This is the third installment in our New York Energy Series, which looks at the opportunities and challenges for large energy users in New York who want to reduce their energy spending and meet their sustainability goals. Here we cover progress in energy storage and opportunities that remain. Click here to check out other posts in the series.
Energy Storage Background: A Review of Progress
To meet the Climate Leadership and Community Protection Act (CLCPA) mandated emission requirements covered earlier in our New York Energy series, New York State is taking a multi-pronged approach to support all the enabling technologies needed for a post-carbon future. Paramount among these is energy storage. Although an Energy Storage System (ESS) is not a primary source of clean energy, it is an essential part of the renewable energy transition due to its role in time-shifting clean energy supply to match demand. A properly operated and incentivized ESS can increase the utilization of carbon-free energy by helping to overcome the intermittency problems associated with renewables.
Understanding the importance of storage, New York set a firm procurement target to establish a competitive marketplace for this enabling technology. The state established goals for an installed capacity of 1,500 MW by 2025 and 3,000 MW by 2030, as well as enacted a series of policies, programs, and requirements to meet these targets. Barely two years into the CLCPA law, New York is now well on its way to meeting its storage goals. At this point it’s a matter of when, not if, the goals will be achieved, despite delays this year in the development and construction of many projects. By 2019, New York had reported 706 MW, or 47%, of its 2025 goal for storage was achieved in awarded/contracted projects. As evidenced by a healthy interconnection queue of storage systems, it’s clear the state will hit its interim target ahead of schedule. The below chart shows where New York is in its storage journey, alongside industry research projections.
Although the state has made a strong start in the national deployment of storage technologies, there is still work to be done. Here we will review the remaining opportunities for energy storage adopters in the transitioning power grid.
There are several factors contributing to New York’s favorable landscape for energy storage systems. Between strong public policy support and naturally high electricity costs there are many opportunities available to a storage system owner.
Incentives Still Remain
There is little doubt that incentives in the state have been some of the most generous in the world. In 2019, the New York State Energy Research and Development Authority (NYSERDA) announced a $405 million grant program, or effectively ‘free money’ for ESS projects. NYSERDA offers upfront financial payments on a $/kWh basis to various system sizes, from larger scale bulk systems primarily participating in wholesale markets down to smaller retail systems sited at existing customers’ premises. Although many of the lucrative incentives have been snatched up for most regions and categories, there is still a sizeable pool of funding remaining notably in Long Island and Westchester. Complementing these incentives, the NY Green Bank has also allocated $200 million to provide low interest financing of viable storage projects. Adding to this, a system owner can realize tax benefits from NYC’s property tax abatement program plus such federal benefits as depreciation deductions or investment tax credits. The result is a rich ecosystem of incentives available for storage technologies despite the lion’s share of ‘free money’ having already been claimed.
Bill Savings and Tariff Optimization
The inherent flexibility of an ESS enables significant tariff savings and bill optimization for system owners and benefactors alike. Just as in most other places, in New York the classic ESS bill savings use case is to mitigate demand charges on a consumer’s bill. Demand charges in New York are often upwards of $25/kW-month based on a consumer’s peak power (measured in kilowatts – kW) imported from the grid. An ESS that strategically discharges during peak consumption periods can directly reduce demand charges by offsetting the monthly peak power a facility imports. Beyond demand charge management, ESS value can be created in other ways. An ESS can also help arbitrage or reduce exposure to higher energy charges by charging during off-peak hours and then discharging when energy costs are higher. New York utilities offer additional savings opportunities, often permitting tariff switches to more dynamic rates – such as Time of Use tariffs, standby rates with daily demand charges, or Retail Access supply arrangement providing dynamic hourly pricing that’s indexed to market rates per supplier contracts. These tariff switching scenarios create more opportunities for arbitrating hourly energy rates and reducing peak demand fees.
Further, sites with exporting power systems such as those hosting a solar PV system can benefit from storage as well. ESS’s that export either as a standalone asset or in conjunction with solar are credited per the Value Stack tariff. Unlike other net metering tariffs, NY’s Value Stack tariff scheme is quite dynamic and will significantly increase monetary credit generated if the ESS is exporting energy during high value periods. All this taken together means an ESS can optimize tariff savings or value accretion in many ways.
The NY Independent System Operator (NYISO) is one of the first in the nation to enable distributed ESS assets to participate in wholesale markets. The NYISO has developed a comprehensive program that would allow ESS systems to participate in NYISO state-wide markets from energy, capacity, reserves and voltage support programs. NYISO is making strides in rolling out and clarifying program rules. While the Federal Energy Regulatory Commission (FERC) has largely accepted NYISO’s program design, some barriers remain. Although NYISO is allowing ESSs to participate in their marketplaces today, parts of the program limit many assets and require another redesign for fuller ESS participation. The most notable redesign being argued are the unresolved Buyer Side Mitigation rule adjustments that require subsidized renewable energy resources to bid at higher prices in capacity markets, likely rendering them uncompetitive. Although the roll out of a NYISO wholesale program has been two steps forward, one step back, it still represents a strong signal to investors and developers that NY is committed to creating an open and competitive marketplace for ESS assets.
There are many other benefits for storage in New York worth review outside of this post as the evolving set of opportunities will be transaction driven. In our next installment, we will provide an overview of the top challenges for stakeholders wanting to invest in or host energy storage systems. In the meantime if you’d like to learn more, sign up for our mailing list, and send us your storage questions and someone from our energy team will get back to you.