By email: DEEP.EnergyBureau@ct.gov

Commissioner Katie Dykes
Connecticut Department of Energy and Environmental Protection
10 Franklin Square
New Britain, CT 06051

Subject: Public Act 21-53 Procurement for Energy Storage

Commissioner Dykes:

RENEW Northeast, Inc. (“RENEW”)1 submits these comments in response to the Department of Energy and Environmental Protection’s (DEEP) Notice of Proceeding and Technical Meeting and Request for Written Comment dated October 7, 2021. Thank you for hosting last month’s technical meeting and providing an opportunity for public input on the design for energy storage procurements to meet the energy storage goals established in Public Act 21-53.

RENEW is a non-profit association uniting environmental advocates and the renewable energy industry whose mission involves coordinating the ideas and resources of its members with the goal of increasing environmentally sustainable energy generation in the Northeast from the region’s abundant, indigenous renewable resources. RENEW members own and/or are developing large-scale renewable energy projects, energy storage resources and high-voltage transmission facilities across the Northeast. They are supported by members providing engineering, procurement and construction services in the development of these projects and members that supply them with multi-megawatt class wind turbines. Its members are developing stand-alone transmission-interconnected energy storage systems and energy storage systems virtually or physically paired with renewable energy resources. RENEW seeks to promote policies that will increase energy diversity, promote economic development, and achieve the
Connecticut’s policy goals including those found in the Renewable Portfolio Standard (“RPS”), and the Global Warming Solutions Act (“GWSA”).

I. Overview

Public Act 21-53 instructs DEEP to consider whether proposals received (1) are in the best interest of ratepayers; (2) increase electric distribution system reliability, including during winter peak demand; (3) promote in-state economic development: (4) reduce greenhouse gas emissions; and (5) are consistent with the Comprehensive Energy Strategy. RENEW strongly supports these stated goals for promoting the development of new, cost-effective energy storage resources by using procurements to lower risk to developers and targeting resources that have no other source of revenue certainty.

The Connecticut General Assembly through Public Act No. 21-53 set a goal of deploying 1,000 megawatts of energy storage capacity by the end of 2030 with interim targets of 300 megawatts by the end of 2024 and 650 megawatts by 2027. It directed the Department of Energy and Environmental Protection and the Public Utilities Regulatory Authority to implement programs to ensure the state reaches these goals.

Adding a significant amount of lithium-ion battery energy storage to the power grid that is stand-alone or paired with Class I renewable resources and small hydropower can provide significant cost, reliability, and environmental benefits to the people of Connecticut. Energy storage can provide new capacity to the grid and complement renewable energy resources by absorbing their excess low-cost energy and storing it for later use.

II. An RFI Can Assist DEEP Design the RFP to Achieve the Statutory Storage Objectives

RENEW recommends DEEP open a 60-day Request for Information (RFI) ahead of the RFP. The RFI should be narrowly focused to elicit stakeholder feedback on technical solutions to meet use cases defined by DEEP according to DEEP’s desired contracting approach for each use case or a common contract for all use cases. The feedback received in response to the RFI will assist DEEP in designing the RFP to increase confidence in the procured resources meeting the statutory goals.

In preparing the RFI, RENEW recommends DEEP examine peaker replacement strategies in other jurisdictions. One helpful thought paper, which was prepared for the New York Battery and Energy Storage Technology Consortium for peaker replacement on Long Island, New York, could serve as a guide.2 That study identified peakers for replacement with energy storage in three phases of near term, medium term, and long term. A selection of peakers to be replaced with storage in each phase was identified based on NOx emission regulation, dispatch duration, load pocket location, and availability of additional clean resources.

III. Energy Storage Will Provide Connecticut with Environmental, Economic Development, and Reliability Benefits

The modeling conducted for the Massachusetts 2016 State of Charge report revealed that up to 1,766 megawatts of new energy storage at appropriate locations with sizes defined by system requirements and dispatched to maximize capability would result in up to $2.3 billion in benefits.3 These cost savings to ratepayers come from:

  • Reducing the price paid for electricity
  • Lowering peak demand by nearly 10 percent
  • Deferring transmission and distribution investments
  • Reducing GHG emissions (reducing the effective cost of compliance)
  • Reducing the cost to integrate renewable generation
  • Deferring capital investments in new capacity
  • Increasing the grid’s overall flexibility, reliability and resiliency

Energy storage can provide substantial reliability benefits within dense population centers due to its relatively small footprint. It also provides on-demand electricity to the grid at peak times – something usually provided by fossil fuel generators. A stated goal of Connecticut’s 2021 Integrated Resources Plan (IRP) is the replacement of old fossil peaking units, many of which are over 40 years old, and contribute the greatest amount of harmful air emissions. Connecticut also hosts 60 percent of the fleet of power plants, all of which are fossil fueled, needed to meet New England’s peak demands, despite having only 24 percent of region’s electricity consumption. Table 4.2 in the IRP, which is reprinted below, shows the burden of air pollution from peaking plants on environmental justice communities.

