Achieving Climate Goals Will Require Sound Energy Storage Policies

California Governor Gavin Newsom will need to hit the ground running if he wants his state to reach its historically ambitious goal of zero net carbon emissions by 2045. New York has its work cut out, too, as it aims to hit the same mark by 2040. Motivated by these newly minted climate policies, many other states are ramping up their emissions targets as well. But no state will be able to reach its goal without addressing one crucial tool: energy storage. Across the United States, thousands of people have installed batteries like the Tesla Powerwall in their homes, while a few states, such as California, New York, and Massachusetts, have pioneered grid-scale battery projects. These batteries store energy to be used later, at peak demand times or during other shortages. The push for energy storage promises big environmental benefits. With enough capacity, generators of electricity can tap into their sources of renewable electricity, hold onto it, and use it when the sun is not shining and the wind is not blowing. It is a way to use carbon-free energy instead of fossil fuels, and reduce electricity generators’ emissions of destructive, climate-changing greenhouse gases. But the reality is more complicated than this rosy picture would suggest. Energy storage projects, regardless of upgrades to technology and infrastructure, must be paired with the right policies. Without such policies, society risks increasing greenhouse gas emissions, rather than decreasing them. As climate threats mount and the window to act is beginning to close, states need to adopt desirable energy storage policies as quickly as possible. Even some of the most forward-thinking climate policy has not been able to successfully enlist energy storage as an environmental solution. Since 2001, California’s Self-Generation Incentive Program has been the state’s way of encouraging residential installations, like solar panels and energy storage systems. The state found, however, that energy storage projects increased statewide greenhouse gas emissions in 2016 and 2017. The incentive program did not include desirable policies, such as providing the right price signals that could encourage charging with cleaner electricity to displace fossil-fuel sources, and, as a result, California’s energy storage program accomplished the opposite of its goal. Cases like this could become more common. Installations of Powerwalls and other residential batteries skyrocketed in 2018. As the number of energy storage installations grows, energy storage policy needs to improve significantly. Improving this policy begins with understanding how energy storage can cause emissions to increase. Naturally, owners of batteries choose to charge up when electricity is cheap and discharge when it is expensive, thereby making a profit. But monetary incentives do not always line up with emissions reductions. As a result, battery owners are often loading up on fossil-fuel energy and using it when renewable energy would otherwise be available. This problem is compounded by efficiency losses. Some energy inevitably dissipates during charging and discharging, adding to the total electricity that the grid needs to provide to meet demand. If charging is fueled at least in part by fossil fuels, it follows that emissions could increase as well. Research conducted at the Institute for Policy Integrity discusses these potential downsides of energy storage and highlights how they can be overcome when the right accompanying policies are put in place. States now need to make that happen—by fixing the imperfect incentives and inefficiencies that have hampered storage efforts for years. First, anyone who operates an energy storage system, residential or grid-scale, needs a clear way to gauge how the system is affecting emissions. WattTime, a non-profit organization, for example, has been developing real-time greenhouse gas emissions signals to give that exact information. This stream of information looks at what kind of energy source will be fired up with the next uptick in electricity demand. If the next uptick will be fueled by natural gas or another fossil fuel, anyone who charges storage equipment at that time and then uses it later instead of renewable resources will be increasing pollution. Once energy storage owners can see these emissions signals, they should be encouraged to take that information into account as they decide when to charge and discharge. A performance-based policy structure, for example, would pay out rewards when energy storage projects reduce emissions. This approach is the key to better energy storage practices when there is no other state policy in place that imposes a sufficiently high carbon price. If the goal is to cut down on greenhouse gases, then there must be incentives for battery owners to store cleaner energy and use it later in place of dirtier generation. By the same token, owners should be penalized when they do the opposite. Under an improved system, a phone app could alert a battery owner about the most environmentally beneficial times to charge and discharge, and about the related financial consequences. It is up to state policymakers to develop the emissions signals and incentives that will make this possible. Getting these changes right is critical as energy storage becomes a mainstay of residential and grid-scale energy systems. California, alone, is estimated to allocate over $800 million in subsidies for energy storage over the next five years. Other states are following suit with their strides towards expanded energy storage. The promise of energy storage cannot be realized through technology alone. Desirable storage policies also need to be in place to make this promise a reality

