ENERGY LAWREPORT

P R A T T ’ S

OCTOBER 2017

VOL. 17-9

EDITOR’S NOTE: STORING ENERGYVictoria Prussen Spears

ENERGY STORAGE PRESENTS OPPORTUNITIES FOR GROWTH AND INNOVATIONWilliam M. Friedman

COAL PLANT SHUTDOWNS: CLIMATE CHANGE STILL MATTERS J. Wylie Donald

A LOOK AT CONNECTICUT’S 2017 COMPREHENSIVE ENERGY STRATEGYDavid W. Bogan and Kathryn Boucher

U.S. COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT VACATES EPA’S STAY OF COMPLIANCE DEADLINES OF METHANE RULEAmy L. Barrette

U.S. COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT ISSUES DECISION ON DEFINITION OF SOLID WASTEStephen C. Zumbrun and Frank L. Tamulonis

JAPAN’S SOLAR PV MARKET – SOME OBSERVATIONSAled Davies, Daniel Lin, John Inglis, and Kunihiro Yokoi

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Pratt’s Energy Law Report

VOLUME 17 NUMBER 9 OCTOBER 2017

Editor’s Note: Storing EnergyVictoria Prussen Spears 317

Energy Storage Presents Opportunities for Growth and InnovationWilliam M. Friedman 319

Coal Plant Shutdowns: Climate Change Still MattersJ. Wylie Donald 334

A Look at Connecticut’s 2017 Comprehensive Energy StrategyDavid W. Bogan and Kathryn Boucher 339

U.S. Court of Appeals for the District of Columbia Circuit VacatesEPA’s Stay of Compliance Deadlines of Methane RuleAmy L. Barrette 345

U.S. Court of Appeals for the District of Columbia Circuit IssuesDecision on Definition of Solid WasteStephen C. Zumbrun and Frank L. Tamulonis 348

Japan’s Solar PV Market—Some ObservationsAled Davies, Daniel Lin, John Inglis, and Kunihiro Yokoi 351

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EDITOR-IN-CHIEFSTEVEN A. MEYEROWITZ

President, Meyerowitz Communications Inc.

EDITORVICTORIA PRUSSEN SPEARS

Senior Vice President, Meyerowitz Communications Inc.

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Partner, Sidley Austin LLP

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Partner, Kirkland & Ellis LLP

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SEAN T. WHEELER

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Hydraulic Fracturing DevelopmentsERIC ROTHENBERG

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Energy Storage Presents Opportunities forGrowth and Innovation

By William M. Friedman*

As costs fall and new technologies develop, the energy storage industry isprimed for growth. This article provides background on energy storagetechnologies and the numerous applications for energy storage to providevaluable services throughout the electricity grid. It then surveys federal andstate laws, regulations, and policies that propel and encourage growth in theenergy storage market.

The energy storage market is poised for significant growth thanks totechnological developments, cost reductions, and regulatory reforms. In the firstquarter of 2017 alone, the United States deployed 234 megawatt-hours(“MWh”) of energy storage, representing more than 50-fold growth year-over-year.1 The growth of energy storage is just beginning as laws and regulations atthe federal and state levels are reducing barriers and creating incentives forenergy storage. One source estimates that by 2022 energy storage will be a $3.3billion domestic market, up from $320 million in 2016, and the United Stateswill have over 7.3 gigawatt-hours (“GWh”) of energy storage capability, upfrom 336 MWh in 2016.2

As the energy storage market grows, so do innovative storage technologies,which quite literally run the gamut from freezing to boiling. In New York City,grocery stores are installing thermal storage systems to help manage their energyusage, reduce demand charges on their electric bills, and prevent food spoilage.Between 1.5 and 2 megawatts (“MW”) of Refrigeration Battery systems arebeing installed in Brooklyn and Queens, which shift up to six hours of abuilding’s refrigeration-based electricity loads.3 The batteries use an existingrefrigeration system’s excess capacity to “store cooling” during off-peak hours by

* William M. Friedman is an associate in the Washington, D.C., office of McDermott Will& Emery, LLP, representing renewable energy project developers and investors, renewable andconventional generators, and energy trading companies. He may be contacted at wfriedman@mwe.com.

1 US Energy Storage Market Experiences Largest Quarter Ever, Energy Storage Ass’n (June 6,2017), http://energystorage.org/news/esa-news/us-energy-storage-market-experiences-largest-quarter-ever.

2 Mike Munsell, In Shift to Longer-Duration Applications, US Energy Storage Installations Grow100% in 2016, Greentech Media (Mar. 7, 2017) https://www.greentechmedia.com/articles/read/in-shift-to-longer-duration-applications-us-energy-storage-installations-gr.

3 Axiom Exergy to Install More Than $5 Million Worth of Energy Storage for Utility ConsolidatedEdison at Grocery Stores in New York City, Axiom Exergy (Sept. 6, 2016) http://www.axiomexergy.

