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HomeMy WebLinkAboutStaff Report 2609-6800CITY OF PALO ALTO Climate Action and Sustainability Committee Friday, October 02, 2026   Agenda Item     1.Update on Electric System Long Duration Resiliency; CEQA Status – Not a Project Late Packet Report Added, Staff Presentation Climate Action and Sustainability Committee Staff Report Report Type: ACTION ITEMS Lead Department: City Clerk Meeting Date: October 2, 2026 Report #:2609-6800 TITLE Update on Electric System Long Duration Resiliency; CEQA Status – Not a Project This item will be a late packet publication on 9/24/26. 1 0 6 2 0 Climate Action and Sustainability Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Utilities Meeting Date: October 2, 2026 Report #:2609-6732 TITLE Update on Electric System Long Duration Resiliency; CEQA Status – Not a Project RECOMMENDATION Staff recommends that the Climate Action and Sustainability Committee recommend that the City Council: 1. Direct staff to continue monitoring and provide updated estimates for local utility scale battery storage to the UAC with the 2028 Integrated Resource Plan 2. Direct staff to 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 resiliency1. 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 plan 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 1 March 2, 2026 staff report to City Council; https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=822448ca-092b-465b-8859- 00ebddae3a2e 1 0 6 2 0 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 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 and 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 3 identified a cost for utility scale battery storage of $482/kWh, and NLR’s 2025 update4 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. 3 NLR Cost Projections for Utility-Scale Battery Storage 2023 Update https://docs.nlr.gov/docs/fy23osti/85332.pdf 4 NLR Cost Projections for Utility-Scale Battery Storage 2025 Update https://docs.nlr.gov/docs/fy25osti/93281.pdf 1 0 6 2 0 period. There are currently just under 27,000 residential customers connected to Palo Alto’s electric system. The NLR‘s forecasted costs of battery storage do not include land purchases and connected costs of solar or other local generation needed to replenish the battery storage to form an independent micro-grid. 7 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. 7 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 1 0 6 2 0 of coastal flooding and sea-level rise, designating space within reconstructed substations for future battery storage, mitigating the impact of earthquakes through stronger and more resilient foundations, and building additional system capacity to prepare for future heat storms and increased demands on the electric system. 9. 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. 10 (IRP), staff will perform a more detailed analysis of local, utility scale solar and battery storage. Staff’s updating of the IRP will begin in early 2027 with staff expecting to present initial results to the UAC in mid to late 2027. If local utility scale solar and battery storage show economic value to the community, they will be included in the IRP. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT 9 The National Laboratory of the Rockies tool for estimating the cost of outages is publicly available; https://icecalculator.com/ 10 Palo Alto 2023 Electric Integrated Resource Plan; https://www.paloalto.gov/files/assets/public/v/1/utilities/power-content-labels/2023-cpau-irp-report-final.pdf 1 0 6 2 0 - Consider long-term resiliency from the perspective of multiple days of power outages. ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: October 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 •An update was provided to the Utility Advisory Commission on September 2, 2026 •Anticipate a Council agenda item in November of December of this year 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 for improved value and plan to discuss in the updated 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 TITLE 40 FONT BOLD Subtitle 32 font •Use Office of Emergency Services (OES) to determine hazards and build staff competencies with the evaluation hazards •Consider long-term resiliency from the perspective of multiple days of power outages vs shorter outages •Educate customers on certainty of power outages and how they can assess their own needs (e.g. medical) and prepare •Develop detailed benefit to cost analysis for local hazard mitigation with and without estimated reliability benefits •Refine the goal and benefits of proposed mitigation measures •Consider situations where local utility scale energy storage systems make sense UAC Feedback 6 TITLE 40 FONT BOLD Subtitle 32 font •Still value in educating about resiliency of customer owned solar and battery storage •Continue to lower barriers for customers seeking solar and storage •EVs present an opportunity for in-home resiliency, City could educate on how to leverage this resource •Small portable battery packs coupled with community resiliency/ charging centers should be explored •Continue work to monitor cost effectiveness of customer owned solar and storage •Develop a dollar value for a customer’s perceived value of reliability for use when ranking alternative reliability expenditures •Start small, gain knowledge, and prepare to scale when costs are favorable Climate Action Work Group Feedback 7 Recommendations 8 •Recommend the City Council direct staff to continue monitoring and provide updated estimates for local utility scale battery storage to the UAC with the 2028 Integrated Resource Plan •Recommend the City Council direct staff to review and propose reasonable hazard mitigations with recommended capital improvement projects