In Texas, a Showdown Over How to Pay for Grid Batteries

In Texas, a Showdown Over How to Pay for Grid Batteries

Texas utility Oncors $5.2 billion grid battery plan is facing opposition from an unexpected source: the retail and generation arms of its own corporate parent.

It's a conflict that underscores the complexities of incorporating energy storage into the states unique, competitive energy market.

In a statement released last week, retail electricity provider TXU Energy and power generator Luminant said that Oncors scheme would unfairly "shift risk to ratepayers and undermine the competitive market," according to a report from the Dallas Business Journal. Both TXU and Luminant are owned by Energy Future Holdings (EFH), the recently bankrupt utility holding company that also owns Oncor.

But while Oncor operates transmission and distribution lines and is allowed to charge its customers for regulator-approved capital expenses, TXU and Luminant must compete for customers and money-making power projects, respectively. The two companies also operate under control of EFHs board of directors, unlike Oncor, which was ring-fenced from EFH when it underwent a leveraged buyout in 2007, the Dallas Morning News noted.

Indeed, when it comes to charging customers for grid-scale energy storage, the two sides have opposing interests. According to last weeks statement from EFH, "Batteries act like generation resources, so they should remain part of the competitive market, which can better handle and appropriately price battery technology risks."

Thats one way to look at a battery, which delivers electrons to the grid in the same way a solar panel, wind turbine or any other inverter-based system does. Most of the grid-scale batteries on Texas grid today are linked to big wind farms, and are used to smooth and stabilize their power output, for example.

But unlike a competitive power generator, Oncor will be getting a guaranteed rate of return on the cost of the batteries, and letting customers foot the bill if it fails.

But thats not how Oncor wants to classify its mix of batteries. Instead, its calling them an investment in distribution grid infrastructure, with nearly half of their benefits coming from functions that merchant power providers cant monetize under Texas existing regulations.

Approximately 30% to 40% of the total system-wide benefits of storage investments are associated with reliability, transmission, and distribution functions that are not reflected in wholesale market prices, according to a study commissioned by Oncor and conducted by The Brattle Group (PDF).  

That study also predicts that the $5.2 billion investment should shave 34 cents off an average bill of $176 per month, putting it just barely on the cost-effective side of the ledger. That assumes the cost of lithium-ion batteries will fall by about half by 2018 or so, when Oncor hopes to start deployment. The utility has said it will work with Tesla Motors, which expects to have gigawatts' worth of grid-ready storage systems rolling out of its Nevada Giga factory by then, as well as other potential partners.

Other states are tackling the issues of batteries as generators versus grid assets, including California, New York and Hawaii. But Texas is very different from those states, which makes it hard to predict as a potential market for the as-yet-unproven prospect of cost-competitive grid storage.

For example, Texas has no capacity market to pay upfront for the promise of new grid resources. Unlike California, it has no statewide mandate pushing energy storage onto the grid. And it hasnt yet opened its grid ancillary services markets to batteries, a move thats helped spur grid-scale batteries across the Illinois-to-Chesapeake-Bay region served by grid operator PJM.

Another key conflict between the parties is over customer costs. Simply put, TXU wants to keep them low, while Oncor wants them to pay what it considers a fair share for a plan that should bring costs down over the long haul. Rate increases are never popular, and Oncors plan requires new laws and an overhaul of state regulations in order to succeed, which provides plenty of venues for political opposition.

Source: theenergycollective

SMART GRID Bulletin October 2017


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