Key Legal Considerations for ‘In Front of the Meter’ Energy Storage Procurement

December 05, 2019

Annual deployments of energy storage resources in the United States have increased nearly tenfold since 2014, from only 62 MW in 2014 to nearly 500 MW expected for 2019. The big question is whether the nascent energy storage industry will be able to continue its current trajectory of rapid growth. All signs indicate that it will do so, and utility-scale “in front of the meter” energy storage procurements are a key reason why.

Here’s what you need to know about energy storage procurement trends.

  • The scale of energy storage procurements has increased tremendously as utilities have acquired a better understanding of how the technology can be used and the price of the technology has dropped. Energy storage helps to make renewable generation more valuable by storing the energy until it is required, and it makes the grid more resilient.
  • State and federal policies continue to point toward further opportunities for large energy storage projects. At the federal level, FERC’s Order No. 841 will expand market opportunities for energy storage resources beyond regulation and ancillary service products. At the state level, more than 20 states and the District of Columbia have taken actions to promote energy storage growth, ranging from utility procurement targets to storage development incentives.
  • Utilities typically procure new resources through a two-stage request for proposal or request for offer (RFO) process. In the first stage of an RFO, a utility will solicit bids that meet certain defined parameters published by the utility. In the second stage, the utility will select the most competitive bids for its “short list.” Bidders on the short list are typically invited to negotiate definitive documentation and, assuming the parties can come to an agreement on price and terms, a bidder will be awarded a contract for a new project.
  • Utilities will typically contract for energy storage resources through power purchase agreements; engineering, procurement, and construction agreements; or build-own-transfer agreements. While the procurement process for energy storage resources is the same as the process for conventional and renewable generation resources, the delivery timeframes can be shorter and the auctions more heavily subscribed given the shorter construction timeframe and simpler permitting requirements for battery energy storage projects compared to conventional and renewable generation.
  • Utilities and developers will encounter many of the same issues in an energy storage solicitation that they would in any other competitive solicitation for generation resources, including the rules and drivers for the competitive process, the utility’s potential cost comparisons to alternative resources, and the policy and reliability considerations of state regulators. In addition, however, energy storage resources have unique characteristics that will impact the structure of a solicitation.
  • Widely deployed energy storage is still a relatively new entrant onto the grid, and the rules with respect to energy storage remain in flux. As a result, long-term power purchase agreements may include provisions that address change-in-law risks.

For a detailed White Paper on energy storage procurement, please contact Mary Ann Huntington.