Achieving Climate Goals Will Require Sound Energy Storage Policies

California Governor Gavin Newsom will need to hit the ground running if he wants his state to reach its historically ambitious goal of zero net carbon emissions by 2045. New York has its work cut out, too, as it aims to hit the same mark by 2040. Motivated by these newly minted climate policies, many other states are ramping up their emissions targets as well. But no state will be able to reach its goal without addressing one crucial tool: energy storage. Across the United States, thousands of people have installed batteries like the Tesla Powerwall in their homes, while a few states, such as California, New York, and Massachusetts, have pioneered grid-scale battery projects. These batteries store energy to be used later, at peak demand times or during other shortages. The push for energy storage promises big environmental benefits. With enough capacity, generators of electricity can tap into their sources of renewable electricity, hold onto it, and use it when the sun is not shining and the wind is not blowing. It is a way to use carbon-free energy instead of fossil fuels, and reduce electricity generators’ emissions of destructive, climate-changing greenhouse gases. But the reality is more complicated than this rosy picture would suggest. Energy storage projects, regardless of upgrades to technology and infrastructure, must be paired with the right policies. Without such policies, society risks increasing greenhouse gas emissions, rather than decreasing them. As climate threats mount and the window to act is beginning to close, states need to adopt desirable energy storage policies as quickly as possible. Even some of the most forward-thinking climate policy has not been able to successfully enlist energy storage as an environmental solution. Since 2001, California’s Self-Generation Incentive Program has been the state’s way of encouraging residential installations, like solar panels and energy storage systems. The state found, however, that energy storage projects increased statewide greenhouse gas emissions in 2016 and 2017. The incentive program did not include desirable policies, such as providing the right price signals that could encourage charging with cleaner electricity to displace fossil-fuel sources, and, as a result, California’s energy storage program accomplished the opposite of its goal. Cases like this could become more common. Installations of Powerwalls and other residential batteries skyrocketed in 2018. As the number of energy storage installations grows, energy storage policy needs to improve significantly. Improving this policy begins with understanding how energy storage can cause emissions to increase. Naturally, owners of batteries choose to charge up when electricity is cheap and discharge when it is expensive, thereby making a profit. But monetary incentives do not always line up with emissions reductions. As a result, battery owners are often loading up on fossil-fuel energy and using it when renewable energy would otherwise be available. This problem is compounded by efficiency losses. Some energy inevitably dissipates during charging and discharging, adding to the total electricity that the grid needs to provide to meet demand. If charging is fueled at least in part by fossil fuels, it follows that emissions could increase as well. Research conducted at the Institute for Policy Integrity discusses these potential downsides of energy storage and highlights how they can be overcome when the right accompanying policies are put in place. States now need to make that happen—by fixing the imperfect incentives and inefficiencies that have hampered storage efforts for years. First, anyone who operates an energy storage system, residential or grid-scale, needs a clear way to gauge how the system is affecting emissions. WattTime, a non-profit organization, for example, has been developing real-time greenhouse gas emissions signals to give that exact information. This stream of information looks at what kind of energy source will be fired up with the next uptick in electricity demand. If the next uptick will be fueled by natural gas or another fossil fuel, anyone who charges storage equipment at that time and then uses it later instead of renewable resources will be increasing pollution. Once energy storage owners can see these emissions signals, they should be encouraged to take that information into account as they decide when to charge and discharge. A performance-based policy structure, for example, would pay out rewards when energy storage projects reduce emissions. This approach is the key to better energy storage practices when there is no other state policy in place that imposes a sufficiently high carbon price. If the goal is to cut down on greenhouse gases, then there must be incentives for battery owners to store cleaner energy and use it later in place of dirtier generation. By the same token, owners should be penalized when they do the opposite. Under an improved system, a phone app could alert a battery owner about the most environmentally beneficial times to charge and discharge, and about the related financial consequences. It is up to state policymakers to develop the emissions signals and incentives that will make this possible. Getting these changes right is critical as energy storage becomes a mainstay of residential and grid-scale energy systems. California, alone, is estimated to allocate over $800 million in subsidies for energy storage over the next five years. Other states are following suit with their strides towards expanded energy storage. The promise of energy storage cannot be realized through technology alone. Desirable storage policies also need to be in place to make this promise a reality