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freezing a tank of salt water. During peak hours, the battery uses the frozentanks to supply refrigeration services and reduces the store’s need to runcompressors and condensers using electricity. The New York City project isdesigned to postpone a $1.2 billion electrical substation upgrade.4

Across the country, in the Nevada desert, a molten salt storage project calledCrescent Dunes is the first utility-scale facility in the world to feature moltensalt power tower energy storage.5 The massive installation consists of over10,000 billboard-sized mirrors that reflect the sun’s rays onto a central receiveron top of a 640-foot tower.6 The facility pumps sodium and potassium nitratesto the top of the tower, where the molten salt can reach temperatures as highas 565 degrees Celsius.7 When electricity is needed, the molten salt is used toboil water and produce steam-powered generation. The molten salt can also bestored in a separate tank to be used as necessary, including at times when thesun is not shining. The project has a capacity of 110 MW (enough to power75,000 homes), plus 1,100 MWh, of energy storage (enough for 10 hours offull-power storage). Crescent Dunes is capable of operating 24 hours a day byreducing its output below peak levels; the plant ran for a continuous 120 hourperiod in July 2016 as a proof of concept.

Energy storage is a valuable technology because it has so many potentialapplications. It can increase reliability and resiliency of the energy grid, reduceor delay costly grid upgrades, allow greater integration of intermittentrenewable technologies like wind and solar, and provide valuable backup power.

BACKGROUND

Traditionally, electricity as a commodity could not be stored. This meant thatas demand increased on a hot day when many people turn on their airconditioners, more electricity had to be generated and transmitted in thatmoment. This often required grid operators to switch on an inefficient,

com/news/axiom-exergy-to-install-more-than-5-million-worth-of-energy-storage-for-utility-consolidated-edison.

4 Robert Walton, ConEd, Axiom Partner for 2 MW of Refrigeration Battery Storage, UtilityDive (Sept. 8, 2016) http://www.utilitydive.com/news/coned-axiom-partner-for-2-mw-of-refrigeration-battery-storage/425916/.

5 Crescent Dunes, Solar Reserve, http://www.solarreserve.com/en/global-projects/csp/crescent-dunes.

6 Thomas W. Overton, Top Plant: Crescent Dunes Solar Energy Project, Tonopah, Nevada,Power Magazine (Dec. 1, 2016), http://www.powermag.com/crescent-dunes-solar-energy-project-tonopah-nevada-2/?pagenum=1.

7 Knvul Sheikh, New Concentrating Solar Tower Is Worth Its Salt with 24/7 Power, ScientificAmerican (July 14, 2016) https://www.scientificamerican.com/article/new-concentrating-solar-tower-is-worth-its-salt-with-24-7-power/.

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expensive power plant to meet demand at peak periods, raising power prices.Unlike other commodities, which often retain relatively stable prices, electricityprices can fluctuate wildly over the course of a year, month, or even day.

Traditional Storage Technologies: Pumped Hydro and Flywheels

Historically, the only ways to “store” electricity were pumped hydroelectricfacilities and flywheels. Pumped hydro actually stores water, which is used togenerate electricity. A pumped hydro facility uses off-peak electricity to pumpwater mechanically from a lower elevation reservoir up to a connected reservoirat a higher elevation. When called upon to generate electricity, water is releasedfrom the upper reservoir through a hydroelectric turbine into the lowerreservoir.8 Pumped hydroelectric storage projects have been providing energystorage since the 1920s. Today, the 40 pumped-storage projects operating in theUnited States provide more than 20 GW, or almost two percent of the capacityof the electrical supply system.9 The vast majority of electricity storage in theUnited States today still comes from pumped hydroelectric technology.10

Flywheels use a motor-driven rotor to store rotational energy. When energyis needed, the spinning force of the rotor drives a device similar to a turbine toproduce electricity.11 Flywheels account for just over two percent of energystorage projects deployed in the United States since 2013.12

Pumped hydro and flywheels are the oldest storage technologies in theUnited States. But new storage technologies are being developed and deployed.

Battery Storage

Several types of batteries have increased in use in recent years. Lithium-ionis by far the most prominent battery storage technology. Lithium-ion batteriesare prominently featured in consumer electronics like the iPhone.13 Companieslike Tesla are using lithium-ion batteries to power cars and to pair with solarphotovoltaic generation systems in order to store unused solar power.14

Lithium-ion battery costs are falling rapidly. Costs fell roughly 50 percent, to

8 Akhil et al., DOE/EPRI Electricity Storage Handbook in Collaboration with NRECA 32(2013).

9 Pumped Hydroelectric Storage, Energy Storage Ass’n, http://energystorage.org/energy-storage/technologies/pumped-hydroelectric-storage.

