A New Champion for Alternative Energy: California’s Energy Storage Bill

In 2010, California passed a landmark bill, AB 2514, which set the stage for sustainable growth of its alternative energy sector for decades to come.  AB 2514 is the first law in the United States to establish a directive to increase the minimum energy storage capacities of investor owned utilities.[1]

In October 2013, the California Public Utilities Commission (CPUC) unanimously passed a rule that requires California’s three largest investor-owned utility companies to add 1.3 gigawatts of electricity storage capacity by 2020, which is nearly 70 times the maximum capacity of the current systems.  The capacity requirements increase in a tiered fashion with deadlines that must be met every two years from 2014 until 2020. [2]  In addition to the required minimums put in place for the three large utilities, AB2514 implemented a variable rebate incentive program for smaller utilities, commercial businesses, or residences if they elect to install an energy storage system.[3]

The new energy storage regulation in California allows for the continued growth of alternative energy sources that produce power at intermittent intervals or in an otherwise unpredictable manner.  One of the most common forms of intermittent power generation is through solar panels, or photovoltaics.  Photovoltaics produce energy when there is incident solar radiation in the form of light interacting with the semiconductor membrane.  Generally speaking, the greater the degree of solar irradiation, the more electricity is produced by the system.  This leads to certain days of extremely high output and certain days – and all nights – with extremely low output.  Because of the unpredictable nature of the electricity generation, photovoltaics were traditionally not able to meaningfully contribute to electricity generation needs without incentives such as Solar Renewable Energy Credits (SRECs), which were subsidized by both federal and state governments.[4]

During days of extremely high output and low demand, the generated electricity was wasted.  The inability to efficiently store all of the produced electricity increased the payback period (i.e., the time it takes to recoup cost of investment) of photovoltaic system installations, which led to a decreased return on investment (ROI) and fewer projects moving forward into the construction phase.  The increased capacities required by the new rule will allow intermittent energy sources such as photovoltaics to feed all of their produced electricity during high output days to the utility company, which will then store the energy in a battery bank and increase the overall efficiency of the technology.

Another benefit of the large-scale energy storage for utilities is the ability to shave peak demand and not overburden the electric grid during periods of high electricity use.[5]  This benefits utility companies because it partially eliminates the need for diesel generators and other large peak-power supply sources by tapping into a battery bank full of available electricity, which again decreases the amount of electricity that has to be generated during times of heavy use.[6]  Additionally, these savings are then passed on to the consumer in the form of a lower electricity bill by the inevitable race to the bottom in electricity prices to attract more customers due to lower operating expenses.

California’s new energy storage laws open the door for more widespread implementation of alternative energy sources by increasing their economic viability through increased utilization of produced energy.  Additionally, the laws may trigger conversations about the possibility of enacting further energy storage laws in California and other jurisdictions. One possibility is requiring all new homes to be built with a capacitor bank that will draw electricity at night when demand is low, then tap the stored electricity to shave peak electricity demand needs of the home during periods of heavy use.  There may be potential efficiency concerns related to multiple stages of energy storage, but it is likely that efficiencies will increase and technology will evolve with a growing demand because companies are likely to sink more money into research and development if the demand for a more efficient product increases with required implementation.[7]  Because residential electricity demand charges are generally calculated using the single moment of highest electricity use during a one-month period, a residential capacitor bank would decrease the amount of electricity pulled from the utility company during periods of peak demand and thus drastically lower residential electricity bills.[8]  Lower electricity bills would then free up money that residents could potentially use in order to buy electricity from a utility that obtains a larger portion of its electricity from alternative energy sources if that is a priority for the residential user. This would then drive up alternative energy production in an economically-sound manner without directed legislation requiring increased alternative energy contributions to a utility’s energy portfolio.  California does currently employ an incentive system, the Self Generation Incentive Program (SGIP), for homes with residential storage units, but it is optional and few people are actually aware of its existence and benefits.[9]

While no mandatory residential energy storage law has been enacted in the United States, California’s energy storage law for utilities opens up that possibility and reflects the state’s public policy of creating a cleaner and more diversified energy portfolio.  Given the current laws, there will be a greater possibility for photovoltaic grid integration due to production times no longer being directly tied to demand curves in the electricity market.  But that’s not the whole picture; AB 2514 and the CPUC’s subsequent rule have shifted the alternative energy and cleantech discussions in a different direction, with more opportunity for growth at the generation, distribution, and consumptions levels of the electricity life cycle.  California’s new energy storage laws could be the beginning of something very large over the coming decades.

—Liam O’Sullivan is a General Member at MJEAL.  He can be reached at liamosul@umich.edu


The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

[1] Janice Lin, California Energy Storage Alliance (CESA), California’s AB 2514: Storage policy in action, Energy Storage Journal (Nov. 2012), http://energystoragejournal.com/californias-ab-2514-storage-policy-in-action/.

[2] Jeff St. John, California Passes Huge Grid Energy Storage Mandate, Greentech Media (Oct. 17, 2013), http://www.greentechmedia.com/articles/read/california-passes-huge-grid-energy-storage-mandate.

[3] Energy Storage Systems: Hearing on AB 2514 Before the Assemb. On Utilities and Commerce, Apr. 19, 2010, http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_2501-2550/ab_2514_cfa_20100416_092509_asm_comm.html.

[4] Making Sense of SRECs, EKOTROPE.COM, http://www.ekotrope.com/2012/09/10/making-sense-of-srecs-solar-renewable-energy-credits/ (last visited Mar. 12, 2014).

[5] Rachel Carnegie et al., Utility Scale Energy Storage Systems, State Utility Forecasting Group, Jun. 2013 at 7, http://www.purdue.edu/discoverypark/energy/assets/pdfs/SUFG/publications/SUFG%20Energy%20Storage%20Report.pdf.

[6] Id.

[7] See Id. at 20.

[8] OFFICE OF TECHNICAL ASSISTANCE & TECHNOLOGY: UNDERSTANDING YOUR ELECTRIC BILL: MONEY ON DEMAND CHARGES AND POWER FACTOR, http://www.mass.gov/eea/docs/eea/ota/fact-sheets/elec-bill-fact-sheet-final.pdf.

[9] Sanjay M. Ranchod, California Enacts Landmark Energy Storage Law, Paul Hastings: Stay Current (Nov. 2010), http://www.paulhastings.com/assets/publications/1753.pdf.

2 Replies to “A New Champion for Alternative Energy: California’s Energy Storage Bill”

  1. Yeah, it is need and deed of time to use renewable energy resources like wind and solar energy. Otherwise after some years there is no coal and petroleum will remain on the Earth.

  2. In 2010, landmark bill, AB 2514 is passed, as requirement of time. At the peak time there is too much load on the grid and these load can be decreased if household load cut off from the main grid. This can only possible if household load is arranged through off grid like DG Sets or Solar panels. In my opinion, Solar panels may be very good option to be independent of power grid.

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