Alert June 22, 2009

Beyond Batteries: Advancing Energy Storage and Renewables

Media coverage of the “green” revolution in the energy sector has been significant, but certain essential technical issues have received less coverage than, perhaps, is deserved, given their importance to advancing clean energy and climate change goals. One of these issues is energy storage. Appropriately, however, the development and deployment of cost-effective energy storage technologies is increasingly understood as being essential for viable integration of renewable energy resources at levels embraced by the Obama Administration, the Department of Energy (“DOE”), state regulators and the American public.

As the DOE’s Electricity Advisory Committee and the California Integrated System Operator (ISO) have observed, integrating large amounts of renewable energy in the electric power grid is only feasible if new energy storage technologies, which facilitate the storage of off-peak energy for delivery during on-peak periods, are developed and deployed.  

Senator Ronald L. Wyden (D-OR), a subcommittee chairman on the Senate Committee on Energy and Natural Resources, has championed energy storage. His Storage Technology of Renewable and Green Energy Act of 2009 (S. 1091, the “Bill”), introduced last month, focuses on encouraging storage deployment through tax credits. Specifically, the Bill provides a 20% investment tax credit for the development of grid-connected and onsite energy storage systems, and a 30% investment tax credit for the development of residential energy storage systems for individual homes. The Bill also makes Clean Renewable Energy Bonds (“CREBs”) available for energy storage systems deployed by public or cooperative power companies, which do not pay taxes. The Bill goes a long way toward advancing energy storage, and with additional clarification and expansion could fundamentally alter the landscape for energy storage and therefore renewable energy.

Grid-Connected Energy Storage

Grid-connected storage remains the holy grail, particularly for scale wind and solar installations. The Bill provides a 20% investment tax credit for the development of large scale, grid-connected energy storage systems. Such “qualified energy storage property” must be (i) directly connected to the electrical grid; and (ii) designed to receive electrical energy, to store such energy, and to convert such energy to electricity and deliver such electricity for sale. To qualify for the tax credit, the grid-connected energy storage system must, in aggregate, have the ability to store at least two megawatt hours of energy and to have an output of 500 kilowatts of electricity for a period of four hours. This equates to approximately 900 (Southeast) to 2,000 (Northeast) homes  in terms of storage capacity, and over a four-hour period theoretically could peak summer afternoons in much of the country.

The Bill explicitly mentions certain types of energy storage – particularly hydroelectric pumped storage, compressed air energy storage, regenerative fuel cells, batteries, superconducting magnetic energy storage, flywheels, thermal and hydrogen storage – as eligible grid-connected energy storage technologies. While these represent the majority of innovative technologies today, those working in the energy storage area are particularly innovative and alternative technologies may emerge. As such, the technologies identified should allow for additional innovation.

Public power providers, government bodies and cooperative electric companies, which do not pay taxes, will be eligible for CREBs to finance the deployment of qualified energy storage systems. This paves the way for innovative public-private partnerships to ensure that both government (or quasi-government entities) and private ventures interested in optimizing tax credit values are engaged.

Onsite Energy Storage

The Bill also provides a 20% investment tax credit for the development of comparatively smaller onsite energy storage systems designed to boost the ability of integrated  renewables (at the distributed generation level), such as solar. Mimicking the larger system in isolation and microcosm, these systems optimize and provide supplemental energy to reduce, particularly at peak periods, energy requirements that otherwise would come from the grid. To qualify for the tax credit, the onsite energy storage system must, in aggregate, have the ability to store the energy equivalent of at least 20 kilowatt hours of energy, and have the ability to have an output of the energy equivalent of five kilowatts of electricity for a period of four hours. Thus, this system would be effective for small manufacturing, commercial or condominium (multi-housing) installations.

Because regulators increasingly are focused on transportation system conversion, the Bill explicitly makes eligible systems “to charge plug-in and hybrid electric vehicles if such vehicles are equipped with smart grid devices which control time-of-day charging and discharging of such vehicles.”  This should provide a boost to the makers of plug-in and hybrid electric vehicles, as well as electric vehicle infrastructure developers, such as Better Place and Coulomb Technologies.  

Residential Energy Storage

The Bill provides a 30% investment tax credit for the development of qualifying residential energy storage systems. To qualify for the tax credit, the energy storage system must meet the requirements for onsite energy storage systems and be installed in or on a dwelling unit owned and used by a taxpayer as the taxpayer’s principal residence, or on property owned by a taxpayer on which such a dwelling unit is located.

Again contemplating transportation-system changes, the Bill explicitly makes eligible systems “to charge plug-in and hybrid electric vehicles if such vehicles are equipped with smart grid devices which control time-of-day charging and discharging of such vehicles.” 

We will continue to report on the evolution of energy storage, or dispatchable renewable energy, as congressional initiatives evolve.