10 Edison Electric Institute, Harnessing the Potential of Energy Storage 9 (May 2017).11 Flywheels, Energy Storage Ass’n, http://energystorage.org/energy-storage/storage-technology-

comparisons/thermal.12 Edison Electric Institute, Harnessing the Potential of Energy Storage 9 (May 2017).13 Why Lithium-ion?, Apple Inc., http://www.apple.com/batteries/why-lithium-ion/.14 Powerwall, Tesla Motors, https://www.teslamotors.com/powerwall.

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about $500/kWh, between year-end 2013 and year-end 2014. In 2016, onebattery technology company reported that its lithium-ion battery costs fell 70percent in 18 months.15 By the end of 2016, lithium-ion battery costsreportedly ranged from $285 to $581 per MWh, depending on use, represent-ing a 12 percent drop in the median cost in just one year.16 Analysts expect tosee average lithium-ion battery costs hit $217/kWh by 2020.17 Tesla mayalready be below that number, with analysts estimating Tesla’s current batterycosts are $150-$200/kWh.18 Lithium-ion batteries have a life of 15–20 yearsand round trip efficiencies around 83 percent.19 In the United States,lithium-ion batteries represent approximately 97 percent of batteries deployedin 2016.20

After lithium-ion, lead-acid and sodium sulfur batteries have seen the widestuse in the United States.21 There have also been advances in flow batteries,which offer longer lasting durations and fast charging times.22 Different battery

15 Stephen Lacy, Stem CTO: Lithium-Ion Battery Prices Fell 70% in the Last 18 Months,Greentech Media (June 28, 2016), http://www.greentechmedia.com/articles/read/stem-cto-weve-seen-battery-prices-fall-70-in-the-last-18-months.

16 Julian Spector, Storage Costs Come Down Across Technologies and Applications According toLazard Report, Greentech Media (Dec. 19, 2016), https://www.greentechmedia.com/articles/read/energy-storage-costs-lcos-lazard-lithium-ion-flow-batteries.

17 Julian Spector, Storage Costs Come Down Across Technologies and Applications According toLazard Report, Greentech Media (Dec. 19, 2016), https://www.greentechmedia.com/articles/read/energy-storage-costs-lcos-lazard-lithium-ion-flow-batteries.

18 Eric Wesoff, How Soon Can Tesla Get Battery Cell Costs Below $100 per Kilowatt-Hour?,Greentech Media (March 15, 2016), http://www.greentechmedia.com/articles/read/How-Soon-Can-Tesla-Get-Battery-Cell-Cost-Below-100-per-Kilowatt-Hour.

19 Willie G. Manuel, Energy Storage Study 2014, Turlock Irrigation District (Sept. 17, 2014),available at http://www.energy.ca.gov/assessments/ab2514_reports/Turlock_Irrigation_District/2014-10-28_Turlock_Irrigation_District_Energy_Storage_Study.pdf.

20 Mike Munsell, In Shift to Longer-Duration Applications, US Energy Storage InstallationsGrow 100% in 2016, Greentech Media (March 7, 2017), https://www.greentechmedia.com/articles/read/in-shift-to-longer-duration-applications-us-energy-storage-installations-gr.

21 Sonal Patel, Battery Storage Goes Mainstream, Power Magazine (May 1, 2017), http://www.powermag.com/battery-storage-goes-mainstream-2/?printmode=1.

22 Peter Maloney, Despite Technological Advances, Flow Batteries Struggle Against Market GiantLithium-Ion, Utility Dive (March 14, 2017), http://www.utilitydive.com/news/despite-technological-advances-flow-batteries-struggle-against-market-gian/437399/; see James Conca, Vanadium-FlowBatteries: The Energy Storage Breakthrough We’ve Needed, Forbes (Dec. 13, 2016), https://www.forbes.com/sites/jamesconca/2016/12/13/vanadium-flow-batteries-the-energy-storage-breakthrough-weve-needed/#589126805bde.

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compositions offer various benefits, such as wider availability of materials,higher energy density, and longer operational life.

Compressed Air Energy Storage

Another new storage technology, compressed air energy storage (“CAES”)uses off-peak electricity to power an air compressor. The compressed air isstored in a reservoir, either an underground cavern or aboveground pipes orcontainers.23 When electricity is needed, the compressed air is released to spina turbine and generate electricity. There are two operating underground CAESsystems: one in Germany and one in Alabama. A third underground CAESsystem, to be located in Texas, is currently in the planning stages. UndergroundCAES requires a large infrastructure investment and a suitable geologicalformation. Above-ground CAES is an evolving technology that has not yet beendeployed, but offers the potential for inexpensive, long-lasting energy storage.24

APPLICATIONS OF ENERGY STORAGE

Energy storage can provide a wide range of services to the electricity grid.While grouping of these services varies, a Rocky Mountain Institute reportidentified a suite of 13 general services energy storage is capable of providing.25

These 13 services can be subdivided by whether they flow to wholesaleelectricity markets, utilities, or customers.

