The Failure of Battery Storage in California — and How to Fix It
Tags: Energy, Public Policy, Energy Storage, Renewable Energy, Electricity

Battery storage is often hailed as the messiah of the electric grid, or slightly less dramatically, bacon, because adding it “makes everything better.” Supporters tout the technologies’ ability to provide capacity when we need it, reduce GHG emissions, and limit solar curtailment. With these benefits in mind, back in 2013 California’s chief utility regulator took the unprecedented step of requiring utilities to procure 1.3 Gigawatts (GW)of storage (that’s a lot), which has now been accomplished, while the Self Generation Incentive Program (SGIP) has spent hundreds of millions of ratepayer money (also a lot) to subsidize battery installations (a fraction of which can count towards that 1.3 GW target). Amidst the euphoria, California utilities have installed some of the largest individual battery installations in the world.

Despite all the promises the bacon hasn’t sizzled. An evaluation of the SGIP program found that battery storage has actually increased GHG emissions, solar curtailment has increased, and the state faced rolling blackouts this summer due to lack of available capacity. What gives?

Just like any other resource, the rules and market structures that govern the actual operation of storage is key — installing more battery storage is not, on its own, “good” or “bad.” Despite the installation of more than 1.3 GW of battery storage in California, the grid operator, CAISO, can only count on 216 MegaWatts. This is because most of the storage deployed to-date does not or cannot bid in to the CAISO market. If CAISO can’t see it, or it’s not aggregated with other like resources, it can’t meaningfully contribute to system-level benefits — like providing capacity during a summer heat storm to avoid rolling blackouts.

Much of the battery storage in California has been deployed behind the utility meter, with its primary function to reduce bills and/or provide backup power to the residential or commercial customer that installs it. In the commercial sector, demand charge management has reigned supreme, which reduces customer bills but does not necessarily align with grid or environmental benefits that storage could provide. This should annoy you because we are spending your money to subsidize these customers. Any ratepayer money should therefore be geared to provide benefits to all customers — lower costs and GHG emissions — not just benefits to the lucky battery owner.

The failure of battery storage to live up to its potential is not a foregone conclusion, but market and regulatory changes are needed. First, all storage installations (not just stand-alone batteries), including those that are behind the utility meter, must be at least capable of bidding in to CAISO markets or aggregated through demand response programs. Second, there should likely be requirements to ensure batteries charge during high solar periods and discharge during peak capacity constraints, which is a small fraction of the hours in a given year, if any ratepayer subsidies are involved in purchasing the battery. This can involve sensible rate design, demand response, or other compensatory mechanisms to align charging and discharging of battery storage with the most significant grid needs. Third, most ratepayer subsidies for battery installations that cannot or will not provide benefits to all customers should be scrapped or significantly reduced — companies can buy and install a battery on their own if they wish to reduce their electric bills.

I say “most” subsidies because there is likely a role for supporting batteries that benefit residential customers during the now all-too prevalent wildfire power shutoff season— particularly if the customer is low-income and medically vulnerable. But a better, more sustainable solution is for utilities to do a better job at ensuring these shutoffs are truly a “last resort” and are as narrow and targeted as possible; PG&E did a horrible job in 2019, and we should not accept this type of performance nor expect everyone in Northern California will buy backup power for these events, which most can’t afford, and can itself have catastrophic consequences.

Well-intentioned policies can sometimes have adverse consequences or fail to deliver on their promises— when they do, it is imperative to quickly change course to prevent further harm and ensure benefits going forward.