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What’s the Point of an Electricity Storage Mandate?

An aptly named picture – the “duck graph” – is captivating the California energy policy world. It depicts electricity demand net of projected renewable generation (“net load”) on a representative day in the not too distant future. (For an update on the duck curve, see Meredith Fowlie’s recent blog: The Duck Has Landed, May 2, 2016)

The Duck Graph

One point of concern is the duck’s long neck, representing a 14,000 MW swing in net load in a roughly one hour period from 5 to 6PM. Currently, the largest swing system operators typically have to deal with is less than half that size. Adding insult to injury, the duck graph swing is projected to happen in shoulder months like March or October, when total system load will be low.

The duck graph encapsulates the collective uncertainty about how the electricity system will operate as the state adds more and more renewables. If the California electricity system has significant solar capacity, what happens on a typical March weekday when the sun gets low on the horizon just as office buildings are turning on their lights? How will system operators deal with a wild swing in net load as they lose solar generation?

One answer policymakers are offering is electricity storage. For example, the California Public Utilities Commission is in the process of implementing legislation requiring it to consider electricity storage procurement mandates.

I am accustomed to thinking about electricity storage as an arbitrage play – capture energy in the middle of the night when prices are low, store it until the middle of the day when electricity prices typically double or even triple relative to 12 hours ago and then sell at a substantial margin.

But, regulators seem interested in storage primarily as a resource to provide the capacity necessary to address the operational issues associated with the duck graph. (Why the duck graph is not projected to generate very low energy prices at the duck’s belly and very high energy prices at the duck’s neck could be the subject of another post.)

What gives me pause is that the policymakers seem to be legislating a means to an end rather than the end itself. If we want to address the duck graph, why not set up incentives that reward behaviors and technologies that help smooth the worrisome swing in net load from 5 to 6 PM?

For example, why take load as given? In other words, why subsidize storage operators to smooth net load fluctuations before giving consumers the ability to shift their loads?

Until my family switched to the PG&E SmartRate (inspired by Severin’s blog post), we had no incentive to run the dryer after 8PM instead of from 5 to 6PM. We paid $.31 per kWh no matter when we dried our clothes.

Now that we are on the SmartRate, we try to keep our electricity consumption low from 2 to 7 PM on SmartDays (roughly, the 12 hottest weekdays each summer). As we tried to figure out how to do that, we learned that our dryer is a major part of our midday load, so we try to keep it off when prices spike.

The SmartRate was not designed to address renewables integration. The problems highlighted by the duck graph are most pronounced in spring and fall months, when the sun sets before the daytime load subsides. Presumably, though, similar dynamic pricing schemes could incentivize consumers to shift their load to help smooth the duck graph. Given that the vast majority of households are starting from prices that do not vary at all over the course of the day, week or month, I have to believe that there’s room for improvement.

Ideally, regulators should pit storage providers against pricing schemes that reward consumers for shifting their load, and any other technologies that can help shorten the duck’s neck. That way, the market can make the call about the best way to integrate more renewables.

We don’t want storage just to have storage; we want services that storage providers can supply. But, if there are cheaper ways to achieve the same objectives, policy should be designed to find them.

Catherine Wolfram View All

Catherine Wolfram is Associate Dean for Academic Affairs and the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley. ​She is the Program Director of the National Bureau of Economic Research's Environment and Energy Economics Program, Faculty Director of The E2e Project, a research organization focused on energy efficiency and a research affiliate at the Energy Institute at Haas. She is also an affiliated faculty member of in the Agriculture and Resource Economics department and the Energy and Resources Group at Berkeley.

Wolfram has published extensively on the economics of energy markets. Her work has analyzed rural electrification programs in the developing world, energy efficiency programs in the US, the effects of environmental regulation on energy markets and the impact of privatization and restructuring in the US and UK. She is currently implementing several randomized controlled trials to evaluate energy programs in the U.S., Ghana, and Kenya.

She received a PhD in Economics from MIT in 1996 and an AB from Harvard in 1989. Before joining the faculty at UC Berkeley, she was an Assistant Professor of Economics at Harvard.

61 thoughts on “What’s the Point of an Electricity Storage Mandate? Leave a comment

  1. This sounds to me like a non-systems engineering rant. The technology will not develop without government mandate, and probably some government support. There is too much inertia in the business as usual thinking in both the supplier and consumer sector.
    Think hydrogen. It solves many if not most of the problems.

  2. Isn’t the main problem with CAISO market pricing the small energy volume that clears the market? My understanding is that most generators self schedule without submitting economic bids; it’s hard to have market prices that reflect actual conditions if the utilities aren’t buying power in the market.

    • Much of the energy is transacted in long term markets, as it should be. The major mistake in the 2000-01 crisis was that utilities were not allowed to make long-term purchases, and even existing utility assets were repriced through the day ahead and hour ahead markets. The CAISO markets reflect the residual market prices.

    • Great ideas! I agree with your statements. Its good not to use a lot of power when electricity prices skyrocket. Better to be safe than sorry when it comes to money in the electricity business.

