HomeMy WebLinkAboutStaff Report 12194
City of Palo Alto (ID # 12194)
City Council Staff Report
Report Type: Action Items Meeting Date: 8/16/2021
City of Palo Alto Page 1
Summary Title: Energy Storage AB 2514 Report
Title: Finance Committee Recommends the City Council Decline to Adopt the
Energy Storage System Targets; and Receive the 2020 Energy Storage Report
From: City Manager
Lead Department: Utilities
RECOMMENDATION
Staff and the Finance Committee recommend that the City Council decline to adopt energy storage
system targets under California Assembly Bill (AB) 2514 at this time, and that Council receive the 2020
City of Palo Alto Utilities Energy Storage Report. The CPAU 2020 Energy Storage Report (linked here)1
was also submitted to the California Energy Commission (CEC) in December of 2020.
EXECUTIVE SUMMARY
California law AB 2514 (2010, as amended) requires all California publicly owned utilities to investigate
whether energy storage systems are cost effective every three years (Public Utilities Code § 2836(b)).
Most recently in 2017 City of Palo Alto Utilities (CPAU) staff examined energy storage systems,2
determined that they were not cost effective for CPAU, and therefore declined to set energy storage
targets.
To investigate if energy storage located in the City of Palo Alto was financially beneficial to all customers,
CPAU built an economic battery dispatch model and worked on a joint analysis with the Smart Energy
Power Association (SEPA) with other publicly owned utilities through the Northern California Power
Agency (NCPA) and Sacramento Municipal Utility District (SMUD).
The CPAU and SEPA analyses both suggest that for Palo Alto customer-sited energy storage is still not
cost-effective from a societal perspective (for the utility and customers in aggregate). Since neither
energy storage within the City nor on the transmission system was found to be cost effective for the
utility or its customers as a whole, staff recommends declining to set energy storage system targets at
this time.3 Instead CPAU will continue to monitor this rapidly maturing space and continue looking for
specific projects which by virtue of their location could provide extraordinary resiliency, lower carbon
emissions, and/or lower distribution system costs. Staff is also currently evaluating multiple proposals
1 https://efiling.energy.ca.gov/GetDocument.aspx?tn=236202-1&DocumentContentId=69171
2 https://www.cityofpaloalto.org/civicax/filebank/documents/57435
3 Under state law (PUC 2836(b)), local publicly owned electric utilities like CPAU must analyze the merits of ESS
investments periodically and set goals if such investments are cost effective.
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for utility-scale storage co-located with renewable generation and will move forward with competitive
projects that complement CPAU’s existing supply portfolio.
In December of 2020 UAC unanimously accepted the staff recommendation to not set energy storage
system targets (Staff Report ID #113574). The UAC discussion focused on:
1. Whether utility-scale storage was cost-effective even if small storage was not. Staff responded
that CPAU is currently evaluating competitive storage proposals at utility-scale renewable
electricity generation sites.
2. What carbon price would be required to make customer-sited energy storage systems cost-
effective. Staff responded that there was relatively little carbon saved per dollar in the
customer-sited storage sites since installed battery costs are still high and there are losses in the
battery. A carbon price higher than $200 per metric ton of carbon dioxide equivalent (MT CO2-e)
would likely be needed based on today’s installed battery costs and efficiencies for the
residential scenarios examined. The market price for carbon reductions in the electric system,5
which would be the appropriate value for evaluating energy storage, is estimated to be
approximately $30 to $60 per MT CO2-e based on the current price of renewable energy in
California.
3. How the utility could send appropriate price signals to customers with energy storage to ensure
they operated it in a way that was beneficial to the community, utility, and electric grid as a
whole. Staff responded that sending the appropriate price signal is exactly what smart meters
and smart devices are meant for once those are installed.
Staff presented this recommendation to the Finance Committee on April 20, 2021 Staff Report No.
