California Mulls Real-Time Carbon Signal to Dispatch SGIP Energy Storage, but Questions Remain

California made headlines this year in its aggressive push for decarbonization, with moves including a new mandate for 100% clean electricity by 2045. Behind such headlines, countless initiatives continue apace to help support these aggressive goals. One such initiative is helping ensure that energy storage systems (ESSs) live up to the hype surrounding their role in a clean energy future.

The developments are captured in a proceeding related to California’s Self Generation Incentive Program (SGIP), one of the world’s largest incentives for ESSs. Over $800 million was added to its budget thanks to an extension last month, enough to ultimately help fund multiple gigawatts of ESS. The three goals of the program include 1) market transformation, 2) grid support, and 3) environmental improvements, with the latter including reduction of greenhouse gas (GHG) emissions. This latter goal is not currently being met by ESS. A 2017 impact evaluation showed that, although they provide multiple benefits, the operation of SGIP-funded ESSs leads to an average increase in GHG emissions.

Why the Increase in GHG Emissions?

Part of the issue is a misalignment between retail rate structures and larger goals like GHG reductions. Customers dispatch behind-the-meter storage to lower their electric bills and their peak demand, but that operation may not align with larger goals. One of the key proposals put forth to address this involves using a performance-based incentive (PBI) requiring ESSs to heed a real-time GHG emissions signal, thus causing them to dispatch at times that will decrease total grid emissions. On this matter, the past year has seen a working group report, a staff proposal, workshops, and multiple comment periods. Although a final decision is not expected until 2019, there has been notable progress. Some of the outstanding key questions include:

• Is a PBI the right mechanism? Historically, SGIP ESS had to meet minimum roundtrip efficiency requirements but had few ongoing operational requirements. The change could make part of the incentive contingent on GHG-lowering system performance. Some portion, perhaps 40% to 70%, would be paid upfront, with the remainder contingent on ongoing GHG-reducing system performance.
• How much GHG should ESS reduce? One proposed threshold is 25 kg of CO2/kWh to guarantee full incentives, though some commenters have requested a lower threshold of 10 kg CO2/kWh.
• Should residential and non-residential systems be treated differently? Residential systems are smaller and simpler and thus will likely have simpler thresholds to lessen administrative burden. New residential time-of-use (TOU) rates, many with TOU periods later in the day, may lead to ESS doing a better job of integrating solar PV from both the grid and end user perspective.
• If penalties are assessed on a basis of dollar per ton of emissions, what should the penalty be? Should penalties be based on a carbon market price (around $15 currently), the adopted value from a previous societal cost test ($69.50), or the adopted price from IRP filings ($150)?
• How will ESS financial performance be affected? This is perhaps the most important question for both vendors and customers. It is far from answered, but with the crowdsourced approach being taken, the answer may be not too negatively.

Another we could add is: how will these changes affect customer uptake? Vendors, utilities, customers, and regulators will need to come to terms on these and other questions for a healthy energy storage market to develop in California. Consistent change, in both generation mix and in regulatory developments, make the challenge both more difficult and more important to get right. Since this GHG signal could directly affect gigawatts of ESS (and perhaps much more if other jurisdictions follow suit) it will be important to get this right.