Table 4-2 Peak Demand Generation Located in CT EJ Communities

By accelerating the switch from fossil fuels to energy storage at peak times, Connecticut can reduce emissions, improve the environment, and attract new investment and jobs to the state at the same time. Storage can improve public health outcomes by replacing both baseload fossil fuel power plants and dirty peaking power plants.4 Peakers are relatively inefficient and used infrequently during times of high electricity demand, and emissions from peakers directly harm local air quality.5 In addition, peakers are most often sited in disadvantaged communities and used on days when air quality is already poor.6 But batteries, when charged with much cleaner energy sources, can provide the same grid services as a peaker plant without the associated emissions.

Large-size storage and storage virtually or physically paired with large-scale renewable energy resources are collectively the least-cost form of clean peaking resources as shown in Lazard’s latest annual Levelized Cost of Storage Analysis (LCOS 7.0) shown below.7

Unsubsidized Levelized Cost of Storage Comparison-Capacity

Lazard’s analysis on storage costs is consistent with a 2016 report by the Massachusetts Department of Energy Resources on storage that showed large storage systems have benefit/cost ratios significantly better than small “Behind-the-Meter projects”.8 As a PURA program to be run through the Connecticut Green Bank has been set up for smaller energy storage projects, DEEP should have its RFP provide contracting opportunities for solely large storage systems.

Storage developers should have the flexibility to offer proposals that are standalone or paired with renewable energy systems to meet different needs defined by DEEP. On the one hand, a cost-benefit study of storage in Nevada notes that the costs of co-located storage may be lower than those of stand-alone storage, while in some instances costs for stand-alone storage “will tend to be lower due to decreased flexibility in operations and siting.”9 On the other hand, another study confirms the operational and locational flexibility benefits of stand-alone storage systems.10 Particularly relevant for Connecticut’s procured renewable resources, stand-alone storage adds new capacity to the grid to complement renewable energy capacity, can provide substantial capacity within load pockets due to its relatively small footprint, and absorb low-cost excess renewable energy from the grid without charging restrictions. Through the RFI submissions, DEEP will gain an understanding of its options that will inform the design of the RFP.

IV. A Schedule of Procurements Starting in 2022 Is Necessary for Meeting the 2030 and Interim Statutory Targets

The storage systems that cleared the previous ISO New England capacity auction could at least be partially financed off the capacity market revenue based on the ability of the developers to lock-in the clearing price for seven years. As recently as 2015, gas resources cleared the Forward Capacity Auction at prices ranging from $10/kw-mo to over $17/kw-mo. So while the price-lock was successful at transforming New England’s generation fleet by providing the incentives for new gas generation, the combination of more recent low auction clearing prices, as well as the recent elimination of the 7-year price lock for the next and all subsequent capacity auctions, necessitates the need for off-taker agreements pursuant to a state program like that in Public 21-53.

Given these overwhelming benefits of storage for consumers, the environment, and reliability, RENEW Northeast urges DEEP to conduct a procurement for energy storage in 2022 to ensure the 2024 and 2027 interim deployment goals can be reached.

While storage facilities do not take long to construct, which would appear to give DEEP ample time to meet the 2024 and 2027 targets, both the estimated cost and time to construct interconnection facilities and network upgrades identified in the ISO New England interconnection study process appear to have grown substantially in recent years. Recent timelines for standard upgrades such as reconductoring a short portion of a transmission line have reached five years with little to no explanation from ISO New England for the extended timeframe. Due to these delays, having the first of a series of procurements by 2022 is necessary to ensure Connecticut meets its 2024 and 2027 targets.

V. Competition in the Procurement Will Maximize Consumer Benefits

States like New York have determined energy storage resources are provided more costeffectively by private developers on a competitive basis rather than by utilities through guaranteed rate-of-return regulation. The New York Public Service Commission recently concluded that “competitive ownership of energy storage assets . . . is a core principle and the existing limitations on utility ownership of energy storage should be maintained if possible.”11 A competitively developed project that is willing to cap the total cost exposure to consumers will ultimately be more beneficial to customers than a project that retains the ability to seek recovery of all costs, including any overruns, without limitation.

Connecticut’s long-standing pro-competition law enacted over twenty years ago was based on the principle that private investors have a greater incentive to lower costs than utilities under cost-of-service regulation and they and their shareholders and not consumers should bear the risks of generation ownership. The anticipated expansion of the federal Investment Tax Credit to storage would also be much more efficiently captured by private, non-utility owners. Connecticut should follow suit and exclude any utility bids in the RFP except for utility affiliates developing storage on a merchant basis.

VI. DEEP Has the Legal Authority to Issue an RFP for “Agreements”

Public Act 21-53 authorizes DEEP to conduct procurements of “energy storage projects connected at the transmission or distribution level, including stand-alone energy storage projects and energy storage projects paired with Class I renewable energy sources including small hydropower facilities.” The Act provides that the EDCs would enter into “agreements” for the sale of products purchased under long-term contracts with eligible facilities.

