California utilities have been ordered by the California Public Utilities Commission (CPUC) to procure 1,325 MW of energy storage by 2020. The first round of solicitations under the mandate will open at the end of this year. How can solar developers get in on the action, adding value to their projects in California?

California’s investor-owned utilities - Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E) - are collectively required to procure 1,325 MW of energy-storage resources by 2020, with interim targets set for this year, 2016 and 2018. PG&E and SCE are each required to procure 580 MW of energy storage before the end of 2020. Commiserate with its smaller load, SDG&E has a target of 165 MW of storage by 2020. Electric service providers and community choice aggregators in California are also required to procure storage - 1% of their annual peak load must come from energy-storage resources by 2020.

The CPUC has opened up the California storage mandate to almost every kind of energy-storage technology - mechanical, chemical and thermal. Flywheels, batteries, molten salt, compressed air storage and vehicle-to-grid are all fair game. Only pumped hydro storage over 50 MW is excluded from the program. There are no restrictions on co-locating energy storage with existing or planned solar projects, allowing both resources to maximize their value and potentially minimize costs.

The clock is ticking

The procurement targets for each utility are broken out not only by biennial procurement cycle, but also by point of interconnection to the grid. Roughly half of the 1,325 MW target is aimed at storage resources connected to the transmission grid, and another third from resources interconnecting with the distribution grid. The remainder of the target must be procured from customer-side energy storage resources. The utilities have discretion to shift up to 80% of the target for transmission-connected projects to distribution-connected resources, and vice versa. The procurement mandate for customer-side storage resources is fixed, however, to protect opportunities for behind-the-meter storage.

Under the program, the utilities must hold competitive solicitations at least once every two years, with the first request for offers (RFO) to open no later than Dec. 1, 2014. Storage projects installed after Jan. 1, 2010, are eligible for the program. Storage projects must be operational by 2024 to count toward the 1,325 MW mandate. To determine compliance with the biennial procurement targets for 2014, 2016 and 2018, the CPUC will consider the number of MW of projects pending contract, under contract or installed.

The CPUC has set out modest procurement targets for this year: 90 MW each for SCE and PG&E, and 20 MW for SDG&E. Minimum procurement will ramp up in each biennial procurement cycle, increasing the opportunities to bid into the program. Utilities are not hemmed in by the interim targets and can over-procure storage resources in any biennial cycle, banking the extra capacity to meet future goals. Contracts resulting from the competitive solicitations will be negotiated within a year of the RFO and submitted to the CPUC for approval.

The CPUC has also built significant flexibility into the program, allowing a utility to request a deferment of up to 80% of an interim procurement target. Deferment is based on an affirmative showing by the utility of unreasonable cost, measured against the least-cost, best-fit bid evaluation methodology developed by the utility. Procurement targets may also be deferred where a utility demonstrates that it has not received sufficient bids for projects that are operationally viable, or has received insufficient bids to meet its procurement target. Any deferred procurement shifts to the next solicitation, however.

Opportunities arise

All three utilities are offering opportunities for private developers in the 2014 competitive solicitation. However, alternative ways of fulfilling the 1,325 MW mandate mean that available capacity for new entrants could be well south of 1,000 MW. The proposed procurement plans filed by the utilities in March provide some details on opportunities in the near term.

In its proposed procurement plan, PG&E is seeking stand-alone energy storage, as well as hybrid renewable-storage resources and hybrid conventional-storage projects in the 2014 RFO. PG&E has already contracted with the 150 MW Rice Solar concentrating solar thermal project, paired with molten-salt storage. The project will count toward PG&E’s 2016 procurement target, so the utility will seek 50 MW of
transmission-connected storage in the 2014 solicitation. PG&E’s 8.5 MW of battery-storage projects in the pipeline, including the Yerba Buena and Vaca-Dixon projects, will count toward its 2014 target, leaving PG&E to procure 21.5 MW of distribution-connected storage. PG&E, like the other utilities, will rely on existing programs like the Self Generation Incentive Program (SGIP) to meet customer-side storage targets in the near term.

SCE’s proposal for its 2014 solicitation outlines opportunities for third party-owned storage resources that fill a market function, connected at the transmission, distribution or customer level. However, so far, about 80 MW of SCE’s 580 MW target will be procured outside of the competitive solicitation process. Several projects in SCE’s pipeline are expected to count toward the utility’s target, including an 8 MW storage project in Tehachapi, a 1 MW Catalina Island battery system and a vehicle-to-grid project at Los Angeles Air Force Base. Existing incentive programs for customer-side storage will contribute around 16 MW. In addition, the last procurement authorized for SCE in the long-term procurement planning (LTPP) proceeding included a minimum of 50 MW of energy storage, which will count toward the 2016 interim target. SCE reports that it received 500 offers for storage resources in response to the LTPP RFO, though the results of that solicitation are not yet known.

SDG&E’s proposed procurement plan documents that it is already near compliance with its 2014 20 MW procurement target. Existing approved and qualified projects, including the Borrego Springs microgrid project and the 40 MW Lake Hodges pumped hydro project, will fulfill the 17 MW target for transmission- and distribution-connected storage. The SGIP and permanent load shifting program provide the requisite 3 MW of customer-sited storage. The CPUC also recently authorized SDG&E to procure a minimum of 20 MW of energy storage through the LTPP proceeding, which will help meet future interim targets on the way to 165 MW. Nevertheless, this year SDG&E will seek projects at the transmission and distribution levels meeting the RFO’s minimum requirements.

Under the program, the utilities can also own up to 50% of the 1,325 MW energy-storage target. Whether the utilities will take advantage of that possibility, leaving less of a share of the pie for third-party developers, remains to be seen.

The utilities have pledged to refine their respective solicitation processes as the storage program matures. The CPUC will keep a particular eye on whether the program is meeting its underlying goals of optimizing the electrical grid, including reducing peak energy demand, contributing to reliability and deferring expensive grid upgrades, as well as integrating renewable energy resources and reducing greenhouse-gas emissions. While opportunities for third-party developers to participate in the program will equate to less than the full procurement target of 1,325 MW, each utility has opened the door for competitive projects at the transmission and distribution levels to win contracts in 2014. R

Allison C. Smith is an attorney with a focus on environmental and energy law at Stoel Rives LLP in Sacramento, Calif. She can be reached by email at acsmith@stoel.com.