A new bill before the California state assembly signals the beginning of what will likely be a widespread public policy campaign aimed at building the energy storage necessary for smart grid deployment and its twin, the integration of renewable energy. If passed, this law christens the birth of a nearly $200bn greentech sector.

 

AB 2514 creates Energy Storage Portfolio Requirements much like those that now exist for renewable energy. The renewable portfolio standard (RPS) allows policymakers to require that a minimum percentage of the state’s annual electricity use come from renewable energy. California has an unprecedentedly high RPS of 33% by 2020.

 

AB 2514, introduced by Assembly member Nancy Skinner, mandates that utilities incorporate energy storage capacity—2.25% of daytime peak demand for power by 2014 and 5% of peak demand by 2020. With peak demand at 38,000 megawatts, this is no paltry sum.

 

Without storage like that mandated by AB 2514 the RPS will only reflect the capacity of renewable energy generation and nowhere near the amount of green energy actually consumed. That is: renewable energy will be produced but much of it will be lost (or, in utility lingo, “shed”). Volatility will result. To operate a stable green grid and avoid sham renewable energy statistics sold to a public made to believe the electricity they are consuming is green, we must invest in energy storage.

 

 

To understand the scope of this necessity one must acknowledge that electricity is unlike other commodities in that it cannot be easily stored (or so has been the running mantra in the electricity business for the last one hundred years). With no storage, the electrical system must be operated so that supply and demand are continually in balance throughout the system at all times. This is difficult enough with predictable fossil fuel plants; add intermittent renewable energy into the mix and you’ve got a recipe for rolling blackouts such as those seen in Texas in 2008.

 

Germany and Spain, known for their aggressive policies favoring renewable energy generation, are having a difficult time digesting high doses of renewables. Though utilities are mandated to accept renewable energy first, times of greatest wind speed often occur at night and thus coincide with times of lowest need. Solar, only available 10 to 12 hours a day and subject to cloud cover, is similarly intermittent.

 

Moreover, peak power demand is most often met by fossil fuel-burning back-up power plants or coal-fired power. Energy storage would allow green energy generated at off peak hours to be used during peak hours.

 

 

The US currently cycles about 2.5% of its electricity through energy-storage facilities. Europe cycles roughly 10% and Japan some 15%, according to a joint report by the DOE and research body EPRI. Europe and Japan have different structures for utility compensation that facilitate stable monetary frameworks for energy-oriented storage projects.

 

Indeed, one of the primary impediments to the development of energy storage in the United States is a regulatory environment that cannot cope with the multitude of uses to which energy storage can be put. Regulatory uncertainty means that frameworks for project monetization must be built on shaky ground.

 

As the Federal Energy Regulatory Commission (FERC) put it in a recent decision allowing a storage project to be treated as a transmission facility (and thereby recover costs through regulated transmission rates): “Electricity storage devices do not readily fit into one of the traditional asset functions of generation, transmission or distribution. Under certain circumstances, storage devices can resemble any of these functions or even load.” FERC goes on to say that this is why it has chosen to classify energy storage devices on a case-by-case basis.

 

With so much uncertainty, it is no wonder would-be investors are wary. In an environment where credit is already tight, with few large-scale energy storage projects to point at, and no clear framework for project monetization, it is a (DOE-funded) miracle that energy storage projects have begun to spring up at all. Last summer at Infocast’s Storage Summit, the hopeful and expectant faces of early-stage energy storage entrepreneurs progressively deflated as knee-deep project developers complained of problems “creating value” and called again and again for a national storage portfolio standard.

 

Given California is by some estimates the seventh largest economy in the world, the passage of this bill is significant. As with so much else, both the good and the bad, California may spearhead a nation-wide movement toward a much-needed national energy storage portfolio standard. The law, which is by all accounts likely to pass, would go a long way toward closing the energy storage gap. Indeed, if this gap goes unfilled a significant portion of our newly generated renewable energy will in reality energize nothing –that is, nothing but a lot of hot air.