The following is a high-level discussion of current activities in Texas and ERCOT, and opportunities and issues for energy storage industry members.
The Texas Market
Texas is the largest electricity consuming state in the US, taking 30% more electric power than California with 30% less population. This is in part due to the growth of business and industry in the generally business-friendly Texas regulatory environment. Both features make Texas a great potential market for new energy technologies that can help improve the reliability or efficiency of the Texas grid, or Texas homes and businesses. Perhaps more importantly, the use of renewable energy has grown rapidly here; we currently have over 10,000 MW of wind installed and, due to a $6.7 billion investment in new transmission to renewable energy zones, anticipate reaching 18,000 MW over the next few years. The Texas PUC and ERCOT realize that storage may be critical to integrating these never-experienced levels of non-dispatchable power into the ERCOT grid. In addition, the ERCOT ISO is predicting that the system will fall below its target reserve margin in 2014 or 2015, and there are many opportunities for thermal storage to help shift loads off peak, or help gas turbines perform at their rated efficiency through hot Texas summers.
TESA works throughout the year to maintain working relationships with members of the Legislature and keep them updated on the integration of storage into the Texas market. TESA has advocated for legislative changes in past sessions with significant accomplishments.
In 2005, energy storage was made eligible for electric utility rebates under Standard Offer Programs which pay incentives based upon the amount of capacity actually reduced.
In 2009, the New Technology Implementation Grant program was established at TCEQ. This grant includes funding for energy storage projects related to renewable energy. In 2011, we negotiated additional language, which TCEQ indicates would allow a broader application of the grant funds.
In 2011, TESA successfully advocated for legislative adoption of a bill to clarify that energy storage resources wishing to participate in the wholesale market are entitled to the same rights as generators with regard to interconnection and transmission access. This law, SB 943, is critical to prospective energy storage project developers because, in ERCOT, transmission utilities are responsible for baring the cost interconnection, not project developers.
In 2013, TESA advocated for a bill to establish energy storage projects in non-attainment areas as pollution control property, in order to be eligible for the local taxing entities to grant a property tax exemption. The bill, HB 2712, passed, but was narrowed in scope to cover the one proposed project ready and able to come forward. We are optimistic that as additional projects are proposed, and our Alliance membership grows, the exemption may be expanded.
During this same legislative session, the Legislature adopted SB 385, a law enabling a financing mechanism for commercial and industrial buildings and facilities known as PACE (Property Assessed Clean Energy), which allows municipalities to enable financing for energy efficiency and distributed renewable generation. Investments are repaid through local taxing entities, and attach to the property, rather than the owner. Energy storage behind the meter would be eligible for this financing option in areas that adopt a PACE mechanism. There are great hopes that this will enable a wave of new efficiency investments, and several cities are already contemplating creation of PACE programs.
TESA has been active in all the PUC rulemakings affecting energy storage resources. As mentioned above, we helped pass legislation under which all forms of storage, including thermal energy storage and chemical, mechanical or other technologies, qualify for energy efficiency rebates to the extent they help shift loads off-peak. The PUCT moved that language into their rule governing the utility rebate programs.
After passage of SB 943 in 2011, the PUC adopted a rule (Substantive Rule Section 25.192) to implement the new law and clarify the interconnection and transmission rights of energy storage participating in the ERCOT energy or ancillary services markets.
In the course of adopting this rule, the PUC initiated a new project to explore other market barriers to entry for storage. TESA members were active in this project, made presentations at the Commission workshop, and worked close with Commission staff. As a result, the PUC adopted (Substantive Rule Section 25.501(m)) which established favorable settlement rules for storage, including nodal rather than zonal price settlement (as is the case for generators) when charging and discharging, and wholesale load treatment for purchase of charging energy. The rule also provides that energy storage is exempt from all retail load fees and charges and is not subject to the 4CP transmission allocation applicable to other loads.
In recognition of the fact that there are other necessary protocol changes for the implementation of energy storage, the PUC also adopted a rule granting ERCOT the authority to establish pilot projects for such resources. This show of support for storage generally, means that storage projects could go forward quickly under the umbrella of a pilot, while permanent protocols move forward (because the stakeholder adoption process can be lengthy).
