer (Behind-the-Meter)||10||4||10||40|
The energy storage projects are designed to replace three gas-fired plants owned by Calpine: Feather River, Metcalf and Yuba City. All three Calpine plants have applied for and received reliability must run (RMR) contracts from the California ISO.
The one-year RMR contracts are granted to plants that the CAISO deems necessary for reliability but that would otherwise be forced to retire because they are uneconomic.
In filings for the energy storage projects, both the CPUC and PG&E opposed the award of the RMR contracts. The CPUC expressed concern about the "impacts to ratepayers if the RMR contracts are executed and if they are extended" and said the contracts were "developed outside of the normal resource adequacy process and the CAISO's Capacity Procurement Mechanism (CPM)."
The inference is that the CPUC, and ratepayers, can do better and that the energy storage projects will save ratepayers money. In short, the RMR contracts would seem to set the bar for the price to beat in crafting the energy storage contracts. The problem is that little is known about the energy storage contracts.
Contracts and visibility
In the resolution authorizing the solicitation for the energy storage projects, the CPUC overrode the ORA's transparency concerns. The ORA argued that the energy storage contracts should file an application for CPUC approval instead of using the advice letter process that the CPUC approved.
But the CPUC said the advice letter process was "an acceptable vehicle for procurement review and contract approval, in certain instances." The regulators noted that advice letters have been used for a variety of contract approvals, including contracts resulting from the Renewable Auction Mechanism, the Demand Response Auction Mechanism pilot, and storage procurements by Southern California Edison and San Diego Gas & Electric.
The CPUC is well within it rights to use the advice letter process, but the application process provides a longer time frame and more opportunities for stakeholders and intervenors to get involved in the process, Hieta said. The advice letter process only gives intervenors 20 days to file a protest.
"We understand that the commission is concerned about timing because of the reliability need — the PUC certainly has the flexibility to make that call — but we thought this merited a deeper look," Hieta said.
The cost of restructuring power markets
Like the California ISO, the CPUC aims to ensure reliability but it also supports state policy goals, such as reducing greenhouse gas emissions.
PG&E is on the same page with those goals, but it also has a state-mandated energy storage target to meet under state law AB 2514. The current framework aims to satisfy all of those needs while keeping rates reasonable for ratepayers.
To the extent that the energy storage projects replace gas-fired peakers, they serve to lower GHG emissions. And, if the current storage projects are approved, they could enable PG&E to meet its mandated target of having 580 MW of storage online by 2020. In addition, the 182 MW storage project that PG&E will own enables the utility to add to its ratebase a resource that otherwise would not be available to PG&E under California's restructured market rules that bar utilities from owning generation assets.
In terms of generation replacement, "these are precisely the types of applications that make sense," Ravi Manghani, director, energy storage at GTM Research, told Utility Dive. Storage is replacing fixed cost resources that are not called upon every day. Storage can provide that capacity but can also serve other needs.
The structure of the contracts calls for the energy storage devices to be paid for their capacity and to participate in the ISO's energy and ancillary services markets. For instance, the Vistra storage project can be paid for its capacity through a resource adequacy (RA) contract while the PG&E project can be paid through the ratebase.
To the extent that they receive revenues from the energy and ancillary services market, the capacity payments — whether in the form of an RA contract or CPUC-approved rates — will be reduced.
How those arrangements ultimately affect customers rates remains to be seen. As Manghani noted, that's where things "start to get a little muddy."
In the advice letter PG&E submitted to the CPUC, the utility identified a resource requirement of $80.2 million for the Moss Landing energy storage project it will own.
While it is not an exact comparison, the RMR rates that Calpine filed with the Federal Energy Regulatory Commission for its Metcalf plant stipulates a $43 million fixed income requirement and $8 million in capital costs. The plant also is reimbursed for its variable operation and maintenance costs, including fuel costs.
It is difficult to say just how competitive energy storage is compared with a gas-fired peaker without further information about the pending awards. Utility Dive's requests to PG&E and the CPUC to discuss the payment structures were not returned by time of publication.
In the resolution authorizing the energy storage solicitation, the CPUC said it declined "to make the solicitation truly ‘all source' to gas generation."
"Restructuring is supposed to get a lot of transparency," Scott Miller, executive director of the Western Power Trading Forum, a trade group dedicated to power sector competition, told Utility Dive. "We are losing the transparency. Unless we do something to see the subsidized rates that go into the wholesale rates, we have no idea."
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