California driving the energy storage market through groundbreaking legislation: new case study

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27 April 2017

LONDON: The Climate Group has published a new case study assessing how California is implementing innovative legislation to drive the energy storage market and support the state’s ambitious climate targets.

The case study is part of The Climate Group’s Energy Transition Platform - a global initiative supporting highly industrialized sub-national governments in accelerating the low carbon transition. It addresses California’s strategy to support the uptake of emerging energy storage technologies and provide market security to investors and suppliers through a procurement target for utilities.

Energy storage costs have decreased steeply in recent years, with lithium-ion batteries experiencing a ‘solar-like’ reduction in cost. These trends have led to growing interest in the storage industry: Tesla’s upcoming Nevada-based Gigafactory is expected to produce, once operational, more lithium-ion batteries each year than were produced worldwide in 2013 - driving costs down by a further 30%.

As costs plummet and performances improve, the energy storage market is expected to boom in the coming years. According to the International Renewable Energy Agency (IRENA), battery storage alone could increase from around 1 gigawatt (GW) today to 250 GW by 2030, while its market value could rise from US$2.2 billion in 2015 to US$14 billion in 2020.

Image courtesy of the International Renewable Energy Agency (IRENA)

Global leader

With its innovative and ambitious policies, California is a global leader in the development and deployment of energy storage. The state currently has over 4.2 GW of installed storage capacity - 96% of which is pumped hydroelectric. Although significant, it is still far from the 13 GW needed to meet daily peak electricity demand. 

To accelerate storage uptake, the California Public Utilities Commission (CPUC) adopted a 1,325 megawatts (MW) procurement mandate for energy storage by 2020, applying to the state’s three Investor Owned Utilities. Divided between transmission connected, distribution level and customer-sited storage, the target includes a range of chemical, mechanical and thermal technologies.

As the state’s share of traditional and community-based renewable energy increases rapidly, storage is proving all the more crucial to ensure their efficient integration as well as the stability and affordability of the electricity supply.

To foster emerging technologies (such as thermal or flywheel storage), smaller scale projects and disruptive suppliers, hydroelectric storage projects larger than 50 MW are not eligible under the CPUC’s mandate.

Unique mandate

California’s mandate, the first of its kind, provides long-term security to investors and storage solutions suppliers, by creating steadily increasing, utility-driven demand for energy storage.

With another eight years to go before the end of the mandate, about 488 MW of energy projects have already been procured – although most are still in the planning and contracting phases. In September 2016, California adopted four new laws to streamline the market and accelerate deployment, with the creation of an independent body to resolve interconnection disputes being a key outcome.  

Kevin Barker, Advisor, California Energy Commission, said: “We designed a state-wide procurement target large enough to drive the market without impacting negatively on ratepayers. There is no one size fits all solution when it comes to storage, but states and regions must go beyond renewables targets and recognize energy storage as a key element of a successful energy transition.”

Although California remains ahead in the US - representing 86% of the non-residential storage, 36% of the utility storage and 31% of the residential storage of the country - other states are closely following its example. In 2015, Oregon adopted a similar bill for its two main electricity providers, and Massachusetts is working on its own procurement target, to take effect in 2020.

The US and beyond

But the growth of the storage market goes further than a handful of leading states: a recent study by GTM Research showed that 21 US states have at least 20 MW of energy storage in the pipeline, while 10 states have pipelines over 100 MW. In fact, there are more than 140 policies and regulations in the country, either pending or in place, to drive the market.

The need for energy storage to support increasingly decarbonized energy systems is just as glaring outside the US. In South Australia for example, where renewables account for 41% of the electricity supply, the government launched a new energy plan following a series of black-outs caused by extreme weather events. Under this plan, South Australia has announced that it will build Australia’s largest grid-connected battery, providing 100 MW of storage, before the end of the year.

Download the California case study here and find all the Energy Transition Platform’s case studies here.

The Energy Transition Platform was launched by The Climate Group, with the initiative’s lead government, North Rhine-Westphalia, and Stiftung Mercator, in early 2016. The Platform connects highly-industrialized, carbon-intensive state and regional governments in developing and implementing clean energy policies.

By Juliette Baralon

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