Intermittency is one of the largest issues impeding increased reliance on energy from utility-scale renewable energy generation sources such as wind and solar. Battery energy storage systems (“BESSs”) can alleviate concerns related to intermittency and will play a vital role in transitioning to primarily renewable energy sources. However, BESSs has not received the same tax incentives as wind and solar facilities. Rather, BESS deployment has benefited from tax incentives only when incorporated as part of a solar facility.

Federal Investment Tax Credit

The energy investment tax credit (ITC) has been vital to the growth of solar industry and has also aided in the deployment of energy storage in limited cases. The ITC available under Internal Revenue Code section 48 provides a deduction of a certain percentage of the costs of installing a solar energy system from an owner’s / investor’s federal taxes. The ITC generally applies to “solar energy property”, which is defined as including equipment that directly generates electricity from solar energy (i.e., “generation property”). The regulations clarify that solar energy property includes storage devices; however, the regulations also limit the availability of the ITC for storage devices under certain circumstances.

For utility scale projects, the ITC is available when a solar facility and a storage device such as a battery system have the same owner, are located on the same site, are installed at the same time, are placed in service on the same date, and are subject to the same off-take agreement. However, to the extent the facts and circumstance of a specific project do not meet the above criteria, the ITC may be curtailed with respect to the storage device. For example, the following factors may impact the availability of the ITC:

1. Location of Storage – Installation of storage on the transmission side of the meter may not qualify for the ITC as the storage property may not be considered “generation property”.
2. Charging – If storage is charged more than 25% from the grid or a utility other than a solar facility, then the ITC is not available. If 75% or more is charged by a solar facility, the energy storage will be treated as dual-use property and allowed a reduced ITC.
3. Timing of Installation – A storage device installed one year after the original solar system qualifies for the ITC. However, it hasn’t been confirmed by the IRS if storage can be added to older solar arrays and still receive the ITC. This may limit the feasibility of adding energy storage to older facilities.
4. Ownership of Solar and Energy Property – Identical owners for the solar facility and storage device weighs in favor of the ITC’s availability.

Broad Reach Power, an independent power producer (IPP) based in Houston, Texas, has begun construction on two 100-MW battery projects.

“The grid in Texas is continuing to transform rapidly with the addition of more wind and solar generation. While these resources are desirable because they reduce costs and emissions, they add more variation and risk to an already challenging real-time balancing goal,” said Broad Reach Power Managing Partner and Chief Executive Officer Steve Vavrik, whose company owns utility-scale solar and energy storage power projects. “This problem will compound as both renewable penetration and power demand increase. Deploying more energy storage systems like our units operating in Odessa and the Houston area will strengthen the grid’s reliability.”

Broad Reach plans to invest more than $100 million in the two recently acquired projects located in Mason and Williamson counties in Texas. Once online in 2021, the plants will operate alongside Broad Reach’s expanding portfolio of utility-scale energy storage plants in Texas near Houston and Odessa.

Broad Reach has additional plans to expand its storage portfolio in Texas, including several more large endeavors. The company is also replicating its successful dual greenfield and acquisition approach in California, Montana and other western markets where the company has over 700 MW of projects with signed interconnection agreements.

“Broad Reach’s tremendous and rapid growth since we backed them in September of 2019 is a testament to what a seasoned team can do with the support of highly experienced renewable energy investors like EnCap and Yorktown, and the compelling opportunity set we see in this rapidly evolving marketplace,” said EnCap Energy Transition Managing Partner Shawn Cumberland.

With the recognition that “battery technology holds the key” to a future of cleaner transport and flexible, resilient electricity grids, four key US government departments have jointly established a Federal Consortium for Advanced Batteries (FCAB).

The US is the global leader in stationary battery storage deployments for the grid, with Wood Mackenzie Power & Renewables recently finding that despite the COVID-19 downturn, the country just saw its second-highest quarterly figures for new installations.

However, the US is heavily reliant on imported lithium-ion batteries and raw materials, mainly from China, as well as from, to a lesser extent, South Korea and Japan. While the European Union has sought to turn this situation around by supporting its domestic value chain through the establishment of the European Battery Alliance, pumping in billions of Euros of investment into companies developing gigafactories across the continent, the picture in the US has been limited to a handful of efforts by private actors. At the beginning of this month, the European Commission also put lithium alongside other battery raw materials onto a list of Critical Raw Materials that the EU’s Member States should ensure access to the supply of.

