BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE ALEX PADILLA, CHAIR AB 2514 - Skinner Hearing Date: June 29, 2010 A As Amended: June 21, 2010 FISCAL B 2 5 1 4 DESCRIPTION Current law requires investor-owned utilities (IOUs) and energy service providers (ESPs) to increase existing purchases of renewable energy by 1% of sales per year such that 20% of retail sales, as measured by usage, are procured from eligible renewable resources by December 31, 2010. This is known as the Renewable Portfolio Standard (RPS). Current law exempts publicly owned utilities (POUs) from the state RPS program and instead requires these utilities to implement and enforce their own renewable energy purchase programs that recognize the intent of the Legislature to encourage increasing use of renewable resources. Current law expresses that the policy of the state is to modernize the transmission and electrical grid and achieve the deployment and integration of cost-effective advanced electricity storage and peak-shaving technologies, including plug-in electric and hybrid electric vehicles, and thermal-storage air-conditioning which are all part of a smart grid. This bill requires the California Public Utilities Commission (CPUC) to determine appropriate targets, if any, for load serving entities (LSEs) to procure viable and cost-effective energy storage systems by 2013 and for the LSEs to meet those goals by 2015 and 2020. POUs would also be required to establish targets by 2014 and meet to meet those targets, if any, by 2016 and 2021. Current law requires each IOU to submit a procurement plan to the CPUC to ensure a reliable and cost-effective electricity supply in California and to procure renewable energy resources with the goal of ensuring that at least an additional 1% per year of retail sales are secured from renewable resources. This bill requires the IOUs to incorporate energy storage into their RPS procurement plans and address the acquisition and use of energy storage systems in order to achieve specified purposes and to consider and incorporate the CEC's evaluation of energy storage systems, including locations where the interconnections on the transmission and distribution grid can be minimized. BACKGROUND What is Energy Storage? - One of the distinctive characteristics of the electric power sector is that the amount of electricity that can be generated is relatively fixed over short periods of time, although demand for electricity fluctuates throughout the day. Developing technology to store electrical energy so it can be available to meet demand whenever needed would represent a major breakthrough in electricity distribution. Helping to try and meet this goal, electricity storage devices can manage the amount of power required to supply customers at times when need is greatest, which is during peak load. These devices can also help make renewable energy, the output of which cannot be controlled by grid operators, smooth and dispatchable. Storage devices can provide frequency regulation to maintain the balance between the network's load and power generated. Thus, energy storage holds substantial promise for transforming the electric power industry. Types of Energy Storage - Battery storage and pump hydro storage systems have been around for many years, so the concept of energy storage is not new. Large pump storage facilities have been proven to be very effective in shifting large quantities of low-cost, off-peak energy production to delivery during high cost on-peak energy periods by using excess electricity to pump water uphill into a reservoir. When power is needed, the water can run down through turbines, much like a traditional hydroelectric dam. However, large pump hydro storage facilities are quite costly, and there are very few locations where they can be built. California has a number of pump storage facilities. One of the largest facilities is the Helms Pump Storage Facility that was built in the early 1980s with three units. Each unit is rated at 400 MW in generation mode and 310 MW in pumping mode for a total of 1,200 MW generating mode and -930 MW pumping mode. The facility is owned and operated by PG&E. Pump hydro storage is the largest and most viable storage technology available with nearly 123,000 MW deployed around the world. Excluding pump hydro storage only 2,128 of installed energy storage technologies exist worldwide which include: Batteries - electrical energy is stored for later use in chemical form; Thermal Storage - air conditioners create ice at night then power rates are low. This stored ice then runs a cooling system during the afternoon, when power costs are highest and the power grid is most stressed; Flywheels - convert electrical energy to kinetic energy then back again very rapidly; and Compressed Air - electricity is used to compress air into storage tanks or a large underground cavern. The compressed air is used to spin turbines when electricity is needed. COMMENTS 1)Author's Purpose . California often experiences peak electricity demand growth that increases at a rate faster than electricity can be generated. Currently, backup fossil fuel electricity generation is frequently used to keep up with the demand. The California Energy Commission predicts that this peak electricity demand will increase by 15% by the year 2020. AB 2514 will encourage California to incorporate energy storage to the energy grid thereby decreasing our reliance on fossil fuels, coping with increasing energy demand, and advancing California toward its renewable energy goals. Renewable energy sources such as solar-generated photo-voltaic power and wind-generated power are widely used globally, but these renewable resources generate power intermittently. This energy is not used efficiently due to California's electricity grid design which does not utilize storage. AB 2514 will help integrate energy storage into utility planning and procurement which will help California reach the renewable energy goals it has committed to. 2)If You Mandate It, They Will Come . This bill began as a hard mandate for the purchase of a specified percentage of storage technologies. The author and sponsor believe that viable storage technologies are lurking in small applications and ready for broad scale deployment and that the agencies and utilities need a big nudge to stimulate deployment which will advantage ratepayers. Critics