Large white energy storage battery boxes in a grassy field with a forest in the background and a cloudy sky.

Battery Storage Rules Matter: Why Policy is Slowing Utility Scale Development

By Steve Drew, Vice President, Market Strategy

When we turn on the lights every morning, complex layers of policy and technology make this simple process possible. Our ability to power our communities depends on the operations of energy markets across the country – they ensure that the supply of energy meets forecasted demand in the most economic and reliable manner.

Policy sets the rules for North American energy markets, electricity production, transmission, distribution, and energy storage. Markets and policies are continually evolving, especially as energy storage usage rapidly expands and crucial market factors influence renewable energy project development.

Energy Markets and Utility-Scale Renewable Projects

An energy market deals with the trade and generation of energy. Markets can also set the standards that ensure the delivery of reliable energy. Energy markets and those that work within them are responsible for coordinating, producing, and releasing energy every day.

Economics plays an important role in energy markets—the markets are expected and incentivized to keep prices down. In recent years, renewable energy sources—solar, wind,  and more—have become the lowest-cost energy generators, falling below the costs of producing conventional energy such as fossil fuels. This economic benefit has driven more energy markets to adopt and invest in renewables.

The US electric grid is made up of smaller lines (distribution) that lead from a substation to homes and businesses plus large transmission lines that deliver energy over long distances. Utility-scale projects are on the transmission system and make up the largest energy projects on a grid. Renewable projects, even on a utility scale, produce energy only when the sun shines or the wind blows. As more of these projects launch operations nationally, utility-scale energy storage will grow significantly to supplement both solar and wind.

Energy Storage Opportunities Grow: Markets and Reliability

Today’s utility-scale storage is mostly made up of large lithium ion batteries – essentially a bigger version of the batteries you use at home. The value of utility-scale storage falls into two broad categories: market participation (buying low / selling high) and reliability (keep the lights on). Batteries can do both, and the combined value of doing both is called ‘stackable value.’

Market participation: In today’s market, utility-scale storage will charge when energy is at a low cost and when energy demand is low. This energy is then released when it is at the highest demand and/or, when energy prices are also high, benefiting independent companies that own the storage batteries.

Organized energy markets also provide battery owners with incentives to draw energy off of the system at times when grid stability is needed. These markets also establish other services such as paying for a battery owner to hold energy in reserve in case it is needed in an emergency. These services are typically done in more sophisticated markets where they are able to measure processes, create policy to help pay for these services, and provide rewards to offset the use of the battery for other purposes.

Reliability: In addition to market participation, the energy industry recognizes that utility-scale batteries can help defer the need to build additional transmission. When cities or industries grow in a region, transmission planners can predict when a transmission line might become overloaded.

Typically, a new transmission line would be planned to address this reliability concern. However, transmission can be challenging, costly, and time-consuming to route through urban environments. Batteries have a smaller footprint and can be a very cost-effective way to offset transmission. In these scenarios, a utility-scale battery could save ratepayers millions by releasing energy when peak load may exceed the transmission line’s capacity.

Navigating the Patchwork of Energy Markets and Regulations

Energy storage is essential to the renewable energy industry’s advancement strategy—a solution to combat the volatility of renewable energy generation and expand investment opportunities. The rules and regulations of specific energy markets influence the method, region, and speed at which storage solutions are deployed nationally.

Energy markets are highly controlled due to the inherent liability of electricity generation and the importance of having the lights always on. The layers of oversight include Federal, regional, and states. Each layer of governance monitors and legislates energy transmission and production through different goals, rules, and regulations.

Historic policy for using battery storage in market participation is often not compatible with historic policy for reliability benefits, creating a major obstacle to advancement. When it comes to market participation policy, history has mostly focused on independent power producers who operate generation assets in a competitive marketplace.

Reliability assets, on the other hand, are more commonly owned and controlled by utilities. These are the transmission lines and related equipment that deliver energy to customers in a safe and reliable manner every day.

The challenge is that reliability policy is most often firewalled from market participation activity.

Under these circumstances, a battery owner must choose how the battery will be used and how they will be paid for services. They must choose between reliability and market participation. This splits the value of utility-scale storage and prevents a battery owner from realizing the full stackable value of the battery. The cost of the battery is held constant in either case.

This split in value is holding back utility-scale battery storage progress. To combat this, major industry stakeholders are pushing for new utility-scale storage battery policies. For customers, this would mean lower bills. For markets, it would mean more stable systems.

Crucial Market Considerations

Investors and developers must carefully assess each energy market before deciding which marketplace to enter. Within the renewable energy space, a number of factors must align before interested parties move forward in a marketplace:

  • Financials: How are solar and energy storage developers being paid?
  • Rules and transparency: Will renewable technologies work well within the market? What are the interconnection procedures and costs? How is renewable energy measured?
  • Policies: What are the policies, specific to growing and supporting renewable energy projects?
  • Transmission: Does the energy market have a robust transmission grid?

The Redeux Energy team is deeply experienced and knowledgeable on energy market dynamics, and takes a unique, effective analytical approach to market selection that takes all relevant factors into account. This provides more confidence in long-term project success.

Market Shifts and Acceleration Ahead

In the coming years, opportunities for renewable energy and energy storage projects will grow under the 2022 Inflation Reduction Act, standalone energy storage assets are now eligible for the investment tax credit (ITC) and the ITC was increased to 30% under a ten-year fixed term for both standalone storage and solar-plus-storage facilities.  

More regulations are likely to be developed soon to specifically address energy storage assets. These shifts will bring complex challenges and vast opportunities. Working with the right people, with high levels of expertise, maximizes the likelihood of success in energy markets.

What Does All of This Mean to You?

For landowners, the increased usage of utility-scale battery storage means more opportunities to participate in the energy industry. More chances to benefit financially as the industry grows. Ratepayers will benefit from a stronger, more reliable electric grid with lower costs compared to today’s alternatives. Investors and Redeux partners will have yet another opportunity to participate in a growing utility-scale storage market.

Interested in learning more? Contact Redeux Energy today to connect with energy market experts.