Barriers, Tariffs, and Gaps
The Potential and Challenges of Front-of-the-Meter Storage in Connecticut
Written by: Stephan Wollenburg
Publish Date: June 28, 2022
Estimated Reading Time: 5 minutes
On June 10, 2022, in Docket 21-08-05, the annual Electric Storage Program review proceeding, the Connecticut Green Bank (CGB) submitted its Report on barriers, opportunities, and benefit cost analysis (BCA) for Connecticut located front-of-the-meter (FTM) storage projects, along with an accompanying spreadsheet model. The Report and accompanying modeling were performed by Sustainable Energy Advantage and Customized Energy Solutions. The Report was commissioned in compliance with PURA’s July 28, 2021 Final Decision in Docket No. 17-12-03RE03 (the docket establishing the behind-the-meter storage incentive program), which ordered CGB to, among other things, consult with FTM electric storage stakeholders, the Connecticut Department of Energy and Environmental Protection (DEEP), the electric distribution companies (EDCs), and wholesale market participants “to better understand the barriers to entry, market opportunities, and programs for FTM [storage].”
Barriers to FTM Storage Deployment
In the Report, we discuss several barriers to FTM storage deployment, including interconnection costs and timeline, potential operational restrictions imposed by EDCs, low and uncertain wholesale market revenue opportunities, the inability of FTM storage to monetize some of the benefits it creates, and high and volatile capital costs.
Tariffs for Storage
In the Report, we also discuss several issues related to tariffs applied to storage charging energy (as opposed to station service). In the Final Decision referenced above, PURA found that demand charges are a barrier to storage deployment, and therefore ordered the EDCs to file revenue neutral tariff riders that eliminated demand charges for storage. Following comments filed jointly by the U.S. Energy Storage Association and the Northeast Clean Energy Council claiming that the filed tariffs riders did not represent an improvement for storage that cycles on a regular basis, PURA declined to approve the tariff riders. Our analysis led us to a conclusion similar to those of the commenters, finding that the filed tariff riders, with higher kWh charges than the original tariffs they were derived from, compromised the ability of storage resources to effectively cycle and earn revenue. In the report, we lay out several alternative tariff design options for storage, including designs that included a coincident demand charge (i.e., a demand charge based on load during the system monthly peak hour).
In addition to finding that the specific design of storage-related tariffs was a barrier, we also note the ambiguity around which tariffs should be applied to distribution-connected storage participating in wholesale markets, and which entity (FERC or state-level regulators) has jurisdiction to establish these tariffs. The Report includes a relevant Commonwealth Edison (Illinois) precedent, in which FERC approved a tariff for distribution-connected storage participating in wholesale markets. This tariff structure (a wholesale distribution charge or WDC), which applies a fixed annual fee to individual resources based on investments required to interconnect each resource, was included modeled in the quantitative sections of the Report, in addition to existing retail tariffs. We note, however, that the Maine Public Utilities Commission asserted its jurisdiction to set rates for distribution-connected storage participating in wholesale markets in a May 26, 2022 Order approving a Central Maine Power tariff designed for such resources.
Economic Gap Modeling Results
The Report includes modeling of costs and revenues for six FTM storage cases (two Transmission connected cases, two Eversource connected cases and two United Illuminating [UI] connected cases with Eversource and UI being Connecticut’s sole investor-owned utilities), finding a large economic gap (“missing money”) for each after accounting for wholesale market revenues. This suggests that FTM storage resources would not be deployed in Connecticut without some policy support mechanism. The economic gap modeling found smaller gaps for transmission-connected resources, due to their larger economies of scale. Storage subjected to Eversource’s existing Rate 58 had the largest gap. A summary of findings is found in the table below.
Benefit Cost Analysis
We also conducted benefit cost analysis in the report, drawing on the BCA methodology used by PURA and others to evaluate energy efficiency, and, more recently in Connecticut, behind-the-meter storage. The analysis included evaluating FTM storage from various perspectives, including ratepayers’, the EDCs’, and that of society at large. Our analysis found that FTM storage produces large net benefits. These net benefits, combined with the identification of large economic gaps, indicate that FTM resources produce substantial benefits, including price effects and reduced distribution and transmission system costs, which cannot be directly monetized by the resource owner. The analysis found that incentives proposed by Key Capture Energy, which PURA ordered CGB to evaluate, would be insufficient to drive FTM development. Even when assuming an incentive that would be sufficient to close the economic gap, the benefit cost analysis found net benefits for all the test perspectives considered. The filing included the Excel file underlying the BCA modeling.
The key findings and recommendations included in the Report are summarized in the table below.
We found that substantial net benefits and large economic gaps support the introduction of a policy support mechanism for FTM storage, which could include targeted procurement, incentives, or a market-based mechanism similar to the Massachusetts Clean Peak Energy Standard. We also provided suggestions for how to mitigate identified barriers. Importantly, the Report called out that to realize the benefits modeled through BCA likely would require changes to how storage is treated in transmission and distribution system planning, such that projected storage deployment could be relied upon to mitigate transmission and distribution system investments.
What Happens Next?
There are no specified next steps related to this filing. Given the complexity of the Report and some of its implications, we anticipate that PURA may convene a technical conference to discuss the Report and its findings. The findings are also a classic rationale for introducing a policy to help internalize some of the positive externalities (non-monetizable benefits) we identify in our analysis. One such policy mechanism might be DEEP using its authority to procure storage, as provided for in Section 3 of Public Act 21-53.
Given Connecticut’s storage goals and the findings included in our report, there’s likely to be interesting activity for front-of-the-meter storage in CT soon. To discuss how SEA’s services, including custom storage dispatch and revenue analysis and storage market entry studies, can help you stake out your claim in this promising and rapidly evolving market, please contact Stephan Wollenburg (508.834.3050).
This post is derived from an article included in our Eyes & Ears subscription service, which includes comprehensive coverage and analysis of policy, legislation, and markets related to storage (in addition to the clean energy ecosystem as a whole).