2023 was a banner year for energy storage in the United States. Statistics reported by Wood Mackenzie show that in 2023 alone, energy storage deployment across all sectors (e.g., residential, C&I, utility-scale) reached 8,735 MW (25,978 MWh) an 89% increase over 2022. This growth can be tied to multiple factors, including the Inflation Reduction Act’s extension of the Investment Tax Credit to standalone energy storage, decreases in component costs, and increasingly supportive state and federal policies.
As explored in this edition of Climate Law Matters, the versatility of energy storage resources will play a critical role in the transition away from fossil fuel dependence. Energy storage’s flexible operating characteristics make it uniquely positioned to balance volatility on the grid, providing significant reliability benefits and enabling greater deployment of intermittent resources. In some jurisdictions, energy storage is being explored as a transmission asset, which could help support the existing grid or provide an alternative to constructing new transmission facilities. Energy storage, as a category, encompasses a diverse array of technologies that are capable of scaling up or down in size to meet a myriad of energy needs from car batteries to utility-scale projects poised to replace fossil fired peaking units.
However, energy storage’s unique features bring with it its own share of challenges. In most states, rate design has not been updated to reflect the operational characteristics of energy storage, leading to charges that may not fully reflect the benefits and costs of these technologies. Many local and state permitting processes have not been updated to address energy storage. At the wholesale market level, despite the fact that we are nearly six years removed from Federal Energy Regulatory Commission Order No. 841, market rules to adequately compensate and incentivize energy storage resources are still being refined. While great strides have been made, there is still a long way to go before energy storage is a seamlessly integrated part of the clean energy transition.
In this edition of Climate Law Matters, the Foley Hoag Energy and Climate team takes a deep dive into the world of energy storage. We cover an overview of developments in energy storage technology and the environmental justice implications of energy storage projects, and provide an update on the state of energy storage permitting in Massachusetts. On the transactional side, we examine the effects of a recently announced tariff rate hike on the M&A market for battery energy storage systems. Our team also discusses a contentious topic in the energy storage industry – wholesale distribution tariffs – and provides an update on electric vehicles (EVs).
Battery Technologies: Where are we now and where are we going?
June 6, 2024 – By Benjamin Vaughan, PhD, Lucas Watkins, PhD, and Lucas Freeman, PhD
Battery technology will play a critical role in the future of the global energy markets, in everything from electric vehicles to grid-scale batteries. Many countries, including the US, have set ambitious climate goals which can only be achieved through the use of diverse energy generation and storage mechanisms. For example, the Biden-Harris administration has set a goal that 50% of all new vehicles sold will be electric by the year 2030. U.S. Government Agencies have actively supported development in this area, including the U.S. Patent and Trademark Office’s expanded and extended Climate Change Mitigation Pilot Program which aims to expedite examination of patent applications directed to climate technologies, and the numerous avenues of support provided by the U.S. Department of Energy (DOE), such as direct grant funding for battery technology (e.g., here and here), energy storage and battery research centers at Argonne, Oak Ridge, Lawrence Berkeley, and Pacific Northwest National Labs, and through funding from the Advanced Research Projects Agency – Energy (ARPA-E).
Achieving climate goals will require significant capital investment into the development and scaling of improved battery technologies. The Inflation Reduction Act (IRA), enacted in August 2022, allocated billions of dollars for EV-friendly infrastructure and manufacturing to be distributed through agencies including the U.S. Departments of Transportation and Energy. In addition to (and as a result of) this capital investment, significant technological advances are still needed in several key battery technology areas while existing core or “legacy” technologies proliferate to mainstream use. While battery technology has advanced rapidly in the past decades, further advances are likely necessary to complete the energy transition.
Read our full post here.
FERC Wholesale Distribution Service Tariffs for Energy-Storage Facilities Are In The Works For The Northeast
June 13, 2024 – By Zachary Gerson and Mack Ramsden
As energy storage facilities (“ESFs”) are developed and deployed in the Northeast, questions about how ESFs will be charged for use of the electric distribution system while participating in wholesale markets have become increasingly pressing. In the current regulatory paradigm, the Federal Energy Regulatory Commission (“FERC”) has jurisdiction over wholesale transactions, such as transmission service, while states have jurisdiction over retail sales. Some ESFs in the Northeast are shaking up this established dichotomy by interconnecting to the distribution system—the costs of which are usually recovered through state-jurisdictional rates—but participating in wholesale markets. In this situation, ESFs draw power from the distribution grid not as an end use (retail), but in order to later provide services back into wholesale energy markets.
In Order No. 841, FERC determined that it had jurisdiction over the rates charged to ESFs when they charge for later resale into energy or ancillary service markets. FERC also noted in the Order that it may be appropriate, on a case-by-case basis, for distribution utilities to assess a charge to ESFs for the use of distribution systems. While tariffs for wholesale distribution service (“WDS”) exist and have been used in various contexts, the distribution utilities in the Northeast generally lack appropriate tariffs to serve ESFs or have tariffs that are ill-suited to the types of ESFs looking to interconnect.
Read our full post here.
Permitting Perils: Navigating Zoning Law Challenges for Battery Energy Storage Projects
June 13, 2024 – By Tad Heuer
While the technology of battery energy storage has advanced rapidly, the law surrounding the permitting and siting of such systems has often been slow to catch up. As a consequence — whether due to local caution or local opposition — many storage projects are finding that zoning is one of the major challenges to bringing stand-alone storage systems online. Squaring the zoning circle is one of the keys to developing a successful storage project.