12142 (Linked Document). The Finance Committee voted 2 to 1 with Chair Cormack and Council
Member Filseth voting in favor to recommend that the Council not set energy storage targets and
accept the 2020 Energy Storage Report and Vice Mayor Burt voting no. The full Finance Committee was
in agreement that declining to set goals was the appropriate action given that the study showed energy
storage was not cost effective as an energy supply strategy. But there was disagreement about how
quickly to complete the six additional efforts listed below under “Next Steps,” with Vice Mayor Burt
advocating to have staff return to Finance Committee with a plan to accelerate exploration of these six
areas and the resources needed.
CPAU submitted the “City of Palo Alto Utilities 2020 Energy Storage Report”6 to the CEC in December
2020. The 2020 report includes:
1. An overview of customer adoption of Energy Storage Systems (ESS) in Palo Alto;
2. Analysis of the cost-effectiveness of customer-sited ESS within Palo Alto; and
3. Next steps for ESS both within Palo Alto and sited at utility-scale renewable generation.
BACKGROUND
The deployment of ESS in the California electricity sector has grown rapidly in recent years due to
declining cost, regulatory mandates for investor-owned utilities (IOUs) to procure and/or provide
4 http://cityofpaloalto.org/civicax/filebank/documents/79337
5 The market price for carbon is lower than the long-term carbon price needed to achieve global emissions
reductions to curtail global warming. The latter is significantly higher and includes more expensive emissions
reductions not currently being widely implemented. However, because energy storage competes with renewable
energy to curtail electricity grid emissions, the market price for carbon is a more appropriate measure.
6 https://efiling.energy.ca.gov/GetDocument.aspx?tn=236202-1&DocumentContentId=69171
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rebates for customer sited ESSs, availability of reliable system manufacturers/installers, federal tax
credits, and increased customer awareness of the benefits ESS.7 IOUs have been authorized to collect
over $1B from their customers to be spent on the state-mandated storage program for IOU territory,
which is called the Self Generation Incentive Program (SGIP).
On a very basic level, energy storage systems can be used to allow energy generated at one time to be
utilized later. This opens up a number of possible value streams as shown in the CPAU 2020 Energy
Storage Report.8 This list of value streams is consistent with other analyses of value streams, such as
those shown in the 2017 Rocky Mountain Institute Storage Report.9
Despite energy storage systems being able to provide multiple values, the actual installation of batteries
in California has not always been economically or environmentally beneficial. A recent evaluation10 of
the Self Generation Incentive Program found that on average commercial storage projects without
performance-based incentives increased carbon emissions. This was primarily11 due to commercial
customers using their batteries during the times of cleanest electricity and charging their batteries
during the times of dirtier electricity (which is typical for maximizing savings from commercial demand
charges).
DISCUSSION
The CPAU and SEPA analyses both suggest that for Palo Alto, customer-sited energy storage is still not
cost-effective from a societal perspective (for the utility and customers in aggregate). Details on the
analysis and results are in the CPAU 2020 Energy Storage Report.
Since neither energy storage within the City nor on transmission system were found to be cost effective
for the utility or its customers as a whole, CPAU will not be setting storage goals at this time. Instead
CPAU will continue to facilitate customer-funded installations through education and group buy
programs, monitor this rapidly maturing space, and continue looking for specific projects which by their
location could provide extraordinary resiliency, lower carbon emissions, and/or lower distribution
system costs. Staff is also currently evaluating multiple proposals for utility-scale storage located with
renewable generation and will move forward with competitive projects that complement our existing
supply portfolio.
Areas of Unique Value of Energy Storage to CPAU
7 It is estimated battery costs have declined by 50% over the past 3 years, with the corresponding battery ESS cost
declining by 30%. Under California Public Utilities Commission (CPUC) mandates, the IOU/CCAs were required to
contract for 2,485 MW of ESS by 2020. In addition, CPUC requires IOUs to provide cash rebates to customers
installing ESS under the Self-Generation Incentive Program (SGIP). The increased wildfire risks and associated
public-safety-power-shutoff measures have increased the customer’s need for back-up power sources, which ESS
are well suited to provide.