Storage deployment has advanced in recent years through the increase in utility procurement of battery storage projects and products. The variety of offtake revenue contracts for battery storage projects has expanded rapidly and typically involve an agreement as contemplated under the Act. For large or transmission-level resources, arrangements have taken the form of energy storage tolling agreements, capacity sales agreements and hybrid power purchase agreements.

The energy storage tolling agreement, like a standard tolling contract for a traditional plant, gives the electric distribution company (EDC) capacity, energy and other products like ancillary services. The seller develops, owns, operates and maintains the battery project while the EDC off-taker typically controls when to charge and discharge the battery, pays for charging energy from the grid to the battery, and acts as “scheduling coordinator” or “market participant” for the battery in the wholesale markets. The project owner receives a fixed payment from the EDC.

The capacity sales agreement is a variant of the energy storage tolling agreement. Under a capacity sales agreement, the capacity and capacity attributes of the battery storage project are sold to the EDC. The owner-operator owns the facility’s other products like energy and ancillary services, and keeps full authority over charging and discharging.

A hybrid agreement, which is also known as partial tolling agreement, strikes a middle ground between a full tolling agreement and a market project by granting the EDC operational control during the most valuable days of the year for achieving public policy goals, while allowing the project to operate on a merchant basis in the wholesale markets on all other days.

For example, it could provide the EDC’s the right to dispatch the battery during a limited number of peak hours during a season or at other predetermined periods to meet objectives under the Act. It could provide a balance between benefits and risks for ratepayer, though it must be structured to provide enough revenue certainty to the project in order attract lower-cost capital. While the EDCs are sharing the cost of the battery facility, the third-party owner assumes the market risks when the EDCs does not have dispatch rights.

The RFI process will assist DEEP in understanding how to optimize the form of agreement to achieve the goal of displacing peakers in the energy market to avoid local air pollution; provide reliability support for distribution service; and increase peak shaving to support integration of solar power.

RENEW recommends DEEP set the length of the contracts at 10 to 15 years. The key objective of an agreement is to provide revenue certainty for energy storage resources to enable financing. New York, which initially had a seven-year price lock-in, has moved to a ten-year price lock-in due to developers facing significant uncertainty about realizable merchant revenues after the expiration of the seven-year contract, and thus having to submit bids designed to recover a significant percentage of their costs over that seven-year contract period. Based on New York’s experience, contract duration should be for at least ten years.

VII. Conclusion

Thank you for the opportunity to offer these comments.

Sincerely,

Francis Pullaro
Executive Director


[1] The comments expressed herein represent the views of RENEW and not necessarily those of any particular member of RENEW.

[2] Strategen Consulting, LLC, Long Island Fossil Peaker Replacement Study 39 (2020), https://www.strategen.com/strategen-blog/long-island-fossil-peaker-replacement-study

[3] Massachusetts Department of Energy Resources et. al. (DOER), State of Charge Massachusetts Energy Storage Initiative xvi (2016) (“State of Charge”), https://www.mass.gov/doc/state-of-charge-report/download

[4] Collingsworth, Jessica, Steve Clemmer, Paula Garcia, James Gignac, J.C. Kibbey, Sandra Sattler, and Youngsun Baek. 2018. Soot to Solar: Illinois’ Clean Energy Transition. Cambridge, MA: Union of Concerned Scientists. http://www.ucsusa.org/resources/soot-solar-0

[5] Milford, Lew, Seth Mullendore, Todd Olinsky-Paul, and Robert Sanders. 2018. Jump-Start: How Activists and Foundations Can Champion Battery Storage to Recharge the Clean Energy Transition. Montpelier, VT: Clean Energy Group. http://www.cleanegroup.org/ceg-resources/resource/jump-start-battery-storage

[6] Mullendore, Seth. 2016. “Energy Storage for Public Health: A Smarter Way to Deploy Resources.” Clean Energy Group (Blog). August 22, 2016. https://www.cleanegroup.org/energy-storage-public-health-smarter-way-deploy-resources/

[7] Lazard, Levelized Cost of Storage Analysis (LCOS 7.0) 4 (2021), https://www.lazard.com/media/451882/lazardslevelized-cost-of-storage-version-70-vf.pdf

[8] DOER, supra note 3.

[9] The Brattle Group, The Economic Potential for Energy Storage in Nevada, 3 n.8 (Oct. 1, 2018), https://brattlefiles.blob.core.windows.net/files/14618_economic_potential_for_storage_in_nevada_-_final.pdf

[10] Gorman, Will, et. al., Motivations and Options for Deploying Hybrid Generator-Plus-Battery Projects within the Bulk Power System, 33 Electricity Journal 13 (2020), https://reader.elsevier.com/reader/sd/pii/S1040619020300312?token=FC470992266AB10C90E5D53ECAD69746B465DEF4C977B49E90B9662824B65D95B902CA9CE9F65ECBF56F803DE52FD134

[11] Case 18-E-0130, Energy Storage Deployment Program, Order Directing Modifications to Energy Storage Solicitations 10 (April 16, 2021).

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