TESA was instrumental in the formation of the first working group established to address barriers to entry for storage—the Power Storage Working Group. Since that time, the name of the working group has changed to the Emerging Technology Working Group, but the focus has remained largely on storage issues. The working group has served as a platform for discussion of a variety of storage issues among ERCOT stakeholders. From this platform, TESA members have proposed revisions to the protocols that have inspired additional discussion in the standing ERCOT committees.
The major focus of ERCOT in integrating electric energy storage resources is the Fast Response Regulation Service Pilot that the ERCOT Board approved in November 2012. This pilot is designed for the ISO to reap the beneficial characteristics of energy storage. The Board set aside $3 million for the pilot payments. At the conclusion of the pilot, ERCOT will decide whether to extend the pilot, or adopt permanent protocols establishing a Fast Response Regulation service. Given the timetable for resolving some permanent protocol issues we anticipate the board extending the pilot.
As the pilot progresses, the protocol revision process has continued. Nodal Protocol Revision Request 340 was the first storage-related protocol revision filed. This revision exempts storage resources from the High Sustained Limit Test required of all generators. Because the ideal duration of some storage configurations is less than 30 minutes, this testing procedure created a barrier to entry. The revision request is pending in ERCOT committees and will likely be addressed upon the conclusion of the initial FRRS pilot period.
More recently, ERCOT has adopted protocols to implement the Wholesale Storage Load treatment of energy storage. This protocol lists specific energy storage technologies entitled to Wholesale Storage Load treatment. Although many stakeholders prefer a definition of characteristics rather than a technology specific list, an agreed definition has not been developed. The Emerging Technology Working Group has filed a revision request advocated by TESA to include thermal storage installed in conjunction with turbine inlet chilling on combustion turbines to the list of specified technologies eligible for wholesale treatment. We are also working through technical issues associated with how to separately meter auxiliary and wholesale systems at a storage facility.
The final ERCOT protocol revision request that is being discussed at this time involves the establishment of ERCOT generic costs for full participation in the ERCOT market. We are working on protocol revisions that would allow storage to participate in the day-ahead energy market on equal footing with traditional generation. The issue is being discussed in the several ERCOT subcommittees and working groups.
Storage as a Tool for Addressing Transmission and Distribution Issues
Although there is widespread agreement that energy storage should be able to participate in the competitive market in ERCOT, there is less agreement on how storage can play a role in the regulated transmission and distribution service model within the competitive areas. Texas law prohibits Transmission and Distribution Utilities from owning generation, and this has caused some ambiguity as to whether these entities can own storage, and, thereby recover the costs through regulated rates. The PUC has approved one case where AEP was allowed to install a battery in order to defer transmission upgrade costs, but the PUC in approving the application indicated it should not be taken as precedent. Some storage developers prefer a bright line between what utilities and third-party developers can do with respect to storage in the market. Still, there is no avenue through which a third-party storage developer can capture the T&D benefits of a well-placed storage facility, unless benefits can be sold to a utility, and T&D benefits alone may not justify the cost of a storage facility in most cases. During the recent legislative session, the chair of the PUCT expressed interest in continuing to treat storage as a generation resource for purposes of the electric grid, recognizing that properly placed generation or storage can relieve transmission congestion as well as more robust transmission. This may suggest that private developers need to collaborate with generators, or seek projects that can add congestion relief to energy or ancillary services revenues to optimize a project’s economics.
With that said, there seem to be no barriers to the use of energy storage by local utilities that are still vertically integrated to address transmission and distribution issues. This includes nearly 150 municipal and cooperative utilities and the investor owned utilities in Texas which operate outside the competitive ERCOT market. Similarly, it appears that there are no barriers to distributed utilities from using storage at the distribution level to assure local reliability.
Efficiency Incentives – Energy Storage Behind the Meter
As noted above, legislation was adopted that makes energy storage (including thermal, chemical, electrical, mechanical and other storage) as an eligible measure for energy efficiency rebates at the state’s investor owned utilities. So if your focus includes batteries for retail customers anywhere below transmission level service, behind the meter, these incentive funds are available today.
Education and Training
The state is making a concerted effort to support clean energy and develop programs of education and workforce training for professionals and laborers needed for new and emerging clean energy industries, like the energy storage industry. We would like to work with you to help identify or develop materials and training programs to educate building owners and facility managers, codes officials, engineers and technicians about emerging storage technologies and evolving standards. Education of these various stakeholders will both help develop the market demand for energy storage products and services, and prepare a workforce capable of understanding the value of different storage technologies in different applications, and of delivering those applications appropriately to the Texas market.