Energy Storage for Reducing Costs to Ratepayers Jason Burwen NASUCA Annual Meeting November 14, 2016

Energy storage = flexibility It enables energy that is generated to be used at a later time, when it is most needed

Storage is in all parts of the grid And in microgrids

Projects operating across the U.S. Several MW-scale projects have 8+ years of operations Source: DOE Database

Main types of energy storage Reserve & Response Services T&D Grid Support Bulk Power Management Pumped Hydro Compressed Air Flow Batteries (V, Zn, Na+) Molten Salt Customer Thermal Current Batteries (Li+, Pb, NaS, Ni) 1 Sec 1 Min 1 Hr 4 Hrs 12+ Hrs Duration Flywheels 1 kW 10 kW 100 kW 1 MW 10 MW 100 MW 1 GW Power

Storage offers many applications Bulk Services Bulk Energy Services Electric Time Shift Electric Supply Capacity Curtailment avoidance Ancillary Services Frequency Response Regulation Operating Reserves Voltage Support Black Start Network Services Transmission Services Upgrade Deferral Congestion Relief Distribution Services End User Services Energy Management Services Power Quality Power Reliability / Outage Mitigation Retail Energy Time Shift Demand Charge Management …and can provide these services interchangeably over time, depending on location Source: EPRI/Sandia National Laboratory

Storage for risk management Scalable to application – modular tech can be scaled precisely to needs, expanded as needed Reduces lock-in – 10-20 years vs. 25+ years for gas peaker Can change functionality to meet changing system needs Can be re-deployed if containerized Fast to build & deploy – can meet contingencies & substitute for longer-to-build infrastructure Minimal direct environmental impact

What does all this add up to? Storage lowers costs to ratepayers Reduces spending on excess capacity (i.e., power plants and infrastructure) to meet system and local peak demands Increases reliability by mitigating supply disruptions and outages Increases overall efficiency of the grid Contributes to risk management in long-term planning Reduces local emissions as well as GHGs

Peak capacity The main value

Example: peak capacity replacement Avg ~4% utilization (Source: GE)

Example: peak capacity replacement

Example: peak capacity replacement

Comparison of flexibility attributes Gas Peaker Energy Storage Range ~80% of capacity--minimum operational limits 200% of capacity--can act as supply or demand Utilization Low--only to meet peak demand or emergencies High--simultaneous grid services Service Factor Low--only when spinning (<10%) High—always on (50-100%) Dispatch time Minutes Seconds Standby Start/stop costs & Emissions No costs & No direct emissions

Example: Distribution upgrade deferral Substation Storage AND/OR Behind-the-meter Storage Energy storage enables deferral of substation and feeder upgrades by reducing local peak demands & increasing power quality/reliability

Storage Meeting Peak Capacity CALIFORNIA: SCE Local Capacity Requirement procured 250 MW of storage to respond to retired generating capacity ARIZONA: APS-RUCO settlements requires 10% of peak generating capacity procurement to be storage NEW YORK: ConEd (52 MW) and PSEG-LI (360 MW) projects seek DERs (like storage) as peak load reduction to defer local capacity upgrades

Taming peaks is key MA State of Charge Study Finds 1,766 MW of storage economically justified 50% of benefit is reducing system peak 25% of benefit is reducing local peak (T&D deferral + DER integration)

Installed Cost of Capacity 100 MW / 4-hour Lithium-Ion Battery Storage 2016 2017 2018 2019 2020 Upper $ 1,814 $ 1,549 $ 1,337 $ 1,209 $ 1,083 Lower $ 1,660 $ 1,315 $ 1,056 $ 911 $ 774 Upper: GTM install costs, BNEF experience curve (low end, 14%), Navigant global installs Lower: IHS install costs, BNEF experience curve (high end, 19%), Navigant global installs

Value of Avoided Start/Stop From NREL (2015) Operational Benefits of Meeting California’s Energy Storage Targets

Net Cost of Capacity = Cost – Operational Benefits Traditional cost of capacity comparison Net cost of capacity comparison More expensive Less expensive

Net Cost of Capacity 100 MW / 4-hour Lithium-Ion Battery Storage avoided start-up/shut-down costs of ~$20/kW-yr avoided fuel costs of ~$10/kW-yr 8% discount rate 2016 2017 2018 2019 2020 Upper $ 1,519 $ 1,255 $ 1,042 $ 915 $ 788 Lower $ 1,365 $ 1,020 $ 762 $ 616 $ 479 Upper: GTM install costs, BNEF experience curve (low end, 14%), Navigant global installs Lower: IHS install costs, BNEF experience curve (high end, 19%), Navigant global installs