8 https://efiling.energy.ca.gov/GetDocument.aspx?tn=236202-1&DocumentContentId=69171
9 https://rmi.org/wp-content/uploads/2017/03/RMI-TheEconomicsOfBatteryEnergyStorage-FullReport-FINAL.pdf
10https://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/Utilities_and_Industries/Energy/Energy
_Programs/Demand_Side_Management/Customer_Gen_and_Storage/2017_SGIP_AES_Impact_Evaluation.pdf
11 10% of the emissions increase was due to parasitic losses within the battery, but 90% of the emissions increase
was due to the commercial customers operating the batteries to lower their utility demand charges rather than
lower carbon or wholesale energy costs.
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Although the current analyses suggest energy storage within CPAU territory is not financially beneficial
to all customers, there are a number of factors which could change this in the future. These factors do
not currently outweigh the costs of storage, but there is the potential for this to change in the future
based on: higher future resiliency value to community, statewide energy supply shortages or
interruptions, different structure proposed for transmission charges, and rapid electrification of
particular residential neighborhoods.
Factors which would Improve Future Energy Storage Value to CPAU & Customers
1. Increased community value of local resiliency: The recent electricity supply shortages at the state
level and potential future disruptions from large-scale regional wildfires could lead the community
to elect to pay a premium for local electricity storage.
2. Insufficient distribution system capacity in residential areas: Energy storage could help distribution
system costs, in particular for neighborhoods rapidly switching to all electric homes which also have
a high penetration of electric vehicles. Where there is not currently enough distribution system
capacity, batteries may have the potential to be leveraged as “non-wires solutions” if exercised
appropriately.
3. Increased wholesale value of flexible resources: The recent supply shortages at the state level could
indicate that flexible electricity generation is currently underpriced and undervalued. Flexible
resources such as batteries could be worth more in the future if this trend holds, especially as more
natural gas generation is retired in California.
4. Reconfiguration of transmission charges: The primary transmission operator of California is
considering redistributing transmission charges in a way which would make flattening electricity
demand more valuable. This would increase the value of storage as one way to flatten electricity
demands, at a City level.
5. CPAU’s Hourly Carbon Neutral Standard: In August 2020 CPAU adopted an hourly carbon neutral
accounting standard. This will ensure that the technologies such as energy storage which can store
the lowest carbon hours and then help the grid during the highest carbon hours are properly valued
when making investment decisions.
6. Solar Net Energy Metering Rate: Since Palo Alto compensates new solar customers at the value to
the utility for the solar exported to the grid, if the value of electricity continues to decline during the
day, the value of local solar exported to the grid may decline as well. If the difference between the
retail rate of electricity and the value of local solar electricity exported to the grid increases in the
future, this will increase the value of local energy storage to customers.
Key Differences in Energy Storage Value between CPAU and PG&E
Since two separate analyses suggest that energy storage is not currently financially beneficial to CPAU
and its customers, it is important to understand why it is considered beneficial for the investor-owned
utilities (IOUs) which are required to invest in and subsidize energy storage for their customers. Some of
the key differences between CPAU and the IOUs such as PG&E which are required to invest in storage
systems via the SGIP are shown below.
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1. Distribution System Deferral: Lower value for CPAU than PG&E.
a. The City’s electric distribution system is not currently constrained since electricity sales are
30% below historical peak due to aggressive efficiency, high customer adoption of solar,
departure of industrial loads, lack of other load growth, and lower summertime
temperatures.
b. Staff will continue to investigate specific locations on the residential side of the distribution
system for opportunities for distribution deferral, especially in neighborhoods switching to
all electric homes and with high penetration of electric vehicles.
2. Back-up Power for Outages & Power Safety Power Shutoff Events: Lower value for CPAU than PG&E.
a. CPAU’s territory is mostly urban, non-mountainous terrain, lower fire-risk and fewer
distribution miles per customer, therefore limited customers are affected by PSPS. CPAU
also has relatively few outages.
