The California Energy Storage Alliance (CESA) wants state regulators to do something that apparently has never been done before in the state: A cost-benefit analysis of solar paired with energy storage.

A CESA filing asks California's commissioners to open a new track in their landmark proceedings on how to define, value, and incorporate distributed energy resources. The track would be aimed at expanding on a first draft calculation done by CESA on the value of solar-plus-storage systems to the grid.

The VOS+S estimate finds storage adds significantly to the value of solar.

Using the Public Tool provided to help stakeholders in the state's grid modernization docket establish a new rate and remuneration mechanism for solar, CESA “generated a sizable benefit stack of $0.25 per kWh in levelized value when PV solar is combined with three hours of energy storage,” it reports in its filing with the California Public Utilities Commission (CPUC).

That calculation likely underestimates the actual value of solar and storage systems, CESA explained in the filing, because the tool “undervalues energy storage in a variety of ways."

To include storage in the calculation, CESA changed only two assumptions made by the Public Tool. It upped the state’s assumed renewables mandate to 50% by 2030 — which state regulators passed into law last week — and gave increased value to distributed solar-plus-storage because it can be located in utilities’ distribution systems where it is of most value.

The significance in such a storage valuation scheme is that it helps utilities and regulators determine how much owners of such facilities should be paid for energy and services they offer the grid.

“The calculation of $0.25 as the value of solar-plus-storage means something like that could be justified as the amount customers who install solar-plus-storage should be reimbursed at,” explained Strategen Consulting Manager Edward Burgess.

Strategen is consultant to CESA in the CPUC Net Energy Metering (NEM) 2.0 proceedings organized to develop standard tariffs and fees for customers with distributed generation by the end of the year. The proceeding was mandated by AB 327, which became law in 2013 and mandated rate and solar remuneration reform. 

This replacement for retail rate net metering “could be any type of redefinition or redesign of the compensation mechanism that enables DER technology growth,” Burgess said.

The outcome of CESA's limited assessment of solar-plus-storage made with the CPUC-approved Public Tool “is so compelling, the commission should consider a separate track on how to capture those benefits for ratepayers,” Burgess added.

“These calculations show the value to the system in general is at least $0.25 per kWh and this is just a rough first effort to quantify the value of solar-plus-storage,” he said.

“This first attempt at a value of solar-plus-storage is not comprehensive, partially because the CPUC’s tool is limited, but it suggests what would happen if storage is added to the mix,” said Ted Ko, policy director for storage provider Stem. “This new policy world must develop policies and tariffs that recognize the full value not just of individual silo’d resources but of integrated combinations of technologies.”

A solar-plus-storage track?

From the implementation of the very first net metering programs to drive solar growth, retail rate remuneration to system owners was only a rough approximation of the value of the electricity they send to the grid, many grid experts say. Only in the last few years have efforts begun to more precisely quantify the complete costs and benefits.

The NEM 2.0 proceeding in California, and others like it across the country, were initiated to arrive at a more comprehensive and specific remuneration. Now, CESA’s filing says, it is time to do the same for solar-plus-storage.

Karl Rabago, director of the Pace Energy and Climate Center and a former Texas utility regulator, agrees.

“Capturing and fairly compensating the value of storage adds a new level of complexity and opportunity to valuing the increased deployment of distributed energy resources,” Rabago, who helped devise the nation's first value of solar tariff as an Austin Energy executive, said. “But rough justice is not enough anymore.”

CESA’s filing recognizes the engagement of the Investor-Owned Utilities (IOUs) in the multiple AB 327 proceedings but it is concerned the power companies didn't give enough thought to the value of storage.  

“There is little mention in the [utility] Proposals regarding cost-effective energy storage paired with PV solar, even though AB 327 requires it," CESA wrote.

The IOUs’ distributed resource plans, filed in a parallel CPUC proceeding also aimed at meeting AB 327 mandates, include significant uses of DERs with storage, Burgess said.

“There are a lot of things in the utilities’ proposals that are moving away from silo’d thinking and toward the true value of DERs,” agreed Stem's Ko. “There are some good elements, some of the same ideas being supported by environmental and DG advocates.”

