Storage Strategies: An Overview of State Energy Storage Policy

In recent years, the United States has enacted significant legislation (the Infrastructure Investment and Jobs Act in 2021 and the Inflation Reduction Act of 2022) that will spur greater development of domestic renewable energy resources. In addition, President Joseph Biden has also set a number of goals relating to renewable energy development such as reducing 2030 emissions by 50% from 2005 levels,[1] achieving a federal light-duty vehicle fleet that is 100% zero emissions by 2027,[2] and procuring 100% carbon pollution–free electricity for federal agencies by 2030.[3]

As traditional fossil fuel baseload energy resources transition to renewable energy sources, such as wind and solar, energy storage resources will become increasingly important to ensure there is a steady and reliable supply of energy to the electric grid. The United States has seen a significant growth in the installation of energy resources. As of 2022, there were approximately 8 gigawatts (GW) of operational utility-scale battery storage, and that number is expected to increase by a further 20.8 GW by 2025.[4]

However, the installation of utility-scale battery storage in the United States has primarily been concentrated in the PJM and CAISO markets due to a confluence of early market and state policies—namely, PJM’s market approach to compensating batteries participating in its markets and California’s policy that prioritized the development of battery storage through utility procurement mandates.

At the end of 2019, more than 60% of large-scale battery storage was located in either PJM or CAISO.[5] In 2021, CAISO, ERCOT, NYISO, and ISO-NE were expected to host approximately 97% of the standalone storage capacity expected to come online between 2021 and 2023 (approximately 3.3 GW), but other states were still expected to host significant solar-plus-storage facilities (approximately 2.5 GW).[6]

Battery energy storage resources, for the most part, have been developing in states that have adopted some form of incentive for development, including through utility procurements, the adoption of favorable regulations, or the engagement of demonstration projects.[7]

Approximately 15 states have adopted some form of energy storage policy including procurement targets, regulatory adaption, demonstration programs, financial incentives, and/or consumer protections.[8]

Procurement Targets

Procurement targets require utilities to acquire a specified quantity of energy storage, typically by a specified deadline. To date, 10 states have adopted procurement targets: California, Oregon, Nevada, Illinois, Virginia, New Jersey, New York, Connecticut, Massachusetts, and Maine.[9] California was the first state to adopt a procurement target and initially mandated that the state’s investor-owned utilities procure 1,325 megawatts (MW) of energy storage by 2020,[10] and then added 500 MW of distributed storage[11] to the goal for a total of 1,825 MW by 2020.

In 2015, Oregon directed its two largest investor-owned utilities to each install 5 megawatt hours (MWh) by 2020 (minimum), up to a maximum of 1% of 2014 peak load.[12] In 2017 the Nevada legislature directed the public utility commission to establish targets to procure 1,000 MW by 2030, with interim targets starting at 100 MW by December 31, 2020.[13]

New Jersey enacted its Clean Energy Act in 2018, which set a target of 2,000 MW of energy storage by 2030.[14] Massachusetts also set its target in 2018 through the Act to Advance Clean Energy, directing the Massachusetts Department of Energy Resources to set an energy storage target of 1,000 MWh by 2025.[15] Virginia’s target was enacted by law in 2020: a 3,100 MW energy storage goal by 2035.[16]

A law enacted in 2021 directed the Illinois Commerce Commission to establish storage procurement targets for all utilities serving more than 200,000 customers to achieve by 2032.[17] Connecticut set its goal in 2021 to achieve 300 MW by 2024, 650 MW by 2027, and 1,000 MW by 2030.[18] Maine also set its goal in 2021 to achieve 400 MW of installed storage capacity by 2030, with an interim target of 300 MW by 2025.[19] New York originally set a goal to procure 3 GW of energy storage by 2030,[20] but most recently Governor Kathy Hochul announced plans to double that goal to reach 6 GW by 2030.[21]

Procurement targets are beneficial in that they provide supportive signals for investors and reduce regulatory uncertainty.[22] Procurement targets can also vary from broad MW requirements to more specific mandates that focus on the adoption of certain storage technologies. For example, California limited pumped storage to 50 MW of the total procurement goal. Procurement targets have been set both at the state utility commission level (e.g., California, Colorado, Massachusetts, Nevada, New York) and by state legislatures (e.g., Oregon, New Jersey).