  3. Thanks so much for the thoughtful comments. Here’s another important note about the duck graph, which a reader sent to me by email:

    Your post today using the “duck curve” to motivate a more holistic discussion of options rather than to simply justify electricity storage makes one of the mistakes that many others are making.

    You say, as others have, that this is a typical day when it is actually not especially typical. I have constructed many “duck curves” and only those with a particular sets of daily solar vs wind production profiles and mixes of resources emphasizing high solar penetrations produce this particular shape.

    The ISO popularized this specific shape as part of their advocacy of adding a flexibility requirement to resource adequacy. In so doing, they were looking for the maximum 3-hour ramp rate for each month. This kind of shape appears using the hourly production profiles for wind and solar from a specific day in a recent March day then accentuated by a rapid increase in solar PV resources across future years. You should not assume that this is a typical day nor that it is immutable. There are a variety of ways that renewable resources will not produce energy in this shape and yet additional ways that the “gross” load curve from which wind and solar production is subtracted to determine a “net” load curve might itself have different shapes.

    – CW

    • …which is yet another reason to emphasize changes in consumer behavior and avoid building expensive hardware that is likely to sit idle most of the time.

      • Although the point is that there will be no set shape for the curve. Consumers can’t jump around trying to catch the cheapest power because it’s simply not practically feasible. You’d have to follow the weather report to know when to have a laundry day.

        So the impact of price forcing to shape the demand will be neglible at best and inconvenient for a lot of people since they will be charged more or less random rates that they have no way to adjust to.

    • I was going to post a similar comment. The CAISO put up this graph as just one scenario, and it has become apparent to the most knowledgable that it is not representative. However, policymakers have still hung on to the image.

      But I would make two more points:

      1) The demand for storage isn’t driven by what is a forecasted relatively long and continuous change. It’s to meet unanticipatable short duration high frequency generation changes. That’s been the target market. Whether storage is the correct approach is stll open to question, but it’s different than what is shown with the duck graph.

      2) The simpler and perhaps most cost effective solution to problem posited in the duck graph is a straightforward contractual one: Pay solar generators to follow controlled ramp schedules that limit the hourly rate of change in their output. They can ramp up more slowly in the morning and ramp down earlier in the evening. The starting point of the contract payment would be the lost energy revenues, which almost certainly would be less expensive than either flexible capacity investment or new storage.

      • Paying solar power producers not to produce power has the indirect effect of increasing the effective cost of solar power due to lower rate of utilization. It limits the extent to which these resources can be scaled up to provide clean energy to the system, defeating the point of having them in the first place – whereas having storage capacity increases the system integration and utilization rate by shifting outputs to match demands.

        But it would be a mighty good business for some: install solar panels on subsidies, and then get paid for not doing anything with them. Whether that makes any sense for the society is another matter.

  4. Mike, the real-time information about usage is now feasible even with the current meters, isn’t it? If people don’t want to use their cell phones for push alerts, a $40 third-party device (the price of a cheap cellular phone) sitting on a table can pull the data either by Wi-Fi or text messages. I get push text messages like this daily from various services on my cell phone – I don’t have to ask for them.

    It’s suboptimal compared to directly reading your own meter, of course. But push data has become common and accepted in various contexts, from police alerts to sports results.

    In any case, the big storage-type loads that CW wants will not be in households. There are a lot of automated industrial loads that can’t cheaply be shifted by 6 hours, but 30 to 90 minutes is not hard. But the price incentives have to be high enough to make it worth programming.
    “(Why the duck graph is not projected to generate very low energy prices at the duck’s belly and very high energy prices at the duck’s neck could be the subject of another post.)” I’m certainly curious about that.

    • “Why the duck graph is not projected to generate very low energy prices at the duck’s belly and very high energy prices at the duck’s neck could be the subject of another post”

      I’m familiar with how those prices were derived and I think I can answer at least part of the question. There are unlikely to be very high prices at the duck’s neck for two reasons: a surplus of fossil-fired generation in most hours that will likely last beyond 2020, and no mechanism for pricing scarcity when ramping is in short supply. They are very unlikely to be low at the duck’s belly because the working assumption is that gas-fired generation is on the margin and would be paid it running cost.

      Getting prices that make sense in light of system conditions requires doing things neither the CPUC nor the California ISO nor politicians will find palatable, including a) allowing suppliers to reflect scarcity in their energy bids (which raises concerns about exercise of market power), keeping installed reserves on the lower side of the CPUC’s planning targets (which raises concerns about exercise of market power and rolling blackouts), and getting rid of make-whole payments under certain circumstances when generator revenues are deemed inadequate to cover reasonably incurred costs.

      So long as policy is being driven by politics, storage is an easier solution, even if it’s more expensive.

  5. Geothermal is another technology that can be most effectively used to lower the duck’s neck as a peak plant technology but not in California with its suspected attendant undesirable tectonic consequences. If California draws large energy from the rocks, the vacuum could create forces that can result in earthquakes or tremors. If this suspicion is true, then thank God the use of Geothermal is going down.