3. Time-of-Use (TOU) Rate Bill Management: Lower value for CPAU than PG&E.
a. There is no Residential TOU rate as CPAU does not yet have smart meters installed and
therefore cannot distinguish when during the day electricity is being used. Price differentials
for TOU pilot rates in Palo Alto have historically been small, though this may have changed
marginally in recent years.
i. CPAU expects to have smart meters deployed by 2024.
ii. Staff is exploring ways to control smart electric vehicle charging, smart building
management systems, and smart thermostats to leverage flexible demand response
programs. Connected batteries would be eligible in any pilot.
iii. TOU rate design will be an important topic in a future electric cost of service study.
b. The price differential in the current CPAU commercial TOU rate is small.
i. Staff will be evaluating this in the next electric cost of service study as well.
4. Utility-scale Transmission-Connected Energy Storage: Lower value for CPAU than PG&E.
a. CPAU owns highly flexible load-following hydroelectricity, which provides ~15% of its
electric supply.
b. CPAU has already entered into long-term contracts for carbon-free resources that will
supply ~110% of its electricity needs through 2024. If CPAU were currently contracting for
new renewable resources, the economics of bundling in utility scale storage during
construction would be more advantageous.
Comparison of Planned Storage Expenditures between CPAU and PG&E Territory
A comparison between CPAU and the surrounding IOU PG&E Self Generation Incentive Program (SGIP)
on the basis of authorized budget and on key aspects are below.
Customer-sited storage:
• 87% of the total PG&E SGIP funding dedicated to customer-sited energy storage is reserved for
high fire risk customers, those who have had multiple PSPS events in the last two to three years,
and or low-income customers. CPAU has very few customers with high fire risk and has
relatively few customers who are both low income and have high fire risk.
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• A comparison of the remainder of the dedicated SGIP funding12 shows that:
o An equivalent pro rata amount of funding dedicated to customer-sited energy storage
would be $500k in total for CPAU, which would roughly translate to 220 kW / 590 kWh
of customer-sited batteries installed in CPAU territory.
o As of 2020, Palo Alto already has 240 kW / 648 kWh in residential batteries installed and
1,000 kW / 2,020 kWh commercial customer-sited batteries.
• For customer-sited energy storage, CPAU customers appear to be investments on their own,
which could call into question whether utility intervention to further stimulate demand is
required in this market.
Large-scale or transmission grid-tied:
• An equivalent amount of funding allocated for transmission/wholesale interconnected storage
would be about $1.3M and would roughly translate into 1.1 MW / 4.4 MWh of transmission
grid-tied batteries installed.
• Palo Alto is evaluating competitive transmission grid-tied projects in the 5 MW / 20 MWh range.
PUBLIC ENGAGEMENT
Resiliency, lowering costs, and lower carbon emissions are core values of CPAU. CPAU will engage the
public as needed on the topic of energy storage in the S/CAP process and as part of any other local
discussions on resiliency as they relate to energy storage.
NEXT STEPS
Staff, Utilities Advisory Commission, and Finance Committee recommend that Council make a motion to
accept the staff recommendation that CPAU not set any energy storage system targets at this time, and
that Council receive the 2020 CPAU Energy Storage Report. Staff is evaluating transmission grid-tied
storage located at utility-scale renewables. CPAU will also consider utility scale and behind-the-meter
storage as supply portfolio options in the 2024 Electric Integrated Resource Plan. Staff will also continue
evaluating specific local projects which due to their location could provide extraordinary resiliency,
lower carbon emissions, or distribution system value.
There are six key areas that staff will continue to explore as these will have the highest value to CPAU
and its customers:
1. Examine using flexible loads to avoid or minimize future rotating outages: Flexible loads have many
of the benefits of energy storage but are much less expensive than purchasing standalone batteries
or other energy storage. The recent electricity supply shortages at the state level indicate that
flexible electricity loads such as storage, flexible EV charging, flexible building management systems,
smart thermostats and smart heat-pump water heaters may currently be undervalued. Staff will be
examining ways to use flexible electricity loads to minimize the risk and severity of rotating outages
in the future. This could be configured as an Automatic Demand Response program or a Virtual
Power Plant. It is important to note that flexible loads like these programs reduce the likelihood and
magnitude of future rotating outages, but if Palo Alto is called upon to shed load for the reliability of
the statewide grid, CPAU will have to initiate the outages mandated.
