One key challenge to tapping the full potential of energy storage systems to improve the function of the electric grid is the absence of obvious paths for the owner of storage resources to realize the revenue opportunities associated with all of the various services that such a resource could provide. Energy storage resources can frequently provide multiple services – often crossing lines between categories of traditional resources that are compensated under different regulatory schemes. Behind the meter, storage can change consumption patterns to mitigate demand charges, reduce consumption during high-rate periods, and provide back-up capabilities. Storage can also provide services to wholesale markets with its ability to charge and discharge on demand, or serve as a transmission asset. And storage can provide distribution-level grid services that enhance reliability or offset the need for investments in other distribution resources.
Last month, San Diego Gas & Electric Company put forward an intriguing proposal with the potential to compensate private owners of energy storage resources for providing distribution-level grid services. The proposal is one of six pilot programs described in SDG&E’s “Distributed Resources Plan” – each California investor-owned electric utility was required to file such a plan in order to integrate distributed energy resources into distribution system planning, operations, and investment.
Under SDG&E’s proposed pilot, the company would identify a location where adding energy storage resources could eliminate the need to implement a traditional infrastructure upgrade. Customers at that location (residential or small commercial) would be offered cash incentives to install energy storage resources with those incentives tiered based on how much direct control of the storage resource the customer would be willing to cede to the company during high-load periods. Participating customers would also be put on a new tariff with a dynamic rate designed to encourage operation in a manner that supports grid needs. SDG&E seems to assume for the purposes of the pilot that it needs direct control of the resource during certain periods in order to ensure that the alternative distribution-infrastructure investments can be deferred. It is an interesting question, and one SDG&E considers briefly its plan, whether price signals to a customer through a tariff could be sufficient to provide comparable certainty of resource performance to the proposed approach of paying upfront for direct control during critical time periods.
SDG&E is open about this pilot representing a test of a new business model focused on collaboration with customers and reliance on customer-owned resources. It proposes to divide the savings achieved through this alternative approach to meeting a distribution system need between ratepayers and shareholders: the cost of implementing the alternative approach would be subtracted from the amount that would have been budgeted to implement a traditional solution, and the remainder would be divided equally. An explicit goal of the pilot is to contrast business models by comparing the performance of this customer-owned approach to another pilot SDG&E has proposed that would involve utility-owned energy storage.
SDG&E’s proposal is an interesting approach to compensating owners of distributed energy storage resources for at least some of the value of the distribution services those resources can provide. Beyond unlocking potential revenue opportunities for energy storage resources, it is promising to see an electric utility willing to test new business models that recognize the important future role of customer-owned resources.
The Distributed Resource Plan process in California that was the impetus for SDG&E’s proposal is focused on integrating distributed energy resources into California’s electric grid, but the approach – regulatory review of utility-prepared plans charting a path to a significantly different future electric grid – is similar to the Grid Modernization Plans that the Massachusetts electric distribution companies will be filing this week and the “Distributed System Implementation Plans” that will be filed at the end of the year as part of the New York “REV” proceedings. Will we see creative proposals focusing on energy storage in the Massachusetts plans filed this week or in the New York plans to follow? Electric distribution companies have experience and information that have made them logical places for states to look to for approaches to incorporating new technologies into the electric grid. But will they be adequate sources of the creative approaches necessary to bring about the types of change that will unlock new technologies and efficiencies? Will they propose models where customers receive the full value of the benefits that their distributed resources provide to the distribution system? Will other voices be heard sufficient to ensure that bold and new approaches are adequately considered? This proposal from SDG&E is an interesting starting point, and I hope that we will see more discussion of creative approaches in the coming months.