    Hydro is also mentioned as a technology that can be used to lower the neck, but California and water scarcity may make hydro not the ideal solution. No advocating here for pumping back water.

    Pricing to induce neck lowering consumer behavior could provide some solution especially if combined with real time warning to users when the use is started. .The cost of equipping businesses, offices and homes with such real time warning technology can be covered by keeping the prices as they are during the duck belly times. Similarly, Solar installations have comparatively higher initial investment, which the investors might desire to recoup much faster during the initial stages of the investment. Keeping the prices the same at the duck’s belly times could help achieve that goal.

    The above notwithstanding, the regulators are justified, to some extent by advocating for storage mechanisms.

    Solar as mentioned is the technology that would define the duck’s belly in 2015 onwards. If solar energy is not stored, its use in lowering the duck’s ostrich-like neck could be impossible for the days and times most desired.

    Time-of-use pricing, though dynamic, may not be adequate to lower neck to levels that would be desirable. Combined with storage mechanism, both the peacock-like tail and the ostrich-like neck could be lowered to levels that are desirable and keep capacity wastage down as plants that serve only peak periods may no longer be needed.

    So the legislators are not completely wrong on their policy choices. What is left is to inform them to add the pricing and real time warning solutions to their policy considerations.

    • Perhaps you didn’t get it. Solar PV causes this problem. More solar PV makes the problem worse. Some people aim their solar towards the West to get more power for their A/C in the afternoon, but that makes the Duck Curve problem even worse.

  6. Energy efficiency will cut the length of the neck of the duck significantly – like Catherine says–just a matter of making this need more ‘visible”. Solar will pressumably get rid of the mid afternoon peak (where most of the incentives reside today–including peak load pricing demand response schemes). More efficient lighting, continued improvements in A/C and building shells – can all reduce the size of the 14 GW ramp for a lot less than what storage is likely to cost. Electric vehicles might also add to the options.
    Regarding your clothes drying Catherine–how about that old fashioned, UV innoculating method known as drying in the sun? That’s even better for reducing both the daytime and evening load.

    • You need to think a bit more about your analysis. The only things that will shorten the neck of the Duck is reducing loads that are OFF before sunset and ON after sunset. More efficient A/C will reduce total load but the amount of change in the A/C load during the ramp up as the sun sets is not significant. So, I don’t see higher A/C efficiency as helping. The same is true for better insulated buildings.

  7. Mike Green, Redwood City,

    Jack Ellis is correct I am afraid. The ignorance of our politicians is astounding. I fear that the PUC, which is driven by politics isn’t much better. Regulating demand by pricing electrical energy correctly may be far more effective than paying for expensive energy storage. I don’t trust the folks in Sacramento to make the right decision. Use the smart meters for pricing. Use the smart meters as a means for telling user when they can and should use more electricity or less. For homes and small businesses the missing link is a method for telling the user to change their usage to their advantage. In Norway, electricity used to be prices according to the amount used. A homeowner had a power meter in the kitchen that told someone (usually the wife who was expected watch out for the finances) when they were using power at the higher rate (typically twice the base rate). With smart meter technology the small business and home owner could be told by the electricity provider when was the most economical time to use electricity. The web is not the answer and for many it isn’t their smart phone either. With either you have to ask for the information. It is just better to provide that information on a real time basis in the house or business.

  8. Catherine, your post is eminently sensible, but regulators and in this case politicians don’t worry too much about what makes sense. Instead they tend to listen to those who know the least and ignore anyone who tries to lay out the facts.

    I am a party in the CPUC’s storage proceeding (R.10-12-007) and have written extensively about the folly of the legislation. I’m convinced the mandate is a huge waste of money, in part because there’s not enough price variability (or price volatility if you like), in part because there’s not enough information about intra-day forward prices, and in part because the ISO auction market structure makes economic use of storage needlessly challenging..

  9. Very interesting. What happens in 2015 that leads to a 2GW shift? Presumably the duck graph is driven by solar; are there huge centralized solar facilities scheduled to come on line that year, but not sooner?
    Your basic point about demand response is important. There is a lot that commercial buildings could do, for example by turning their chillers way down in hour 17. (If it’s in May/October, they could probably just coast for the whole hour.) The problem shown by the diagram is going to be ramp rate of generators, so even a one hour response will be very helpful.
    I have also always wondered about agricultural and other pumping loads e.g. aqueducts and wastewater treatment. Such loads almost never need to run at 100% over 24 hours, so going down for an hour is quite feasible. Possibly they are already doing this, but I’ve never seen it discussed.
    One other factor implied by the diagram – time scales less than an hour will be very important to track the extremely steep ramp. So will real-time, rather than day-ahead, signals – whether price or quantity. If a load can afford to shut down for exactly 75 minutes, for example, is it better to start at 4:30PM or 5:05PM? I don’t think households will want to deal with that kind of time scale, but large loads certainly can.

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