In serving a wholesale market, energy storage can provide the followingservices:

1) Smoothing demand spikes: buying electricity at times when prices arelower and selling electricity back into the market when prices arehigher, which provides market liquidity and closes the bid-offerspread.

2) Frequency regulation: balancing electricity supply and demand to keepsystem frequency within operational bounds.

3) Spin/non-spin reserves: generation capacity that either is online andavailable to serve load immediately or offline and able to respond to acontingency event within a short period of time.

23 Akhil et al., DOE/EPRI Electricity Storage Handbook in Collaboration with NRECA 37(2013).

24 Jeff St. John, LightSail’s Secret Plan to Slash the Costs of Compressed Air Energy Storage,Greentech Media (Apr. 28, 2015), https://www.greentechmedia.com/articles/read/LightSails-Secret-Plan-to-Slash-the-Costs-of-Compressed-Air-Energy-Storage.

25 Fitzgerald et al., The Economics of Battery Energy Storage: How Multi-Use, Customer-SitedBatteries Deliver the Most Services and Value to Customers and the Grid, Rocky Mountain Institute14–16 (Sept. 2015).

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4) Voltage support: maintaining proper voltage on the electricity grid.

5) Black start: capability to restore power to part of the grid in case of agrid outage.

Energy storage also provides several services to utilities:

1) Resource adequacy: ensuring there are sufficient resources to meet peakdemand requirements. Energy storage resources can be used instead ofbuilding new generation.

2) Distribution deferral: delaying, reducing the size of, or avoiding newinvestment in distribution system upgrades to meet load growth oraddress reliability concerns.

3) Transmission congestion relief: downstream discharge of energy storageresources, which can relieve transmission line congestion.

4) Transmission deferral: delaying, reducing the size of, or avoiding newinvestment in transmission system upgrades to meet load growth oraddress reliability concerns.26

Finally, energy storage can provide several services to customers:

1) Time-of-use bill management: shifting electricity purchases from peakconsumption hours, when rates are highest, to times of day with lowerrates.

2) Increased solar self-consumption: maximizing the financial benefits of asolar photovoltaic system to reduce utility bills.

3) Demand charge reduction: reducing customer demand charges or

participating in demand response programs.

4) Backup power: providing backup power to customer in case of gridfailure.

Several studies have concluded that the best way to ensure energy storageresources are deployed economically is to permit them to “stack” services, oroffer several different services to allow the storage resource to tap into multiplerevenue streams.27 Many storage resources are technically capable of providing

26 For example, one utility experiencing reliability problems that normally would haverequired constructing new transmission lines instead added two MW of sodium-sulfur batteriesinto its existing substation, which deferred the construction of eight miles of new 138-kVtransmission lines and increased reliability. America’s First Battery-Based Energy Storage System forIslanding Applications, S&C Electric Company (Nov. 21 2011), http://www2.sandc.com/edocs_pdfs/EDOC_070188.pdf.

27 See generally, Fitzgerald et al., The Economics of Battery Energy Storage: How Multi-Use,

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a variety of services, which can be stacked. For example, a battery could bedeployed for a primary application, such as demand charge reduction, but thatprimary service may utilize only a small percentage of the battery’s useful life.Allowing a battery to provide multiple services, such as demand chargereduction as well as frequency regulation service and demand smoothing,creates additional value to the market and additional revenue streams for thestorage resource.28

Historically, there have been regulatory impediments (not to mention issuesrelating to claiming tax credits) to stacking services, particularly where someservices are provided at the distribution level while others are at the transmis-sion level. However, there are indications that these regulatory barriers may beeliminated in the near future. The Federal Energy Regulatory Commission(“FERC”), which regulates the wholesale electricity markets, issued a policystatement clarifying that it would allow energy storage resources to earncompensation through a combination of both cost-based and market-basedrates concurrently, allowing them to access multiple markets with multiplerevenue streams.29 Another FERC proposal, discussed in more detail below, willallow energy storage resources to provide all the services they are technicallycapable of providing in wholesale electricity markets, thereby allowing storageresources to access multiple revenue streams.30

The stacking of energy storage services is already being put into effect. In oneexample, the town of Minster, Ohio, had been looking to install solargeneration to diversity its portfolio and hedge against fuel price volatility.31

However, when the State of Ohio failed to pass a law enabling the generationand trading of solar renewable energy credits, it looked impossible to adequatelyfund a solar installation. After being approached by a development and

Customer-Sited Batteries Deliver the Most Services and Value to Customers and the Grid, RockyMountain Institute (Sept. 2015); Lazard’s Levelized Cost of Storage—Version 2.0, Lazard (Dec.2016); Energy Storage Roadmap for New York’s Electric Grid, New York Battery and EnergyStorage Technology Consortium (Jan. 2016).