But, the CESA filing points out, the IOUs and others in the NEM 2.0 proceeding seem to “underestimate the benefit potential and growth trajectory of energy storage,” and therefore fail to think about enabling rate structures. CESA wants the new proceeding to study the significant opportunities that solar-plus-storage offers utilities — opportunities it says have been so far ignored. 

The storage association “recommends the Commission establish a forum to understand the hurdles and opportunities presented by PV solar-plus-energy storage, including potential tariffs to unlock their combined value.”

​The group's calculation, Burgess said, finds “a value proposition so compelling [that] we should be spending time trying to find ways to drive its growth.”

Going forward, CESA will do a more detailed cost-benefit analysis of combined storage and solar systems, and will likely propose a pricing structure and/or a reimbursement mechanism to help capture this additional value. Other stakeholders such as the IOUs and the solar companies would likely also weigh in. Then it would be up to the commission to choose the appropriate regulatory mechanisms.

S+S as a 'sharpshooter' of value

The CESA calculation is for “a new hybrid resource” that uses three hours of storage to serve peak load, but also optimizes solar output, Burgess said. The storage component allows the solar to be tailored to meet other grid needs.

“It is a sharpshooter of value,” he said.

Daniel Vickery, market development manager at Green Charge Networks, pointed out that the solar-plus-storage value number CESA found is quite similar to the difference between peak and off-peak electricity rates for commercial-industrial customers.

What the calculation essentially describes, he explained, is that with solar-plus-storage you can move electricity generated during off-peak hours to peak period use. With that technique, you can avoid demand charges and higher variable rates during times of high electric demand.

Though comparing solar and storage to traditional generation resources is difficult, the $0.25 per kWh levelized avoided cost roughly matches the levelized cost of energy of a natural gas peaker turbine, Burgess said.

The difference, he explained, is that peaker turbines are typically used less than 10% of the 8,760 hours in a year, while storage gives solar a capacity factor much closer to baseload generation.

Acquiring a natural gas peaker turbine is a cost-driver for utilities, but it only takes a few hours of storage capacity to eliminate that expenditure for a rarely used generator, he continued. Plus, storage facilities offer additional benefits to the grid.

“Solar-plus-storage can do things traditional assets can’t, like absorbing daytime assets," Burgess said. "A peaker can only generate.”

With storage, Vickery said, “you no longer need to build the power plant, you no longer need the new power lines, you no longer need the new substation. The utility could be investing the money elsewhere.”

The new track CESA is calling for, whether in the NEM docket or the Commission’s DRP or IDSM proceedings, could result in a tariff that is an effective price signal to customers to invest not only in solar, but in storage as well, Ko said. It might be a premium above the reimbursement for solar alone, but it would move more customers toward building resources that meet not only their own needs, but the grid’s needs as well.

Getting the timing right

“The lack of consideration of energy storage in the [utility rate] Proposals could lead to flawed proposals and designs,” the CESA filing explains, which could in turn stunt the deployment of storage in the state. Examples of such flaws are the IOUs’ proposals for “some combination of fixed charges, demand charges, and time-of-use rate plans," all of which fail to consider the value of solar-plus-storage.

“Fixed charges are a blunt instrument,” CESA explains, because they do not move customers toward technologies that shift electricity usage to meet grid needs. And demand charges now proposed, CESA adds, “are not well designed to address system cost drivers or to direct customer responsiveness.”

The preliminary calculation shows energy storage can reduce costs for ratepayers. “More nuanced charging regimes can provide additional system value and cost-savings,” the filing argues, and "can move customers to more charging during low-cost, off-peak periods and discharging during high-price, peak periods.”

If utilities use demand charges, they must align them to system cost drivers and especially to peak demand, which is the one big cost driver, Burgess said.

But the bigger point is that “if you want to design something that encourages storage, it needs to be designed more precisely," he said. "Demand charges need to vary with time of day and time of year. More technical rate designs will advance technology instead of curtailing it."

The filing does not propose any specific rate design, Burgess emphasized. But smart time of use rates should be part of a new rate design that unlocks the deployment of solar plus storage.

“We are reaching the recognition,” Ko said, “that when you generate energy, when you put energy onto the grid, and when you consume it is a lot more important to value than just taking energy whenever it comes, as we have in the past.”