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Storage has been no stranger to the energy conversation over the last several years. According to the White House, the United States doubled the installed capacity of energy storage to 500MW in 2015 alone. As the U.S. solar market continues to grow, the industry is beginning to envision a future where solar projects are built with storage units to help offset peak demand (just ask Elon Musk). Where do we stand currently? Is storage growing in the U.S., or is it just a buzz word?
The Current State: Looking at the State Level
Energy storage incentive programs have emerged in some of the top solar markets. California’s Pacific Gas & Electric (PG&E) has had the Self-Generation Incentive Program (SGIP) in place since 2001. Recently, the California Public Utilities Commission approved reforms that will require 75 percent of the program’s $83 million annual budget be used for energy storage. Previously, much of the budget had been consumed by fuel cells.
On the East Coast, New Jersey, whose program we have previously addressed, incentivizes $300/kWh of electricity produced by qualifying projects which caps at $300,000 or 30 percent of the total cost (whichever is lower).
In addition to these incentives, some states have introduced mandates to encourage storage development. California, true to its history of ambitious renewable energy goals, led the way with a 1.3GW procurement mandate by 2020 for its three largest utilities. Oregon followed suit shortly after with a storage mandate of its own. Looking back East, comprehensive energy legislation passed in Massachusetts at the end of July orders the Department of Energy Resources (DOER) to develop a 2020 energy storage mandate.
On the Horizon: National Incentives
Storage’s momentum has continued at the federal level. Early last month, Senator Martin Heinrich of New Mexico introduced an investment tax credit (ITC) for energy storage modeled off the solar ITC. While a good idea in theory, the solar industry is already facing an undersupply of tax equity, and the number of investors willing and able to monetize the solar investment tax credit is already limited, which drives up return requirements for these investors.
In addition to federal legislation, the White House recently took actions that they estimate will accelerate storage procurement or deployment to at least 1.3GW in the next five years.
Outlook for Developers
Energy storage can be used for a variety of applications, including utility infrastructure, grid stabilization, peak load shifting and peak demand offsetting.
As the storage market grows, we have seen increased demand for storage + solar solutions in requests for proposals (RFPs), and we are participating in these RFPs with partners as we look to meet consumers’ demand for this “hot” technology.
While mass adoption of solar + storage is at the very least one year away, growing interest in the topic makes it critical for solar developers to expand their knowledge on this topic. It is important to know when to add storage to a project, but it may be just as vital to know when to disqualify it. For now, energy storage feasibility is still highly incentive-driven (and thus, location-driven). Even in states with energy storage incentives, however, adding energy storage to a solar project sometimes fails to increase customer savings. Part of the challenge is that energy storage and solar offset different parts of customers’ energy bills. Because of this, optimal tariffs for solar and energy storage savings are rarely the same. Nevertheless, if customers in states with incentives have large, “spiky” loads and high demand charges, or are on tariffs with time of day based rates, it is worth evaluating the addition of an energy storage system to a solar project.
Stay tuned. As more energy storage incentives become available and the cost of energy storage systems continues to decline, it will become increasingly important for solar experts to be energy storage experts.
This is an excerpt from the August edition of SOURCE: the Sol Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail [email protected].
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