28 Fitzgerald et al., The Economics of Battery Energy Storage: How Multi-Use, Customer-SitedBatteries Deliver the Most Services and Value to Customers and the Grid, Rocky Mountain Institute20 (Sept. 2015).

29 Utilization of Electric Storage Resources for Multiple Services When Receiving Cost-Based RateRecovery, 158 FERC ¶ 61,051 (2017).

30 Electric Storage Participation in Markets Operated by Regional Transmission Organizationsand Independent System Operators, 157 FERC ¶ 61,121 (2016).

31 Herman K. Trabish, Inside the First Municipal Solar-Plus-Storage Project in the US, UtilityDive (July 5, 2016), http://www.utilitydive.com/news/inside-the-first-municipal-solar-plus-storage-project-in-the-us/421470/.

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financing company, Minster agreed to add storage to its proposed solarproject.32 The Village of Minster Energy Storage Project is a seven MW, threeMWh lithium ion battery storage system co-located with a 4.2 MW solargeneration plant that provides multiple revenue streams—flowing to multipleparties—by integrating frequency regulation services, transmission and distri-bution deferral, demand response, and voltage support.33

OPPORTUNITIES FOR GROWTH

Energy storage has recently become an area of focus for a wide array oflawmakers and regulators. States, particularly California, have been at theforefront of incentives for and development of energy storage. Thanks toCalifornia’s energy storage mandate, it is the undisputed leader in storage.Other states are at various stages of implementing their own policies to growtheir energy storage markets. The federal government has also begun examiningefforts to make energy storage more economical and efficient, and currentfederal tax rules can benefit energy storage.

Opportunities at the Federal Level

Under present tax rules, privately-owned energy storage resources can qualifyfor some federal tax benefits. Without a renewable energy system installed inparallel, a battery storage system is eligible for seven-year Modified AcceleratedCost Recovery System (“MACRS”) depreciation, which the National Renew-able Energy Laboratory estimates is equivalent to a 25 percent reduction incapital costs.34 The same benefit applies to a battery system that is installed witha renewable energy project if the battery is charged by that renewable energysystem less than half the time.35 If, however, the battery system is charged bya renewable energy system more than half the time, then it should qualify forfive-year MACRS schedule, equal to an estimated 27 percent reduction incapital costs.36

Battery systems can also qualify for the federal investment tax credit (“ITC”)if they are charged by a renewable energy project more than 75 percent of thetime. Batteries that charge 100 percent of the time can qualify for the full ITC

32 Id.33 Jennifer Runyon, Village of Minster Energy Storage Project Is Renewable Project of the Year,

Renewable Energy World (Dec. 13, 2016), http://www.renewableenergyworld.com/articles/2016/12/village-of-minster-energy-storage-project-is-renewable-project-of-the-year.html.

34 National Renewable Energy Laboratory, Federal Tax Incentives for Battery Storage Systems(Jan 2017).

35 Id.36 Id.

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(currently 30 percent of the installation costs, with a gradual step-downcurrently scheduled based on the year of installation); however, batteries thatcharge from renewable energy between 75 percent and 99.99 percent of thetime are eligible only for that portion of the value of the ITC.37 For example,a battery that charges using renewable energy 80 percent of the time is eligiblefor the 30 percent ITC multiplied by 80 percent, or a 24 percent ITC, insteadof the full 30 percent.38 Monitoring the energy throughput to a battery,however, may require specialized software.

On the legislative front, there are efforts to expand the ITC for energystorage, including a bipartisan bill called the Energy Storage Tax Incentive andDeployment Act, introduced in 2016 by Senator Martin Heinrich (D-NM)and co-sponsored by Senator Dean Heller (R-NV). The bill, which is expectedto be reintroduced this year, expands the ITC to include investments intechnologies such as batteries, CAES, pumped hydro, hydrogen storage,thermal energy storage, regenerative fuel cells, flywheels, and more.39 It wouldalso expand the tax credit for residential energy efficient property to includeexpenditures for battery storage technology installed in connection with ataxpayer’s residence.

FERC is already working on the federal level to increase the deployment ofenergy storage. In connection with its oversight of the wholesale electricitymarkets, FERC regulates regional transmission organizations (“RTO”) andindependent system operators (“ISO”), which operate the wholesale transmis-sion grid and administer wholesale electricity markets. Energy storage resourceshave been providing demand response and ancillary services like frequencyregulation to RTO/ISO markets in rapidly increasing amounts. In PJMInterconnection, L.L.C. (“PJM”), the ISO responsible for the transmission gridin 13 states and the District of Columbia, there were over 300 MW of batterystorage installed as of 2016 with “hundreds more MW in the queue,” up fromzero battery storage in 2005.40 This is in large part due to FERC’s Orders No.75541 and 784,42 which required RTOs/ISOs to pay more for greater speed and

37 Id.38 Id.39 Energy Storage Tax Incentive and Deployment Act of 2016, S. 3159, 114th Cong. (2016).40 Karen Haywood Queen, PJM Leverages Federal Rule Changes to Lead Country in Energy

Storage, Southeast Energy News (Nov. 28, 2016), http://southeastenergynews.com/2016/11/28/pjm-leverages-federal-rule-changes-to-lead-country-in-energy-storage/.

