Wednesday, March 20, 2013

California's 50MW Grid Storage Requirement

While the headlines container cutaway no ACemphasized the "50MW Storage Requirement" of California's recent Long Term Procurement Process decision, the substance is more than skin deep. Like a director-annotated viewing of your favorite Oscar-nominated feature, the use of storage makes even more sense given an in-depth exploration of the Long Term Procurement Planning (LTPP) ruling.

The decision authorizes or requires (depending on your point of view) major utility company Southern California Edison (SCE) to procure between 1400MW and 1800MWs of new resources. Why the uncertainty? There are several, but I will address three reasons: first, no one is sure when existing generators may retire. Second, the actual demand, including demand response, is uncertain within the procurement time horizon. Third, the usefulness of new capacity is highly dependent on location.

The first question may be the most intuitive to grasp. The genesis of this LTPP decision was the anticipated retirement of existing generators accounting for 4900 MWs of capacity. A new rule known as Once-Through Cooling (OTC) restricts the amount of water that generators may use for cooling. Generators can either retrofit to comply with the new OTC rule, or close. The exact number of plants that choose to close is up for significant debate.

Similar to OTC retirement timing, the exact load, and in particular, the amount of demand response, has been debated in the rulemaking. Like the stock market, predicting the economic growth of any region (and by extension, its energy demand) can be a precarious task when done in advance. While the CPUC crafted a compromise position, individual stakeholders may have been happier with the final procurement target had their preferred assumptions been utilized. Suffice to say, disagreement over assumptions is an uncertainty that planners must incorporate.

The final question involves the non-energy production uses of a generator. In many cases, a generator located on the "downstream" end of a transmission interface is more useful than a generator located "upstream," since the former is located closer to the load. In select instances, the generator is needed not for energy, but to "prop up" the transmission line. A small generator, providing the proper support, can enable a transmission line to deliver power many times the size of the generator.

As an analogy, take a truck looking to increase its towing capacity. The engine can pull the heaver load, but its stock brakes are insufficient to stop safely. Building an "upstream" generator is like the truck upgrading its engine. Yes, a larger engine can help slow down the truck and load, but a more efficient solution would be to use larger brakes. Likewise, sub-optimally located generators could be replaced with upgraded transmission equipment, or smaller, better-located generators.

All of these uncertainty factors point to storage as an ideal solution, given its advantages in deployment speed and flexible operation. Even though some OTC plants may not retire until 2020, replacements are being considered today because new generation can take 7-9 years in the LA basin, and new transmission lines could take 7-10 years. Storage, on the other hand, can be manufactured and deployed in as little as two years. This shorter lead time can enable policymakers to bring in their planning horizons and plan with greater certainty. In addition, as opposed to a generator, the vast majority of a storage asset's value is manufactured in a factory. Storage assets can be moved where needed without significant sunk costs. In fact, some A123 Grid Storage System assets have already been moved - on flatbed trucks - from stagnant markets to areas with greater economic returns. If California's circumstances change in the next decade, some LTPP stakeholders are rightly concerned about the costs of potentially redundant capacity. By utilizing storage, California can move the assets where needed, and even sell them to other areas.

Storage also represents operational flexibility. Switching between frequency regulation, voltage support, energy arbitrage, and renewable ramp management applications is as simple as uploading new software. So even if local capacity requirements no longer require storage in a voltage support or energy arbitrage mode, the asset could find value in another usage.

In conclusion, the 50MW headline is indeed good news for storage, but the full story is even more compelling. California's power system will need to address many uncertainties - the rate of OTC retirements, the share of future renewables, even the rate of economic growth. Storage, with its flexibility and easy deployment, represents an ideal hedge against all of these uncertainties.


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