In April, as supply chain disruptions effected by the coronavirus hit multiple US industries, one battery industry veteran and expert, Francis Wang, CEO of battery materials startup Nanograf, said the crisis put the US’ dependency on importing goods, particularly batteries for advanced energy storage and electric vehicles, firmly in the public eye.

Tesla’s Nevada gigafactory is the only major facility already up and running from a US-headquartered company, while startup KORE Power is seeking to establish a 10GWh battery and energy storage system for the grid and industrial markets but is yet to pinpoint a location and site. There is a gigafactory for EV batteries under construction by South Korean company SK Innovation in the US state of Georgia and another on the way with the company investing about US$1.67 billion in the state overall to create an annual production capacity of just over 20GWh, while German company AKASOL is planning a similar but much smaller EV battery production facility in Greater Detroit, Michigan.

The energy service unit of Italian-based global utility Enel is partnering on development and management of energy storage projects in Canada.

Enel X and private investment firm Ardian are entering into a joint venture to manage Enel X’s battery storage projects in Canada and support the acceleration on developing new ones there. The company—which will be 80 percent owned by Ardian Infrastructure—will manage the 30 MW in battery capacity spread among 10 projects through Ontario.

Those include two different 10 MW/20MWh scheduled to reach commercial operation next year. Through the partnership, Enel X will continue to construct, operate, and maintain these projects and will be responsible for the development of future projects.

“Battery storage systems represent a key element in the transition towards a decarbonized energy system as they facilitate the flexibility and stability of grids, and we are committed to empowering customers to help drive the shift towards these technologies,” said Francesco Venturini, CEO of Enel X.

Enel X manages more than 35,000 sites across North America representing close to 4.7 GW in demand response capacity and more than 70 behind-the-meter storage projects either in operation or under contract.

“This investment bolsters Ardian’s position as a leading player in the sustainable energy sector across the Americas,” said Stefano Mion, Senior Managing Director and co-head of Ardian Infrastructure US. “This latest partnership, our first in Canada, marks an important step forward as we diversify our sustainable energy portfolio into the rapidly growing battery storage sector. Behind-the-meter battery storage is a compelling component of the sustainable energy ecosystem as it allows users to store electricity when it is least expensive and consume it when costs from the grid are most expensive.”

If COVID-19 has taught us anything about the future of the energy system, it’s that we’re in for a bumpy ride. With record high balancing costs, the rapid introduction of new services like Optional Downward Flexibility Management (ODFM) – which offers commercial-scale renewables generators remuneration for switching off – and problems with voltage, inertia and frequency, the UK’s electricity system operator National Grid ESO (NGESO) has faced many challenges over the summer that foreshadow the low carbon world of tomorrow.

As the electricity system transitions into a low carbon system, with renewables replacing large thermal generation, system inertia is set to fall. Lower system inertia causes system frequency to deviate from its usual 50Hz much quicker than before, (sometimes called ROCOF or rate of change of frequency) and NGESO needs new tools to operate effectively, and ultimately keep the lights on.

As part of this transition, existing services (such as Firm Frequency Response – FFR) will be replaced by newer, faster acting products, the latest of which is Dynamic Containment (DC). DC is the flagship product of a new suite of ancillary services (see Table 1) and is the first that NGESO plan to release, launching October 2020.

This piece intends to explore:

• The new Dynamic Containment (DC) product
• How the service will launch
• The impact on battery energy storage assets

DC provides frequency response ‘post-fault’ i.e. after frequency breaches specific upper/lower limits, however a small response is also required inside those limits. Comparing DC to the existing FFR product, the response profile for DC effectively extends the existing FFR boundaries for which (little or) no response is required, whilst decreasing the response time required from assets. (see Figure 1 for a comparison of response profiles).

Launch brings new 500MW capacity auction and closer to real time procurement

Having initially been delayed in the face of COVID 19, Dynamic Containment will commence on October 1st, 2020 as part of a ‘soft launch’, with the full rollout of the service expected in 2021. So, what can we expect on 1st October and beyond?

Green hydrogen has begun to score more attention as a large-scale, long-duration storage medium for wind and solar energy, leading to the much-anticipated “hydrogen economy” of the future. However, it is still in the early phases of commercial development. In the meantime, other types of energy storage are already on the market. A new report indicates that under favorable policies, energy storage could see rapid growth in the U.S. while helping to accelerate wind and solar development, too.

First, the good news about energy storage
As one example of strong interest in the interplay between energy storage and renewable energy, trade publications that used to focus exclusively on fossil energy have been pivoting toward the energy storage topic. Last month the news organization Oilprice.com, for example, covered a new white paper by the Energy Storage Association titled. The report indicates that improved policies would support 100 gigawatts in new storage for the U.S. as early as 2030.

