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New Energy Storage Mandate for California Utilities – Big Promise for Cleantech

By Sahir Surmeli 

California’s Public Utilities Commission (CPUC) unanimously approved the first energy storage mandate in the United States. The mandate will compel utilities to use energy storage technologies.  It is designed to provide the encouragement needed for the continued development of energy storage technologies, considered by many to be the holy grail of the renewable energy industry.  California’s RPS program that required publicly owned utilities to get 33% of their electricity from renewable sources accelerated the state’s cleantech economy, and proponents of the energy storage mandate hope that it will do the same.  The mandate comes in response to a 2010 California law, AB 2514, which required the CPUC to set specific targets for the usage of energy storage for 2015 and 2020.  

This mandate should help incent additional funding for companies developing energy storage technologies.  If it follows the RPS pattern, utilities will begin issuing requests for bids on energy storage contracts.  Companies with contracts in hand will be stronger candidates for additional funding.  Given the scale of the storage needed, significant funds will be needed to build out storage capacity, so we can expect to see meaningful dollars flow to expansion and implementation of storage technologies.

CPUC has set terms mandating California utilities PG&E, Southern California Edison and San Diego Gas & Electric collectively to buy more than 1.3 gigawatts of energy storage by 2020 (see chart below)[1].  Additionally, the utilities cannot own more than 50% of the total amount of energy storage across the grid domains of transmission, distribution, and customer-located storage.  California’s three major utilities have specific megawatt targets to reach for every two years beginning in 2014.  Further, the utilities cannot use pumped hydro storage projects of 50 megawatts or more to reach their targets, which forces them to make use of a variety of technologies.

Energy storage technologies, such as compressed air systems, batteries, fuel cells and flywheels, allow for the better use of renewable energy systems.  Wind, solar, and various other renewable energy sources generate energy sporadically and not necessarily in concert with peak demand.  Storage technologies would mitigate that issue by providing a reliable way to store the excess energy produced by these systems when it is not needed and to deliver it to the electrical grid when it is needed.  Additionally, storage technologies protect electrical systems from disruptions caused by extreme weather events such as storms and wildfires.  California’s first-in-the-nation requirement would likely push further innovation in these emerging technologies.

The U.S. economy is dependent on a steady, predictable stream of electricity.  With the volatility caused by extreme weather and a heavier reliance on renewable energy sources, utilities face an increasing problem of intermittent supplies of electricity.  As such, grid operators want to find ways of storing energy produced during off-peak periods for use during peak hours, which saves them the cost of running additional power plants during times of high demand.

Cleantech startups, utilities, researchers at top universities and leading energy companies have been searching for cheap ways to store energy for future use.  Examples of this include flywheel storage, which accelerate a rotor to high speeds creating a kinetic battery, compression techniques, which store excess energy in pressurized air and warmed water and combines them to create electricity when needed, and stationary batteries such as lithium-ion or sodium-sulfur.  The market, however, has been slow to develop these at a commercial scale for storage at the scales needed by utilities.

Although it is as yet unclear how this proposal will affect consumers’ electricity rates, it is clear that the Commission hopes to spur the development of the energy storage market.  CPUC Commissioner Carla Peterman said that “storage has a lot of potential, but there’s no one solution.  We need to develop this market to see what the potential is.”  The mandate will not only spur demand, it will help attract additional capital and speed developing storage technologies to a broader market.


[1] “Grid-Scale Energy Storage in North America 2013: Applications, Technologies and Suppliers,” Greentech Media Research, October 10, 2013, available at http://www.greentechmedia.com/research/report/grid-scale-energy-storage-in-north-america-2013.

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Author

Sahir Surmeli

Member / Co-chair, Energy & Sustainability Practice

Sahir Surmeli is a Mintz business counselor who advises companies, boards, entrepreneurs, investment banks, and venture and private equity investors as they grow. He handles public offerings, 144A and private financings, acquisitions, joint ventures, and strategic partnerships.