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HomeMy WebLinkAboutStaff Report 2604-63124.Update on Electric System Long Duration Resiliency; CEQA Status – Not a Project (DISCUSSION: 8:30PM – 8:50PM) Staff Presentation Item No. 4 Page 1 of 4 Utilities Advisory Commission Staff Report From: Alan Kurotori, Director Utilities Lead Department: Utilities Meeting Date: September 2, 2026 Report #: 2604-6312 TITLE Update on Electric System Long Duration Resiliency; CEQA Status – Not a Project RECOMMENDATION Recommend staff continue monitoring estimate costs for local utility scale battery storage and provide an update to the UAC with the next Integrated Resource Plan and recommend staff review and propose reasonable hazard mitigations with recommended capital improvement projects. EXECUTIVE SUMMARY On March 2, 2026, the City Council accepted a report on the cost of local energy resources and improved reliability and resiliency. The report found that local microgrids were not cost effective at this time but recommended continued engagement with the Utility Advisory Commission (UAC), Climate Action and Sustainability Committee (CASC), and the City Council regarding micro-grids and long-term resiliency. On an ongoing basis, utility staff are reviewing the market and publicly available information regarding the cost of local microgrids and battery energy storage systems (BESS). Because current costs indicate that microgrids do not present cost savings for customers, staff plans to continue to review pricing until market analysis suggests better value. Another assessment will be included with the next update of the City’s Integrated Resource Plan, which staff will begin updating in 2027 and planned to file in early 2028. Simultaneously, staff are beginning a review of the Electric Department’s preparedness to respond to large-scale events requiring a significant and sustained effort to restore electric service. In the event of a large-scale natural disaster (earthquake, flooding, windstorm, wildfire, heat storm, etc.), local micro-grids could help isolated pockets of electric customers remain in power, but City staff would immediately need to begin the repair and restoration process for all other customers. The larger effort of restoring utility service citywide requires forethought, planning, and some capital investment. The Palo Alto Annex of the Santa Clara County Multi- Jurisdictional Hazard Mitigation Plan (MJHMP) identifies areas of the City’s electric system that Item No. 4 Page 2 of 4 could be strengthened to lessen the impact of major events. Over the next several months, staff will review utility projects identified in the MJHMP and existing Grid-Modernization (Grid- Mod) projects consider impacts of major weather events over the expected life of the assets. This review will help to improve long-term resiliency under adverse conditions as well as support one of Grid-Mod’s primary goals of improving overall system reliability. BACKGROUND ANALYSIS 1 identified a cost for utility scale battery storage of $482/kWh, and NLR’s 2025 update2 saw a lowering of those costs to $334/kWh. The 2023 update also forecasted battery storage pricing ranging between $255/kWh and $403/kWh in 2030, with the 2025 update estimating storage costs at $147/kWh and $339/kWh by 2035. Both the 2023 and 2025 forecasts of future battery storage costs anticipate reductions in costs, but the expected reductions may fall within a wide range. 1 NLR Cost Projections for Utility-Scale Battery Storage 2023 Update https://docs.nlr.gov/docs/fy23osti/85332.pdf 2 NLR Cost Projections for Utility-Scale Battery Storage 2025 Update https://docs.nlr.gov/docs/fy25osti/93281.pdf Item No. 4 Page 3 of 4 reliable electric service rather than analysis based solely on providing the lowest cost service regardless of reliability. Staff are working with the NLR model, adjusting the assumptions to provide relevance for Palo Alto’s residential and commercial customers. As staff become more familiarized with the model’s valuation of reliability, those valuations will be brought to the UAC in the FY28-32 Electric Capital Improvement Program. 5 For the City’s Electric Department, the Annex specifically names earthquake, heavy precipitation/atmospheric rivers, extreme heat/cold, high wind, wildfire, and sea level rise as hazards. It also lists mitigation measures that could make the electric system more resilient. Some of those mitigation measures have been completed, such as undergrounding overhead electric lines in the Foothills, while others are still being studied, such as mitigation measures addressing sea-level rise. The Annex presents a good starting point to identify additional mitigation measures and to estimate costs in preparation of potential funding through rate revenue and/or federal grant dollars. 5 Santa Clara County Multijurisdictional Hazard Mitigation Plan 2023 Update: City of Palo Alto Annex - https://www.paloalto.gov/files/assets/public/v/1/oes/plans/final_vol-ii-santa-clara-mjhmp_city-of-palo-alto- annex-1.pdf Item No. 4 Page 4 of 4 model. Should additional projects show a cost benefit, staff will bring the projects showing the largest benefit to cost ratio back to the UAC for further review and discussion. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS AUTHOR/TITLE: September 2, 2026 LONG DURATION RESILIENCY Terry Crowley Utilities Chief Operating Officer TITLE 40 FONT BOLD Subtitle 32 font •March 2, 2026 City Council included discussions on local energy resource costs as they relate to long duration resiliency •At that time staff presented information that local microgrids are currently not cost-effective •While currently not cost effective, Council directed staff to continue to engage the Utility Advisory Commission, Climate Action & Sustainability Committee, and City Council within 2026 regarding long duration resiliency and microgrids Background 2 TITLE 40 FONT BOLD Subtitle 32 font The cost of utility scale or community scale microgrids (solar and battery) has remained high. Staff is monitoring reports from the National Laboratory of the Rockies (formerly National Renewable Energy Lab) on the cost of utility scale battery storage. Future Costs Anticipated to be Significantly Lower •In 2023, NLR estimated cost of battery storage at $482/kWh, and expected 2030 cost to fall between $255/kWh and $403/kWh •In 2025, NLR estimated cost of battery storage at $334/kWh, and expected 2035 costs to fall between $147/kWh and $339/kWh •Costs for land and solar to charge the batteries is not included Microgrid Cost Trends 3 TITLE 40 FONT BOLD Subtitle 32 font A 4MW 4-hour battery could serve roughly 300 single family homes during a 24-hour outage. •Rough cost of $5.4 million •Cost anticipated to fall to $2.4million by 2035 •Could only support 1% of roughly 27,000 residential customers •Does not include solar costs to charge and recharge the system (land, installation, operation, and decommissioning) Staff will continue to monitor costs for improved value and plan to discuss in the Integrated Resource Plan scheduled for 2027. Storage Benchmark 4 TITLE 40 FONT BOLD Subtitle 32 font •Natural disasters or large system disturbances fracture the electric distribution system, cutting off customers from power sources •Resiliency requires reconnecting customers through repairs or redundant facilities •Santa Clara County Multijurisdictional Hazard Mitigation Plan includes specific hazards and possible mitigations for Palo Alto •Staff have begun reviewing hazards and possible mitigations for inclusion in the current and upcoming Capital Improvement Program •Some mitigation measures include the possible use of micro- grids Systemwide Resiliency 5 Recommendations 6 •Recommend staff continue monitoring and provide updated estimates for local utility scale battery storage and update the UAC with the next Integrated Resource Plan •Recommend staff review and propose reasonable hazard mitigations with recommended capital improvement projects