25 Stillman Street Suite

200

San Francisco, CA 94107

Aspen Institute

Energy Policy

Forum

July 2-5, 2016

STORAGE FINANCING CORRELATES WITH

MATURATION OF TWO MARKETS

Source: Rocky Mountain Institute

Local Capacity / Grid SupportSouthern California Edison: 50 MW local capacity for grid support services from Behind the Meter Energy Storage.

“Demand Response Energy Storage”

“DRES Resource means the ability to reduce all or a portion of the electrical consumption … of the Participating Accounts …, which [AMS] may provide through (i) reductions in Participating Account electrical consumption and/or (ii) the use of all or a portion of the [energy storage systems to shift customer load off grid].”

Dispatch Parameters:

1 dispatch per day / 80 hours per month15 - 240 minutes (up to 4 hrs) per dispatch20 minute dispatch notice

Availability:

Up to 400 - 600 hours per yearDispatch window: 9 a.m to 6 p.m.Delivery Term: January - December

0%

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-600

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-200

0

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0:00 2:00 4:00 6:00 8:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00

Pre-AMS Elec (kW) Post-AMS Elec (kW)

Battery State (%) Battery In, Out (kW)

PO

WE

R (

kW

)HYBRID-

ELECTRIC

BUILDING

1

2

3

DEMAND MANAGEMENT

LOAD

SHIFTING

UTILITY

DISPATCH

1

2

3

• 26 class A commercial office

buildings

• 5 MW permanent reduction in

peak demand (25%)

• 10 MW of firm, disptachable

capacity to the utility

• 8% reduction in energy costs

to Host Customer

• Zero emissions

• Carbon Neutral

Energy Storage Systems Custom-Designed for Each Facility

FOUR MAIN DESIGNS FOR ENERGY STORAGE PROJECTS

Hybrid Electric Building Fleets

Industrial Facilities

University Campuses

Hospitals

Irvine CompanyKilroy RealtyMorgan Stanley

Inland Empire Utilities Agency

CA State University Chancellor’s OfficeUC Santa Barbara

Kaiser Foundation HospitalsUCLA Medical Center – in progressCedar Sinai – in progressDignity Health – in progress

Evans HotelsCaruso AffiliatedCA Dept of General Services

Irvine Ranch Water District

CSU Long BeachCSU FullertonCSU Domingues Hills

Fleet Level Optimization with Advanced Analytics and Real Time Data

Costs Energy CostArbitrage

Ancillary Services Resiliency AvoidedDistribution Costs

Avoided Capacity Customer Benefits Stacked Benefits

NP

V $

/In

stal

led

KW

BENEFITS STACKING IS KEY COMPONENT OF ENERGY STORAGE COST EFFECTIVENESS

CapEX

Fees

OpEX

Brittle Power: Electricity Grid Resiliency and Reliability

The US endures more blackouts today than any other developed nation.– And the US grid loses power 285% more today than it did in the 1980s

costing the economy $80-$150 billion each year. (source: Lawrence Berkeley National Lab “LBNL”). (Note: most recent estimates are from 2005)

The root causes of the increasing number of blackouts are: – 1. aging infrastructure;

– 2. the changing nature of supply and demand;

– 3. extreme weather; and

– 4. lack of investment in the distribution system.

Integration of high penetrations of intermittent DER will create added stress on the distribution grid– The Duck Curve is only one part of the problem

– Inertia is a key problem for distribution grid stability

The Decentralized Electricity Grid can be inherently more resilient when coupled with advanced communications and operating platforms

Energy Storage coupled with Smart (4 quadrant) Inverters are an extremely valuable tool for grid operators, providing real and reactive power for– feeder capacity relief, – Volt/Var Optimization and Conservative Voltage Reduction (CVR),– and ancillary services such as fast frequency regulation and synthetic inertia

Dumb batteries alone won’t cut it. Storage resources must be coupled to an advanced communications layer (DERMS) to provide real time response to changes in grid state

The AFG concept promoted by NRECA and others incorporates an industrial internet, advanced communications and control, and a “fractal” system architecture– Fractals can then be optimized and controlled individually, while communicating

vertically with the next tier, and horizontally with their neighbors.– A benefit of this approach is that it lends itself very well to DER assisted optimal

restoration, by treating each fractal as a virtual resource, self-balanced and capable of providing real and reactive power

The AMS platform is being built with partners such as Opus One to create much of the functionality of the AFG concept

Energy Storage and the Agile Fractal Grid (AFG)

The highly distributed grids of the future will leverage distributed storage coupled to advanced communications networks to enhance grid resiliency and restoration

AMS is pioneering the concept of “Grid Support as a Service” today.

– Targeting distributed load balancing resources in critical areas of the grid

– Creating advanced operating platforms that tie into the utility DRP process

– Working with utilities on new procurement and contract structures.

In the future, evolving business models may include

– New products (VARs)

– New definition of the edge of the grid (Distribution transformer vs the customer meter?)

– Hybrid asset ownership models (utility, 3rd party, hybrid)

Change requires bold new regulatory and utility business models

– Utility economics must be accretive, but…

– …traditional ratebase economics is not the only solution

Business innovation at the edge of the grid

Business models will need to keep pace with technology

Pace of change can be dictated by procurement rules– Utility pilot projects are where great ideas go to die– Follow leaders like SCE (LCR) and ComED (VO)

Service constructs and 3rd party ownership models do not have to be in conflict with utility shareholder interests

Two final thoughts from yesterday

Pace of change and business model innovation

These ratepayer benefits are achieved through lower overhead costs, broader market revenue capture, and cost sharing between AMS and host customers.

$20,338,117

$12,340,109

Ratebase AMS Service Model

Revenue Requirements

$3,263,062

$3,358,642

Ratebase AMS Service Model

Shareholder Returns

Higher returns are generated by allowed rate of return on annual PPA expenses plus market revenue sharing with AMS.