41 Frequency Regulation Compensation in the Organized Wholesale Power Markets, 137 FERC¶ 61,064 (2011).

42 Third-Party Provision of Ancillary Services; Accounting and Financial Reporting for New

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precision of energy response. In 2012–2013, PJM split its frequency regulationmarket into two groups: one for slower responding traditional generators andone for faster responders such as energy storage. The “pay for performance”employed by PJM increased competition for fast-responding resources andhelped spur energy storage development within the PJM footprint.43 In fact, somany storage resources were developed to provide frequency regulation thatPJM put a cap on the volume of fast-responding resources that are allowed toclear the regulation market during certain hours.

In an effort to encourage greater battery storage participation in wholesaleRTO/ISO markets, FERC recently initiated a rulemaking proceeding that willrequire RTO/ISOs to modify their open access transmission tariffs and marketrules to accommodate storage resources.44 Many RTO/ISO tariffs are currentlywritten to accommodate traditional resources and contain rules that act as abarrier to participation by storage resources. For example, some markets requirea resource to be able to sustain its output at nameplate capacity for four hoursin order to participate in the capacity market.45 This eligibility requirement wasdesigned with conventional power plants in mind and has not been updated toaccount for newer technologies, even though storage resources are technicallycapable of providing capacity. If FERC’s new rules are approved, energy storageresources will have greater access to wholesale electricity markets and therevenue streams that come with that access.

Opportunities at the State Level

To encourage the growth of energy storage, California, Oregon, New York,and Massachusetts have created energy storage targets or mandates to encourageor require utilities to procure certain amounts of energy storage. Adopted in2013, California’s energy storage mandate required California’s three largestutilities to contract for 1,325 MW of energy storage by 2020, to be operatingby 2024.46 The storage target was divided into three categories, and each utilitymust procure a particular amount of transmission-connected, distribution-

Electric Storage Technologies, 144 FERC ¶ 61,056 (2013).43 Karen Haywood Queen, PJM Leverages Federal Rule Changes to Lead Country in Energy

Storage, Southeast Energy News (Nov. 28, 2016), http://southeastenergynews.com/2016/11/28/pjm-leverages-federal-rule-changes-to-lead-country-in-energy-storage/.

44 Electric Storage Participation in Markets Operated by Regional Transmission Organizationsand Independent System Operators, 157 FERC ¶ 61,121 (2016).

45 Responses of the Midcontinent Independent System Operator, Inc. at 11–12, FERCDocket No. AD16-20-000 (May 16, 2016); see Electric Storage Participation in Markets Operatedby Regional Transmission Organizations and Independent System Operators, 157 FERC ¶ 61,121 atP 46 (2016).

46 Cal. Pub. Utils. Code §§ 2835 et seq.; Cal. Pub. Utils. Comm’n, D.13-10-040; see Randy

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connected, and behind-the-meter storage resources in a series of four biennialprocurement solicitations through 2020. Additionally, in 2016, Californiapassed a law requiring the utilities to procure up to 500 MW of additionaldistributed energy storage resources.47 Through February 2017, Californiautilities have procured 478.5 MW of energy storage,48 making California theleading state in energy storage.

Following California’s lead, in 2015, Oregon passed a law requiring Oregon’selectric utilities to each procure a minimum of five MWh of energy storagebefore 2020.49 The mandate is capped at one percent of the electric utility’s2014 peak load, unless the limit is waived by the Oregon Public UtilityCommission. The law requires each utility to submit before 2018 a proposal tothe Oregon Public Utility Commission for developing a project that includesone or more energy storage systems.

On the East Coast, New York State is currently implementing its Reformingthe Energy Vision (“REV”) initiative, aimed at building a cleaner, more resilientand affordable electricity grid. REV sets clean energy goals for 2030 includinga 40 percent reduction in emissions from 1990 levels, supplying 50 percent ofNew York State’s generation from renewable energy sources, and a 23 percentdecrease in energy consumption of buildings from 2012 levels.50 Dovetailingwith its broader efforts in renewable energy, New York in June 2017 passed abill directing its Public Service Commission to establish a target by 2018 for theinstallation of energy storage systems to be achieved through 2030 andprograms that will enable the state to meet that target.51 The bill includesresources using mechanical, chemical, or thermal technology as qualified energystorage systems. The bill is currently awaiting the governor’s signature.

