WUTC Investigation Shines the Spotlight on How to Value Energy Storage – Comments Due September 25, 2015

The Washington Utilities and Transportation Commission (the “WUTC”) is in the midst of an investigation into methods for modeling the costs and benefits of energy storage in utility integrated resource plans (“IRPs”). During its review of the 2013 IRPs of Washington’s regulated utilities (Puget Sound Energy (“PSE”), Avista, and PacifiCorp), the WUTC directed the utilities to start considering how energy storage could be incorporated into future IRPs. As part of this effort, WUTC staff issued a white paper in May 2015: Modeling Energy Storage, Challenges and Opportunities for Washington Utilities. On August 7, the WUTC noticed a comment period on the white paper; the comment period closes on September 25, 2015. The WUTC will use the comments received during this period to determine whether it is necessary to give utilities direction on how energy storage should be treated in their planning and procurement processes, and may issue a policy statement at the end of the investigation to provide that guidance.

As part of the investigation, the WUTC held a workshop on August 25th to discuss the staff white paper. The workshop was attended by representatives of PSE, Avista, and PacifiCorp, plus representatives of the Washington State Department of Commerce, Pacific Northwest National Laboratory (“PNNL”), the Electric Power Research Institute, Snohomish County PUD, Tacoma Power, AES Energy Storage, RES Americas, Seattle City Light, Renewable Northwest, the NW Energy Coalition, United Energy Technologies, and many others.

At the workshop, WUTC staff acknowledged that energy storage thrives in regions of the country with organized markets, such as PJM in the Mid-Atlantic. Without an RTO or other organized market in the Pacific Northwest that could put a market-driven value on the services provided by energy storage, and in a region blessed with historically low-cost hydropower, energy storage is not getting the proper signals from the market to encourage development and deployment. Staff explained in the May white paper that

Traditionally, energy storage projects have been developed on the arbitrage model — the money made by storing energy during low-cost, off-peak hours and then reselling it during high-cost, on-peak hours. In addition to being the most readily available service provided by traditional, large-scale pumped hydro and compressed air storage projects, it is also the easiest to quantify. However, this model faces challenges in the Pacific Northwest, where the use of low-cost hydro for load following generally limits daily price differentials, and the lack of an organized energy market means there is little transparency into the magnitude of those differentials.

Staff White Paper at 4.

Quantifying Storage Benefits

The WUTC wants the participants in the investigation to consider what models will permit utilities to account for the following storage benefits in future IRPs or resource procurement processes:

1. Peak Shaving
2. Transmission and Distribution Upgrade Deferrals
3. Outage Mitigation
4. System Balancing
   (a) Regulation/frequency control
   (b) Load Following
   (c) Energy Imbalance
5. Contingency Reserves
6. Reactive Power Support
7. Network Stability Services
8. System Black Start Capability

The WUTC also asked the participants in the investigation to consider whether it would be appropriate to use the rates for ancillary services in organized electricity markets as a proxy for valuing the ancillary benefits of energy storage in Washington.

Government-Subsidized Storage Projects Provide Data

At the August workshop, the participants also discussed the few storage projects that have been built or are in the planning stages in the Pacific Northwest. Avista is the only regulated Washington utility to operate a storage project. The one-megawatt battery is located at Schweitzer Engineering Laboratories in Pullman, Washington. The $7 million project was funded by a $3.2 million grant from the Washington State Department of Commerce’s Clean Energy Fund I and another $3.8 million in matching funds from Avista. Avista has not been able to integrate a cost-benefit analysis of energy storage into its IRPs, but anticipates that its Pullman storage project will provide important data for the region.

PSE is planning two storage projects, one on Bainbridge Island, Washington, and one in Glacier, Washington. PSE was awarded a $3.8 million grant from the Clean Energy Fund I for the storage project in Glacier (total project cost, as proposed, exceeds $12 million). PSE recently worked with PNNL to model the potential value of the Bainbridge storage project. PNNL developed a Battery Storage Evaluation Tool that measures the costs and benefits of storage projects. The benefits measured include:

1. energy shifting from peak to off-peak on a daily basis,
2. system capacity to meet adequacy requirements,
3. regulation services,
4. load-following services,
5. real-world flexible operation,
6. load-shaping service,
7. deferment of distribution system upgrades, and
8. outage management of critical loads.

When these services provided by storage are bundled, the PNNL model showed that the Bainbridge project could provide a positive return to investors.

Although the Pacific Northwest does not yet have an organized energy market, Washington is one of the nation’s leaders in promoting the development of energy storage. Washington’s Clean Energy Fund I provided seed money for the Avista storage project in Pullman, PSE storage project in Glacier, and Snohomish County PUD’s storage projects (awarded $7.3 million in state grants for multiple demonstration projects). The Washington State Legislature’s 2015 budget included an additional $40 million for Clean Energy Fund II, $13 million of which can be awarded to Washington utilities pursuing storage and other smart grid projects.

Conclusion

The WUTC’s investigation seeks to bridge the gap between government-subsidized storage projects and storage projects that can be shown in future utility IRPs to justify themselves economically:

Absent a policy to guide the utilities in their evaluation of energy storage projects after the grant money is spent, there is a risk that the utilities will default to current planning procedures, which fail to grant energy storage an opportunity to fairly compete against other alternatives.

Staff White Paper at 2. Stay tuned as we monitor the WUTC’s progress toward this goal!