California's Bold Move to Advance Energy Storage

Key Points

  • In October 2013, California became the first state to require electric utilities to meet specific targets for energy storage, mandating 1,325 megawatts of storage by 2020.
  • Each of the three California utilities has separate storage targets for transmission, distribution and customer areas beginning in 2014 and increasing every two years.
  • The projects chosen must be cost effective within the cost and benefit parameters outlined by the California Public Utilities Commission (CPUC) and the Electric Power Research Institute (EPRI).
  • The CPUC believes that allowing utilities to delay the interim targets by up to 80 percent enhances the ability of the utilities to obtain cost-effective storage.
  • The utilities can own only 50 percent of the storage capacity in each area, but this decision also allows utilities to own storage on the customer’s site.
  • The CPUC is betting storage will allow smoother integration of solar into the grid and reduce the “ramping” of combustion turbines to meet demand when the sun goes down.
  • Implications of this policy decision are many and potentially profound: 

Will storage actually defer the need for new generation and wires capacity? 


Will storage be available to meet the California targets at a cost-effective price? 


Will other states follow California’s initiative?


In 2010 the California State Legislature passed Assembly Bill 2514 directing the California Public Utilities Commission to decide whether the state’s electric utilities should adopt energy storage targets.

The bill listed a number of goals to be achieved with energy storage, such as integrating intermittent renewable generation reliably into the grid and allowing renewables to operate at or near full capacity. The bill stated that any storage targets should be “viable and cost effective” and suggested dates by which any adopted storage targets should be achieved.

In response to this bill, the CPUC began a rulemaking process in late 2010. In 2012 the CPUC held a series of workshops to investigate critical issues such as typical storage scenarios, cost effectiveness, procurement policies and capacity targets. In addition to the three large California utilities, a wide range of stakeholders participated and filed comments at various stages of the process.

The CPUC staff and stakeholders developed “use cases” to illustrate how energy storage could be deployed on the utility grid and described operational requirements and potential benefits for each use. The CPUC identified 20 types of storage “use cases.”

To develop a framework for cost effectiveness, the CPUC turned to EPRI, which evaluated a number of scenarios using assumptions provided by the CPUC (see SEPA Fact Sheet, “Calculating the Value of Energy Storage”). The CPUC also relied on a study by ENV KEMA Energy & Sustainability. Links to both studies can be found on the CPUC web site.

Summary of the California Decision

California is the first state to mandate energy storage, requiring the state’s three large utilities (Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric) to obtain 1,325 megawatts of storage by 2020, with installation achieved by 2024. The stated goals of this program include:

  • Optimizing the grid – by reducing peak load, improving reliability or deferring transmission and distribution upgrades
  • Integrating renewable energy
  • Reducing greenhouse gas emissions

Targets. Each utility has separate targets in the three areas where storage can be located (rather than requiring targets according to function), and the order sets increasing targets every two years through 2020. For example, Southern California Edison should obtain 50 megawatts of transmission storage, 30 megawatts of distribution storage and 10 megawatts of customer-sited storage by 2014. The targets increase every two years until SCE’s cumulative target reaches 580 megawatts. The first solicitation will occur on December 1, 2014.

The decision sets targets in terms of megawatts of capacity rather than megawatt-hours of energy storage. This criterion provides the utilities with more flexibility in meeting the targets because some storage technologies achieve high megawatt ratings but store relatively small amounts of energy.

This decision gives California utilities permission to install storage on the customer side of the meter. However, the utility can own only 50 percent of the storage in each area, a restriction intended to foster a competitive market. Pumped storage (larger than 50 megawatts) cannot be counted toward the targets.

The utilities must show that storage projects are cost effective. If the projects don’t meet benefit/cost goals, utilities can delay up to 80 percent of each target until the next two-year period, but they are still expected to achieve the 2020 goals. The effective goals for 2014 are smaller than they seem because each utility is being allowed to count specific storage projects already under way toward the goals.

Procurement. The CPUC originally recommended that utilities obtain storage capacity through a reverse auction, in which sellers compete rather than buyers. Since almost all participants in the storage proceedings were opposed to a reverse auction, the CPUC turned to a request for offers (RFO) process, which will allow the utilities to tailor a request to meet their specific resource needs and criteria.

Cost Effectiveness. Because the legislation (AB 2514) authorizing the storage proceeding requires energy storage projects to be “viable and cost-effective, the CPUC devoted considerable effort to developing an approach to cost effectiveness. The CPUC will not require utilities to use the cost-effectiveness models developed by EPRI and DNV KEMA (see above), but will require utilities to explore the benefits and costs described in those studies. Further, the CPUC noted that the ability to defer up to 80 percent of their interim procurement targets should make it easier to obtain cost-effective storage by the 2020 target date.

Utility Viewpoint and Implications

In general, the California utilities urged flexibility in targets and dates to give the storage industry time to mature and achieve more cost-effective pricing and better tools for integrating storage into the grid. The utilities also argued that they should control 100 percent of the storage projects connected to the transmission or distribution grid because they are responsible for its safe and reliable operation. The utilities gained a considerable amount of flexibility in timing, but failed to gain ownership of all grid-connected storage.

One of the major purposes of the storage mandate is to aid integration of renewables, which by law must reach 33 percent of the California energy mix by 2020. The California Independent System Operator (ISO) has highlighted a major challenge of integrating large amounts of solar power with its “duck graph.” The graph below illustrates the growing effect on “net load” as reliance on solar power increases. Sometime in the near future, the ISO expects net demand on a spring day to increase by 14,000 megawatts between 5 and 6 p.m., as solar production fades and customers go home and turn on their lights and ovens. Compare that with a typical 6,000-megawatt ramp now. The CPUC is betting storage can reduce the increased ramping of combustion turbines needed with increasing solar penetration.
Net Load Pattern Changes

The decision has been met with a variety of responses. Storage advocates believe the decision will breathe new life into the storage industry, which has been damaged by some high-profile bankruptcies in recent years. They think this decision will foster a robust market in energy storage and lead to manufacturing economies of scale that will lower costs dramatically. The solar industry generally acknowledges the benefits of cost-effective storage in achieving solar’s full potential.

Critics of the decision cite the potentially high cost of energy storage and question the wisdom of having regulators with little or no market experience trying to specify a narrow solution to a problem with a wide variety of potential solutions. For example, are customers provided with adequate incentive to reduce their usage during peak periods? Can hydro power be imported as another way to reduce dependence on combustion turbines at peak times?

A key question going forward is this: Will the California decision influence regulators and decision-makers in other states to adopt similar requirements? If the storage industry fails to provide reliable storage at cost-effective prices, what will be the impact on the industry? Answers to these and other questions will be answered before the decade ends thanks to the California decision.