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Battles Over Cali’s Energy Storage Mandate Has Only Begun

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There’s been a lot of high-fiving among energy storage technology developers about a bill signed into law by California Gov. Arnold Schwarzenegger this week. However, the bill doesn’t mandate energy storage, which means it’s far from determined which technologies and players will be the big winners.

The governor signed a bill that’s notable, because it’s apparently the first legislation in the country to look at how energy storage might be necessary for meeting a state’s goals to increase its use of renewable electricity. California has set a high standard by planning to get 20 percent of its electricity from renewable sources by 2010 and 33 percent by 2020. The state won’t be meeting its 2010 goal, but the law gives utilities a few years’ grace period to fulfill the 20 percent mandate. Energy storage isn’t the reason why the 2010 goal won’t be met by the end of this year; the difficulties of developing and financing renewable energy projects – and the time it takes to get regulatory permits – are key factors.

The new law (PDF) is a watered-down version of an initial effort to require the state’s investor-owned utilities to invest in energy storage. Instead, the law requires the California Public Utilities Commission to start the process of determining whether energy storage is necessary for the investor-owned utilities by March 1, 2012. The CPUC has until Oct. 1, 2013 to adopt an energy storage procurement target if it deems storage necessary. If that happens, utilities will have until the end of Dec. 2015 to meet the first target, and the end of 2020 for the second target. Municipal utilities and public utility districts, which aren’t regulated by the CPUC, also have to follow similar deadlines.

Utilities and local governments don’t like mandates, particularly ones that might cost them a lot of money and may not be considered necessary in the first place. Storage can serve several purposes, including providing a steady amount of power to the grid over hours when consumer demand is high, as well as sending short bursts of power for keeping the grid working at a particular frequency. Installing storage farms can reduce the need to build more fossil-fuel power plants, presumably because the storage farms use more eco-friendly materials and have a lower carbon footprint.

Given the growing amount of solar and wind energy coming online — and that their generation doesn’t happen steadily around the clock — banking it makes sense. There’s an argument that the grid is too old and inadequate to accommodate this new flow of renewable energy, but that belief is up for debate. “We have a robust grid today that can accommodate thousands of megawatts of variable generation,” said Julie Blunden, SunPower’s executive VP of public policy, in a previous interview to discuss a California grant SunPower had won to test energy storage technologies for businesses that have solar panels on their rooftops.

Banking renewable energy for use when electric rates are high does make economic sense. Electric rates are high during peak demands, such as early afternoon when it’s hot, or early evening when people return home and turn on lights, TV and appliances. Solar energy is produced during the day, so its production more closely follows the power demand, particularly in western states. Wind farms tend to be more productive at night, so many energy storage demonstration projects are looking at conserving wind energy and using it during the day.

Then, there are the issues of technology choices and costs. The federal government has doled out hundreds of millions of dollars to technology developers to come up with good batteries, fly-wheels and other methods of storing and discharging energy. A123 Systems (s aone) and Beacon Power (s bcon) are among the beneficiaries of the government largess. Utilities and storage system developers, from Pacific Gas and Electric to AES Energy Storage, have received hundreds of millions more to engineer and build storage farms using some of these more cutting-edge technologies, but these new technologies aren’t cheap.

California’s new storage law doesn’t list the technologies that utilities might be required to use. The cheaper storage technologies now are pumped hydro and compressed air, two older technologies. In fact, PG&E filed an application with the CPUC in August to study the feasibility of building a 400-megawatt to 1,200-megawatt pumped hydro storage system — which would pump water to a reservoir at a higher elevation so it could be released to generate electricity as needed — on the Mokelumne River in eastern California.

PG&E won a $25 million grant from the federal government to do a feasibility study on a 300-megawatt compressed air storage project in Kern County. Compressed air storage involves using an underground reservoir to store the compressed air (pumped into storage when extra energy is produced, mostly in non-peak hours) before releasing it to produce electricity during peak hours.

The energy storage law doesn’t say utilities have to install their own energy storage systems or buy services from owners of large storage farms. That means, potentially, that businesses that install storage systems along with solar panels on the rooftop can sell their banked solar electricity to utilities and get paid for it. It also means that solar installers that own and operate solar arrays and sell the electricity to its customers could end up in the energy storage service business and compete with pure-play storage service providers.

A lot of good business opportunities certainly could exist thanks to the new law. But whether there will be a mandate and what that mandate might say will certainly invite heavy lobbying and big debates, the same kinds of battles the state has gone through to set and meet its renewable energy mandates.

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Image courtesy of Argonne National Laboratory.