2. Examine investing in flexible electrification to create distributed thermal energy storage:
Electrification of space and water heating has the potential to decrease carbon emissions even more
12 This includes funds not already made available, but earmarked for SGIP through authorized collections.
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if these systems use electricity during the cleanest hours of the day and coast through the highest
emission hours of the day, since heat-pump water heaters and buildings can pre-heat when
residents are not home and then maintaining their temperatures with excellent insulation. CPAU is
already incentivizing electrification of space and water heating and could add extra incentives to
those systems which can be dispatched to follow the cleanest hours on the grid.
3. Evaluate local energy storage at existing local solar for resiliency: Explore partnering with emergency
services to add storage to existing local solar sites at City facilities. Storage could be used to mitigate
the risk and severity of potential supply shortages in addition to catastrophic emergencies. The
combination of solar plus storage may also be able to contribute to resiliency needs in a highly
electrified environment, such as would result if the City’s Sustainability and Climate Action Plan
(S/CAP) goals were achieved.
4. Continue to evaluate competitive proposals for energy storage at utility-scale renewable generation:
CPAU is currently evaluating multiple proposals for energy storage sited at utility-scale renewable
generation and will move forward with any proposals that are found to be economic and a good fit
for the electric supply portfolio.
5. Continue to evaluate financial and physical integration of storage and flexible loads: CPAU is
evaluating both the physical impacts of energy storage and flexible loads on utility distribution
system operations as well as the costs and benefits to the utility’s financial position and other
ratepayers. In particular, as the industry evolves, staff will evaluate the impact of storage and
flexible loads on cost-of-service rate design and make adjustments if needed.
6. Evaluate the potential resiliency needs of an electrified community (one in which the Sustainability
and Climate Action Plan goals are fully implemented) and the role energy storage may need to play:
CPAU continues to evaluate current and future resiliency needs, including the potential role of
energy storage.
RESOURCE IMPACTS
The pace of the projects outlined above will be dictated by staffing availability. The largest staff and
resources impact would be Items 1 and 2 or ramping up Item 3. If the City were to decide to launch
pilots, such as an Automatic Demand Response program or locate storage at solar sites, it would likely
require at least 0.5 FTE and $100k for the first year, for the evaluation phase alone. Staffing and
resources would need to be identified through either a) additional staffing resources or b) a
reprioritization of existing staff and resources which would impacting other City priorities. These
projects, which could be strategically useful in the long term, would need to be balanced against other
utility and council priorities such as Sustainability and Climate Action Plan (S/CAP) implementation and
the Advanced Metering Infrastructure (AMI) rollout, both of which will require staff effort and
resources. While either Automated Demand Response or battery installations at solar sites could be a
part of the utility’s supply portfolio in the long term, in the short term the pilots require significant staff
effort for limited financial benefit.
Staff currently staffs Item 3 as an ongoing low-level work item. When an opportunity to evaluate energy
storage at a City facility arises, the Utilities Department works with other City departments such as the
Office of Emergency Services and Public Works to help evaluate City facilities as potential energy storage
sites. Staff also works with major facilities in Palo Alto to evaluate partnerships, such as the VMware
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microgrid pilot partnership. Making Item 3 a more proactive effort to find new solar and storage
opportunities, rather than a reactive one in response to opportunities that arise, would require
additional staff resources as detailed above. Items 4 through 6 are already being executed with existing
staff resources in the next one to two years in response to utility strategic needs and priorities.
POLICY IMPLICATIONS
Energy storage is a key technology to enable increased penetration of renewable energy in California
and, when installed in customer premises, reduce their utility use. These two aspects conform to
Utilities Strategic Plan objectives and Council policy on environmentally sustainable development.
ENVIRONMENTAL REVIEW
Council acceptance of staff and UAC’s recommendation to decline to adopt energy storage system
targets under California Assembly Bill (AB) 2514 at this time, and that Council receive the 2020 City of
Palo Alto Utilities Energy Storage report, is not a project requiring environmental review for the purpose
of the California Environmental Quality Act, because these are administrative activities of government
that will not result in direct or indirect physical changes in the environment (Cal. Code Regs. Tit. 14 Sec.
15378(b)(5)).
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