New York City is also at the forefront of energy storage as the first city in theUnited States to set an energy storage goal. In 2016, New York City set a storagegoal of 100 MWh by 2020 alongside a goal of 1,000 MW of solar installations

J. Hill and Elliot J. Williams, At the Halfway Point: The Effect of California’s Energy StorageMandate, Renewable Energy World (Nov. 22, 2016), http://www.renewableenergyworld.com/articles/2016/11/at-the-halfway-point-the-effect-of-california-s-energy-storage-mandate.html; En-ergy Storage, California Public Utilities Commission, http://www.cpuc.ca.gov/General.aspx?id=3462.

47 Cal. Pub. Utils. Code §§ 2838.2–2838.3.48 Cal. Pub. Utils. Comm’n, R.15-03-011 at 17 (Apr. 27, 2017) (tbl. 2).49 Or. Rev. Stat. § 757.539.50 See Reforming the Energy Vision, https://www.ny.gov/sites/ny.gov/files/atoms/files/

WhitePaperREVMarch2016.pdf.51 AB 6571, 2017–2018 Regular Sess. (N.Y. 2017).

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by 2030.52 The targets are aspirational, not binding.53 The storage and solargoals are part of New York City’s commitment to an 80 percent reduction ingreenhouse gas emissions by 2050. At the end of 2016, the city only had 4.8MWh of installed storage.54

New York utility Consolidated Edison Company of New York recently filedplans for an energy storage demonstration project where it will partner withNRG Energy to develop a one MW/four MWh mobile storage system, housedon two trailer trucks.55 The storage system will participate in marketsadministered by the New York Independent System Operator (includingfrequency regulation, operating reserves, day-ahead and real time energymarkets). When not deployed elsewhere, the assets will be housed at NRG’spower plant in Astoria, Queens. The mobile units will be available to transportto other locations, at pre-determined periods to meet anticipated seasonal peakloads, to serve temporary load increases, or in response to unanticipatedcontingency events.

In 2016, Massachusetts enacted a law directing its Department of EnergyResources (“DOER”) to determine whether to set appropriate targets forelectric companies to procure energy storage systems by January 1, 2020.56

DOER determined that it was prudent and cost-effective for Massachusetts toset targets for energy storage systems, and in June 2017, DOER announced an“aspirational” target for electric distribution companies to procure 200 MWh ofstorage by 2020.57 DOER left the door open to increasing the target by

52 Climate Week: Solar Power in NYC Nearly Quadrupled Since Mayor de Blasio Took Officeand Administration Expands Targets, City of New York (Sept. 23, 2016), http://www1.nyc.gov/office-of-the-mayor/news/767-16/climate-week-solar-power-nyc-nearly-quadrupled-since-mayor-de-blasio-took-office-and; Julian Spector, New York City Sets the First Citywide Energy StorageTarget, Greentech Media (Sept. 27, 2016), https://www.greentechmedia.com/articles/read/new-york-city-becomes-first-to-set-citywide-energy-storage-target.

53 Julian Spector, New York City Sets the First Citywide Energy Storage Target, GreentechMedia (Sept. 27, 2016), https://www.greentechmedia.com/articles/read/new-york-city-becomes-first-to-set-citywide-energy-storage-target.

54 Peter Maloney, Fire Safety Issues Dog Battery Storage Growth in New York City, SlowingDeployment, Utility Dive (March 21, 2017), http://www.utilitydive.com/news/fire-safety-issues-dog-battery-storage-growth-in-new-york-city-slowing-dep/438290/.

55 Consolidated Edison, REV Demonstration Project Outline, Storage on Demand (Feb. 27,2017).

56 Mass. Gen. Laws, ch. 23M, § 15 (2017).57 Letter from Judith F. Judson, Commissioner Department of Energy Resources, to

Conference Committee Members (June 30, 2017), available at http://www.mass.gov/eea/docs/doer/letter-to-legislature-notice-of-energy-storage-target-adoption.pdf; see Baker-Polito Adminis-

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announcing it would consider setting additional procurement targets beyond2020.

Maryland recently passed a law creating a state income tax credit for the costsassociated with installing an energy storage system.58 Unlike other states, theMaryland law does not contain mandated amounts of energy storage thatutilities must procure. Instead, Maryland became the first state in the countryto incentivize the deployment of energy storage by offering a tax credit. Underthe law, a taxpayer will receive a credit equal to 30 percent of the installed costof the system, not to exceed $5,000 for a residential system or $75,000 for acommercial system. The incentive program has a funding cap of $750,000 peryear and is currently slated to run from 2018 to 2022. Maryland’s tax credit isnot limited to battery storage systems, although it may be used on widelyavailable battery storage systems like the Tesla Powerwall. The law also coversenergy storage systems that use other forms of energy storage, such as flywheelsand compressed air storage. Even though Maryland’s tax credit program has arelatively low cap, it is enough to launch Maryland to the forefront of energystorage.