opine that any mandate is premature - that the industry is still emerging and commercially viable storage technologies are available in limited quantities and applications, and the operating characteristics and potential costs are unknown. The author responded to this criticism by eliminating a mandated procurement percentage and now the bill requires the CPUC and the POUs to determine appropriate targets, if any, and that the targets must be cost-effective. This leaves open the possibility that the appropriate targets could be zero. 3)Where Does the Mandate Belong ? It is not yet clear whether electricity storage should be directly linked to renewable installations or be procured by the California ISO as an ancillary service on behalf of the system as a whole and, more critically, how those technologies should be priced. Answers to these questions will affect the state's generation resource planning. The location of the storage (at the renewable resource's location or elsewhere) will affect the planning of future power transmission lines as well. Energy storage technology is rapidly advancing and has been facilitated by stimulus funding for many projects and technology development. However integration into electricity markets, operations, transmission controls and planning all lag. There is a clear need for demonstration of value and a need for a means to monetize costs. This bill does not address this issue but jumps ahead of the answers to those questions in an attempt to speed development and deployment. 4)Outstanding Issues - Potential Amendments . There are several issues with the bill which the committee and author may wish to address through amendments: a) Small IOUs - There are 4 IOUs with less than 60,000 service connections. Those utilities have requested an exemption from the bill because deployment of storage for their customers is disproportionately more expensive for their ratepayers than those of larger utilities. b) Definition of Storage - Eligible energy storage is limited to those mechanical, chemical or thermal processes that "do not substantially rely on fossil fuels." PG&E has a 300 MW demonstration project of compressed air storage which utilizes fossil-fueled generation to move the stored energy. PG&E is concerned that this bill would limit the eligibility of that technology. (Page 5, lines 23 through 37). c) Resource Adequacy - This bill requires the IOUs and POUs to use storage to meet resource adequacy. This should be permissive and left to the determination of the CPUC and the governing boards of the POUs as they deem appropriate. (Page 7, line 35, strike "shall and insert "may"; page 7, line 38, strike "shall" and insert "may." d) CEC Determination of Interconnection Costs - This bill requires the IOUs to utilize CEC determinations of the locational value of storage on the transmission and distribution grid that would require extensive analysis of the grid. That information is easily attainable by the IOUs and may also be proprietary. The analysis is better left with the IOUs. (Page 8, strike lines 36-40; page 9, strike lines 1-2) e) POU Oversight - This bill requires the CEC to determine whether the POUs have complied with the bill and take specified actions. Other programs (e.g. California Solar Initiative) require the POUs to report progress but do not give any enforcement authority to the CEC. These provisions should be deleted to ensure consistency across programs and the authority of the POU governing boards. (Page 9, strike lines 28-39; page 10, strike lines 1 through 7) 5)Ratepayer Impact . This bill requires that only cost-effective storage technologies be deployed. However what is cost-effective in the context of storage is not clear. 6)Related Legislation . The following bills have been introduced in 2010 which affect the RPS program: SB 722 (Simitian) increases the RPS mandate to 33% by 2020 and makes other program changes. Status: Passed Assembly Utilities & Commerce Committee, June 24, 2010. SB 1247 (Dutton) expands the hyrdroelectric facilities which can count efficiency improvements as RPS eligible. Status: Passed the Senate Committee on Energy, Utilities & Communications June 15, 2010; pending in Senate Appropriations Committee. SB 1367 (Wyland) extends the RPS compliance timeline to 20% by 2020. Status: Referred to, but held in, the Senate Committee on Energy, Utilities & Communications. AB 1954 (Skinner) authorizes the CPUC to permit recovery of transmission interconnection costs not approved by the Federal Energy Regulatory Commission. Status: Set for hearing in the Senate Committee on Energy, Utilities & Communications; set for hearing June 29, 2010. AB 2378 (Tran) expands the definition of an eligible renewable facility to include a facility that uses two renewable technologies. Status: Pending on the Senate Floor. ASSEMBLY VOTES Assembly Utilities & Commerce (failed) 7-6 Assembly Utilities & Commerce 8-6 Assembly Natural Resources 6-3 Assembly Appropriations 12-5 Assembly Floor 41-28 POSITIONS Sponsor: Attorney General Jerry Brown Support: A123 Systems AIC Labs Altairnano Applied Intellectual Council Balanced Clean Energy Solutions Beacon Power Breathe California California Public Utilities Commission (if amended) CALMAC California Energy Storage Alliance CAREBS Clean Power Campaign Debenham Energy, LLC Dow Kokam Electron Vault Enersys EnerVault Evapco, Inc. Fafco Fluidic Energy HDR-DTA Green California Ice Energy Independent Energy Producers Large-scale Solar Association LightSail Energy Mega Watt Storage Farm Mohr Davidow Ventures Natgun NGK-Locke Pacific Housing Inc. Panasonic Pearl Street Liquidity Advisors Polaris Venture Partners PowerGenix Primus Power Prudent Energy PVT Solar ReStore Energy Systems Rockport Capital Partners Sail Venture Partners Samsung SDI America, Inc. Sanyo Seeo, Inc. Sierra Club The Solar Alliance South Coast Air Quality Management District Suntech Sunverge SustainX Velkess Inc. The Vote Solar Initiative Union of Concerned Scientists Wallrich Landi Xtreme Power Oppose: Bear Valley Electric Service (unless amended) California Manufacturers & Technology Association City of Burbank (unless amended) Modesto Irrigation District Mountain Utilities (unless amended) Pacific Power (unless amended) Sacramento Municipal Utility District (unless amended) Sierra Pacific (unless amended) Kellie Smith AB 2514 Analysis Hearing Date: June 29, 2010