Managing the Future of Energy Storage: Implications for Greenhouse Gas Emissions

With rapidly advancing technology and declining manufacturing costs, energy storage systems are becoming a central element in many energy policy debates. Policymakers see storage as a potential solution to the challenges that stem from the intermittency of certain renewable resources, such as solar and wind. Storage systems are therefore considered key to hastening the clean energy revolution, and are at the nexus of energy and climate change policy. Reductions in greenhouse gas emissions are often a stated goal of policymakers encouraging energy storage installation. Energy storage systems, undoubtedly, will be a key part of the future of the electric grid. They have the potential to provide many benefits to the grid, such as lowering the price of electricity at peak demand times, and deferring or avoiding new capacity investments. However, contrary to the prevailing wisdom, energy storage is not guaranteed to reduce emissions, and may, in fact, increase emissions if policies are not designed carefully. Further, while this oft-cited (but not guaranteed) benefit of storage dominates headlines in policy discussions around the country, many other types of benefits that energy storage systems can provide are not well recognized in policymaking. This report seeks to be a resource to policymakers interested in maximizing the benefits of energy storage. It highlights the underappreciated benefits of energy storage and discusses the ways in which current policies are failing to encourage socially optimal deployment of storage technology. As policymakers start to rely more heavily on energy storage systems to achieve clean energy goals and other improvements to the grid, it is helpful to first understand the ways that the current regulatory and policy landscape fails to reward storage systems for the variety of benefits they provide to the grid, including ancillary benefits such as frequency regulation. Further, policymakers must keep in mind that the greenhouse gas impact of energy storage depends primarily upon whether the type of generation used to charge the storage is cleaner than the type of generation avoided when the storage is used; otherwise, storage could produce pernicious results. Policy reforms that account for the range of benefits provided by storage, including reduced air pollution, are required at both state and federal levels. This report recommends that policymakers focus on: • Accurately pricing externalities caused by greenhouse gases; • Eliminating entry barriers for energy storage systems; and • Eliminating barriers to multiple value streams. This report outlines what is needed to realize each of these three goals and provides an overview of state and federal actions currently under way

Managing the Future of Energy Storage: Implications for Greenhouse Gas Emissions

With rapidly advancing technology and declining manufacturing costs, energy storage systems are becoming a central element in many energy policy debates. Policymakers see storage as a potential solution to the challenges that stem from the intermittency of certain renewable resources, such as solar and wind. Storage systems are therefore considered key to hastening the clean energy revolution, and are at the nexus of energy and climate change policy. Reductions in greenhouse gas emissions are often a stated goal of policymakers encouraging energy storage installation. Energy storage systems, undoubtedly, will be a key part of the future of the electric grid. They have the potential to provide many benefits to the grid, such as lowering the price of electricity at peak demand times, and deferring or avoiding new capacity investments. However, contrary to the prevailing wisdom, energy storage is not guaranteed to reduce emissions, and may, in fact, increase emissions if policies are not designed carefully. Further, while this oft-cited (but not guaranteed) benefit of storage dominates headlines in policy discussions around the country, many other types of benefits that energy storage systems can provide are not well recognized in policymaking. This report seeks to be a resource to policymakers interested in maximizing the benefits of energy storage. It highlights the underappreciated benefits of energy storage and discusses the ways in which current policies are failing to encourage socially optimal deployment of storage technology. As policymakers start to rely more heavily on energy storage systems to achieve clean energy goals and other improvements to the grid, it is helpful to first understand the ways that the current regulatory and policy landscape fails to reward storage systems for the variety of benefits they provide to the grid, including ancillary benefits such as frequency regulation. Further, policymakers must keep in mind that the greenhouse gas impact of energy storage depends primarily upon whether the type of generation used to charge the storage is cleaner than the type of generation avoided when the storage is used; otherwise, storage could produce pernicious results. Policy reforms that account for the range of benefits provided by storage, including reduced air pollution, are required at both state and federal levels. This report recommends that policymakers focus on: • Accurately pricing externalities caused by greenhouse gases; • Eliminating entry barriers for energy storage systems; and • Eliminating barriers to multiple value streams. This report outlines what is needed to realize each of these three goals and provides an overview of state and federal actions currently under way

Privately-Negotiated Input Prices

We examine settings where input prices are negotiated by industry suppliers, rather than dictated by regulators. We find that the input buyer may agree to pay a high price for an input because the high price serves to reduce the intensity of retail price competition with the input seller. Full exploitation of retail customers can result. However, retail price regulation, competition among buyers, and product heterogeneity all can limit the extraction of consumer surplus. We also identify conditions under which input price negotiations will fail to produce a mutually agreeable input price. Copyright Springer Science+Business Media, Inc. 2005input prices, negotiation, regulation,