Read our full post here.
Advancing Environmental Justice through Battery Energy Storage
June 13, 2024 – By Kevin Chen and Lexi Neilan
Battery energy storage systems (or “BESS”) have the potential to balance the intermittent and non-dispatchable characteristics of renewable resources as those resources become an increasing part of generation portfolios. Using BESS in conjunction with solar or wind power generation improves system reliability and helps stabilize the grid while decreasing society’s reliance on fossil fuels. BESS also have the potential to ensure the transition to renewable energy sources advances environmental justice (“EJ”) goal.
BESS may benefit EJ communities if battery storage facilities are constructed in place of retiring fossil fuel plants. Battery energy storage is expected to help phase out the use of “peaking” power plants (or “peaker” plants) in the journey to full decarbonization. Peaker plants generate electricity as needed to meet peak demand, yet they are also a source of substantial greenhouse gas emissions and air pollutants. As BESS can offer similar grid stability and reliability benefits, old peaker plants can be replaced by BESS without compromising the energy system’s peaking capacity and reliability. By displacing peaker plants, the recent rise in battery energy storage promises to increase energy resiliency and reduce greenhouse gas emissions, while also reducing local air pollution from fossil fuels.
Thus, replacing fossil peaker plants with BESS can promote environmental justice because peaker plants disproportionately affect EJ communities. Most peaker plants are located near low-income and underserved populations, which contributes to increased air pollution in those communities. In addition to their carbon emissions, peaker plants emit ground-level air pollutants. When sited in place of fossil peaker plants, BESS projects may alleviate certain health and environmental inequities by reducing local air pollution in EJ communities.
In addition to improving air quality, replacing peaker plants with BESS may result in economic benefits for communities—including EJ communities—in the form of lower energy prices, increased tax revenues, and quality job creation.
Read our full post here.
Recently Announced Tariff Rate Hikes Highlight Risks and Opportunities for M&A in the BESS Market
June 12, 2024 – By Dan C. Clevenger
The staged payment of purchase price is a near-universal feature of M&A in development-stage renewable energy and battery energy storage system (BESS) projects. In a typical sale, the buyer pays a comparatively small portion of the purchase price to the seller at closing (sometimes limited to expense reimbursement), with later tranches being paid when the project hits various milestones, such as the issuance of a notice to proceed (NTP) to the engineering, procurement and construction (EPC) contractor for the project, the substantial completion of construction of the project, and the project’s commercial operation date (COD). Rather than defining a specific dollar amount for these payments, the parties will usually agree on a financial model for the project, pursuant to which the amount of the payments will be calculated. The financial model will account for a wide variety of variables impacting the project, such as the ultimate capacity of the project and the final costs of construction. It’s against this backdrop that BESS developers are evaluating the Biden administration’s recently announced increase to tariffs on Chinese goods used in the clean energy sector.
Read our full post here.
EV Update
By Sarah Main
Since our last quarterly EV Roundup, the Biden Administration has continued to increase investment in EV infrastructure across the United States and support tax credits for the domestic EV industry in its efforts for EVs to make up half of all new vehicles sales to be EVs by 2030 and to achieve carbon-neutral electricity supply by 2035.
Amidst these federal policy dynamics, a recently released J.D. Power study found that consumer demand for EVs has fallen slightly over the last year. This marks the first time in the last three years that buyer consideration for EVs has dropped from the prior year. The cost of new EVs, range anxiety, and the complexity of incentives for EVs continue to be the main barriers to widespread EV adoption. These factors have been exacerbated in recent months by inflation, high interest rates, and a lag in new models coming to market. Despite this dip in demand for EVs, most of the largest U.S. EV automakers saw dramatic sales growth in EVs over last year, and analysists project that these trends will continue through 2024 and 2025.
This update provides a quick look at several new federal and state funding opportunities for charging infrastructure, where states stand in their NEVI efforts, and a select few noteworthy industry updates over the last quarter.
Read the full update here.
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WHAT WE'RE FOLLOWING
May 7, 2024 – Brad Plumer and Nadja Popovich, New York Times
Throughout the United States, power companies are using giant batteries and other energy storage systems to address renewable energy’s greatest drawback: the fact that the wind and sun aren’t always available. The New York Times details advancements in California and Texas in implementing energy storage systems to stabilize the grid, handle stress from heat waves and wildfires, and enable the transition to renewable energy.
Read more.
May 13, 2024 – Julian Spector, Canary Media
Canary Media details the development of Texas’ digitally controlled battery storage system and how the state continues to foster a robust battery fleet. Texas entered 2024 with 5.1GW of energy storage online, second only to California. The US Energy Information Administration predicts that Texas will complete another 6.4GW this year – greater than California’s 5.2GW of new construction. Canary Media details how Texas offers comparative advantages for power plant construction and the financial upside of battery storage, enabling it to become a leader in the energy storage landscape.
Read more.
May 16, 2024 – NYCEDC
The New York City Economic Development Corporation (NYCEDC) and the New York City Industrial Development Agency (NYCIDA) announced the plan to build New York City’s largest battery energy storage project to date, the East River Energy Storage Project. When built, the facility will be able to hold up to 100MW. It will be amongst the largest battery storage installations in New York State.
Read more.