MA DOER State of Charge Study Key need: unlock value “The biggest challenge to achieving more storage deployment in Massachusetts is the lack of clear market mechanisms to transfer some portion of the system benefits (e.g. cost savings to ratepayers) to the storage project developer.” MA DOER State of Charge Study

If you see peak capacity proposal… Is storage considered alongside other options for peak capacity? Are the RFPs for peak capacity all-source, or prescriptive to tech? Does forward-looking planning (IRPs) includes storage? What is the method for determining cost-benefit of storage? Does is include both capacity and operational benefits (flexibility services + avoided system costs)? What cost estimates are used for storage? Are they recent and reflect current industry trends?

Jason Burwen j.burwen@energystorage.org Thank you Jason Burwen j.burwen@energystorage.org

Parking Lot

Storage costs decreasing rapidly Li-ion cost reductions IHS: 52% cost reduction 2012- 2015 Navigant: 50% cost reduction 2010-2015 BNEF: 60+% reduction 2010- 2015 Li-ion cost trajectories Lazard: 50% cost reduction 2015-2019 IHS: 50% cost reduction 2016-2019 BNEF: 14-19% experience curve  36-50% reduction by 2020

EPRI: Installed Costs 2017 Energy Storage Cost Summary for Utility Planning: Executive Summary. EPRI, Palo Alto, CA: 2016. 3002008877.

Keys to storage for ratepayer Create Signals of Storage Value: Develop or implement programs and policies that send a signal, such as unbundling/pricing grid services, establishing valuation methods, and creating cost-effective procurement targets. Increase Competition in Procurement: Ensure proper consideration of energy storage in RFPs focusing on CT proposals, non-wire alternatives, and peak load reduction Storage in All Planning: Include storage in all state and utility planning processes including integrated resources plans, distribution system planning, transmission planning, and RPSs; ensure most up-to-date cost assumptions, modeling practices, and valuation methodologies Ensure Grid Access of Storage: Remove barriers to transmission interconnection; enable access to DER storage applications in grid modernization, DER compensation, interconnection, and DR proceedings

Energy storage: not if, but when IN THE U.S. annual installation in 2021 expected to be over 2,100 MW-- 9x installation in 2015…. …and distributed storage is expected to rise from 15% to over 50% of annual installations by 2021. Source: ESA/GTM

Storage duration also growing IN THE U.S. annual installed energy in 2021 expected to be over 6,000 MW-- 36x installed energy in 2015… …and average system discharge duration is expected to increase across all segments. Source: ESA/GTM

IN THE U.S. market size in 2021 expected to be $2.9 billion-- Market size 6x in 2021 IN THE U.S. market size in 2021 expected to be $2.9 billion-- 6x market size in 2015. (GTM) And by 2020, behind-the-meter market is expected to match bulk- storage market size. Source: ESA/GTM

Source: ESA/GTM

Energy storage: not if, but when (2) Profitability for non-residential customers in cities already 58% of profitable buildings provide 71% of demand Average optimal battery size of 31 MWh per profitable building Source: McKinsey

Energy storage: not if, but when (3) Medium C&I Energy Storage Returns from Demand Charge Management Alone 2016 2022 IRR 5%-10% IRR 10%+ IRR 5%-10% IRR 10%+ Source: GTM Research The Economics of Commercial Energy Storage in the U.S.: The Outlook for Demand Charge Management

Storage unlike other DERs Source: SEPA

Storage can provide multiple services

Key is unlocking value BTM storage capable of multiple services with value exceeding today’s unit costs

Storage opens path to more DERs Increases DER hosting capacity And increases value of paired DR, DG More efficient grid utilization Defer substation and feeder upgrades Increase circuit reliability & power quality Meet system capacity needs

Recent State Regulatory & Legislative Energy Storage Activities (As of Q2 2016) Regulatory Activity Legislative Activity Leg + Reg Activity

Shared State Policy Efforts At PUCs Long-Term Resource Planning Demos, Pilots, or Incentive Programs All-Source RFPs & Procurement Targets Grid Modernization & Distribution System Planning In legislatures Tax Credits or Incentives Procurement Targets