Hawaii has been considering similar incentives for energy storage system.Although a bill that would provide an investment tax credit for storage systemsfailed earlier this year,59 another bill is under consideration. In its current form,the new bill would establish a rebate program for energy storage systems inHawaii and on a per-watt of installed capacity basis, with the rebate amountvarying between 40 cents per watt-hour and 10 cents per watt-hour based onwhether the system is residential, commercial, or utility-scale.60 The rebates willbe capped at $10,000 per system for residential property, $500,000 per systemfor commercial property, and $500,000 per system for utility-scale storagesystems.

Nevada is also working to launch its energy storage sector. A bill, passedthrough the legislature but vetoed by the governor earlier this year, would haveallowed qualified energy storage systems to be used for compliance with the

tration Sets 200 Megawatt-Hour Energy Storage Target, Department of Energy Resources (June 30,2017), http://www.mass.gov/eea/pr-2017/doer-sets-200-megawatt-hour-energy-storage-target.html.

58 S.B. 758, 2017 Reg. Sess. (Md. 2017).59 Duane Shimogawa, Energy Storage Tax Credit Bill Shelved; Cash Rebate Bill Still Alive,

Pacific Business News (Mar. 20, 2017), http://www.bizjournals.com/pacific/news/2017/03/20/energy-storage-tax-credit-bill-shelved-cash-rebate.html.

60 H.B. 1593, 29th Leg., 2017 Reg. Sess. (Hi. 2017).

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state’s renewable portfolio standard.61 Each kilowatt-hour of energy deliveredby a qualified energy storage device would count double for the purposes of therenewable portfolio standard.

CONCLUSION

Energy storage is projected to grow by a factor of 12 in the next five years.62

Costs are coming down, new technologies are being deployed, regulatorybarriers are crumbling, and incentive programs are increasing. The installationof energy storage as a response to fossil fuel supply issues, for example, showsstorage’s potential for rapid growth as well as for innovative solutions toproblems on the electric grid. In October 2015, there was a large leak from theAliso Canyon natural gas storage facility in Southern California. The facility’sowner could not plug the well and stop the leak from the storage facility, whichprovides gas to homes and businesses, manufacturing, and 17 power plants witha combined generating capacity approaching 10,000 MW.63 The gas leak wasnot only an environmental disaster but harmed a critical fuel source forSouthern California power plants, threatening the region’s electricity supply.64

As part of the state’s response to the crisis, the California Public UtilitiesCommission rapidly approved over 100 MW of battery-based energy storage inSouthern California, including large battery projects developed by Tesla,Greensmith Energy, and AES Energy Storage.65 The batteries came onlineroughly six months after the procurement order was issued and helped preventblackouts and maintain grid stability.66 The rapid installation of batteries is incontrast to building new natural gas peaker plants, which commonly take twoto three years of development time. The successful deployment of utility-scale

61 A.B. 206, 79th Sess. (Nev. 2017).62 See Danielle Ola, GTM: US Energy Storage Installations Grew 100% in 2016, Energy

Storage News (Mar.7, 2017), https://www.energy-storage.news/news/gtm-us-energy-storage-installations-grew-100-in-2016.

63 David Wagman, Energy Storage Rose from California Crisis, IEEE (May 8, 2017),http://spectrum.ieee.org/energywise/energy/the-smarter-grid/california-crisis-tests-energy-storage-supply-chain.

64 Diane Cardwell and Clifford Krauss, A Big Test for Big Batteries, N.Y. Times (Jan. 14,2017), https://www.nytimes.com/2017/01/14/business/energy-environment/california-big-batteries-as-power-plants.html?_r=0.

65 Julia Pyper, Tesla, Greensmith, AES Deploy Aliso Canyon Battery Storage in Record Time,Greentech Media (Jan. 31, 2017), https://www.greentechmedia.com/articles/read/aliso-canyon-emergency-batteries-officially-up-and-running-from-tesla-green.

66 David Wagman, Energy Storage Rose from California Crisis, IEEE (May 8, 2017),http://spectrum.ieee.org/energywise/energy/the-smarter-grid/california-crisis-tests-energy-storage-supply-chain.

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batteries has been heralded as proof that such installations are feasible and canbe economically attractive.67

California has been leading the way, but other states are quickly joining theenergy storage trend, and the federal government is looking to expandincentives and markets to encourage energy storage. While energy storage isalready economical in certain scenarios, cost reductions, additional incentives,and the reduction in barriers to providing additional services and tapping intomultiple revenue streams will make energy storage more economically sensiblein short order.

67 John Parnell, Aliso Canyon Is Starting Gun for U.S. Utility Storage Deployment: GreensmithCEO, Energy Storage News (Apr. 10, 2017), https://www.energy-storage.news/blogs/aliso-canyon-is-starting-gun-for-us-utility-storage-deployment-greensmith-c.

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