That jump in storage capacity represents an important factor in the pace of decarbonization in the U.S. and globally. As one of its key points, the ESA paper argues that energy storage makes wind and solar more competitive, and therefore more attractive to investors. A more aggressive timeline for energy storage development would consequently give wind and solar development a push, too.

The figure of 100 gigawatts could actually turn out to be an underestimate, considering that the white paper does take green hydrogen into account. That’s fair enough, considering that the hydrogen society concept faces cost and technological barriers before it can become fully mainstreamed.

Instead, the white paper primarily factors in existing battery storage technology along with pumped hydropower, which currently accounts for the overwhelming majority of large-scale energy storage capacity in the US.

Some good news about green hydrogen
The 100-gigawatt goal represents a more ambitious outlook than an earlier projection, in which ESA anticipated only 35 gigawatts by 2025.

In terms of technology, though, 100 gigawatts may turn out to be a fairly conservative estimate.

The Federal Energy Regulatory Commission has rejected the latest proposal from New York’s grid operator to allow renewable energy and batteries to compete against fossil fuels in its wholesale capacity market. That may give the state’s regulators and policymakers more reason to consider alternatives to federally regulated energy markets.

In a Friday order, FERC’s Republican majority denied grid operator NYISO’s proposal to restructure what it terms its “buyer-side market power mitigation rules” to allow wind, solar, batteries and other carbon-free resources to compete against fossil-fueled power plants in its Installed Capacity Market.

NYISO’s latest proposal came after FERC’s February decision to deny its first plan to alter those buyer-side mitigation (BSM) rules in ways that would free those state-supported clean resources from being forced to use administratively determined minimum bids that are likely to be too high to allow them to clear the market.

NYISO said the new rules are needed to reform its capacity market structure to align with New York’s Climate Leadership and Community Protection Act. The CLCPA demands that New York get 70 percent of its electricity from renewables by 2030 and reach 100 percent zero-carbon emissions by 2040.

To reach those goals, the state is mandating 6 gigawatts of distributed solar by 2025 and 9 gigawatts of offshore wind by 2035, as well as 3 gigawatts of energy storage by 2030. Most of that is needed in New York City and its surrounding downstate population centers — the same regions where NYISO’s existing BSM rules could effectively bar them from participating in its capacity market.

That’s a problem for New York’s clean energy goals for two reasons. First, it will deprive renewable and storage projects of the ability to earn capacity revenue and undermine their cost-effectiveness and ability to raise financing. Second, it could prevent downstate New York from accessing the relatively lower-cost capacity those resources could provide, forcing it to rely on existing fossil-fueled generators and increasing capacity costs passed on to utilities and their customers.

It’s also unclear why BSM rules, created to prevent companies that both own generators and buy capacity from entering uneconomically low bids from those generators to artificially drive down their own capacity costs, should apply to new zero-carbon resources.

Energy storage resource participation in wholesale as well as retail markets will help New York State realize the goals of its Climate Leadership and Community Protection Act goals, Dewey said.

“NYISO is blazing the trail for dual-use of storage in wholesale and retail service,” Jason Burwen, vice president of policy for the Energy Storage Association (ESA) said in an email. “We commend NYISO on implementing Order 841 to facilitate regular participation of energy storage in its markets.”

NYISO believes that the revenue opportunities from participating in the wholesale electricity market will attract energy storage developers to the state. “We’re aware there’s a lot of developer money sitting on the sidelines waiting for markets to open up,” Dewey said.

NYISO’s efforts to open up the wholesale market to energy storage could offer an example for RTOs and ISOs in other regions to follow, according to Dewey. “I think we’re ahead of the curve, so I’m sure there are a lot of eyes on us to see how well it works.”

Wholesale markets need to adapt to achieve states’ clean energy policy goals, William Acker, executive director of the New York Battery and Energy Storage Technology Consortium said in an email. Acker described New York’s climate and clean energy goals of achieving 70% renewable energy and 3 GW of energy storage by 2030, and a carbon-free grid by 2040 as “nation-leading.”

“Since storage sits at the intersection of state policy and wholesale market operations, its ability to reduce costs of service and lower emissions depends on how conflicts over clean energy policy are resolved,” Burwen said.

Energy storage resources include batteries, compressed air storage, flywheels, and pumped storage and can help grid operators meet demand, handle the variability of intermittent resources like solar and wind, and possibly delay the need for transmission upgrades, according to NYISO’s announcement.