Regulatory Adaption

Regulatory adaption refers to changes made in state energy regulations designed to create opportunities for storage.[23] All of the states with a storage policy in place have a renewable portfolio standard or a nonbinding renewable energy goal. Regulatory changes can broaden competitive access to storage by updating resource planning requirements or permitting storage through rate proceedings.

As a general matter, many states require utilities to produce integrated resource plans (IRPs) to demonstrate how that utility will be able to meet long-term demand projections using a combination of generation, transmission, and energy efficiency investments while also minimizing costs. In recent years, certain states have required that utility resource plans include energy storage, namely, Arizona, California, Colorado, Connecticut, Florida, Hawaii, Indiana, Kentucky, Massachusetts, Maine, Maryland, Michigan, Minnesota, Missouri, New Mexico, North Carolina, Oregon, Utah, Virginia, and Washington.[24]

Even so, incorporating storage into IRPs can be a challenge because storage is different from conventional electricity generators and demand-side resources. Storage has unique operational constraints, can be interconnected at various points, can serve a variety of applications, and has policy and regulatory uncertainty that may affect system profitability.

Demonstration Programs

Demonstration programs refer to instances where a state explicitly authorizes, and in some cases funds, energy storage for the purpose of exploring operation and gathering data. Demonstration programs are beneficial in that they allow states to study the benefits and logistics of energy storage deployment on an incremental basis.

Five states have adopted a programmatic approach to storage demonstration projects. Washington, through its Clean Energy Fund, has provided $14.3 million to utilities to deploy four utility-scale energy storage projects with the intention of testing different energy storage technologies and use cases.[25] Massachusetts has provided $20 million in grant funding to storage projects through the Advancing Commonwealth Energy Storage program to demonstrate various use cases.[26]

Utah law has permitted utilities to invest in storage resources.[27] New York, under its Reforming Energy Vision Program, acts as facilitator between developers and utilities by opening a request for proposal for a project, coordinating the project’s review by an independent evaluator, and then matching the project with a utility.[28] Finally, Maryland has approved a pilot program for utilities to develop projects under different ownership frameworks.[29]

Financial Incentives

Financial incentive policies typically come in the form of direct subsidies or tax credits made available to end-use customers for installing behind-the-meter storage resources. Behind-the-meter development has progressed in jurisdictions that have adopted time-of-use (TOU) rates, which pair higher-energy rates with time periods that experience high demand. TOU rates are intended to send an economic signal to customers and may influence them to reduce usage or meet demand through customer-sited resources, such as storage.[30]

California has implemented the largest financial incentive policy with its Self-Generation Incentive Program (SGIP), which set aside $450 million in funding for behind-the-meter storage.[31] In 2022, Maryland became the first state to offer state income tax credit for energy storage: up to $5,000 for residential customers and up to $75,000 for commercial and industrial customers, subject to a program total of $750,000 per year.[32]

In September 2022, the New Jersey Board of Public Utilities (BPU) published its New Jersey Storage Incentive Program (SIP) proposal,[33] which includes incentive programs for both front-of-meter and behind-the-meter storage for standalone energy storage devices. Thirty-eight percent of the incentive will be structured as a fixed annual incentive to be paid in dollars per kilowatt hour of energy storage capacity.

The remaining portion of the SIP incentive will have a pay-for-performance structure in which front-of-meter storage resources will be compensated based on the amount of carbon emissions abated through the operation of the storage device. Behind-the-meter storage resources will be compensated based on the successful injection of power into the distribution system.

The proposal also states that the BPU would like to maximize private investment in energy storage systems and will allow private investors to own and operate the energy storage resources, collect revenue from the wholesale electricity market, use behind-the-meter resources to manage energy usage at the distribution level to reduce electricity costs, or participate in a distributed energy resource aggregation service.

Consumer Protections

Consumer protection policies establish rights for customers that install energy storage. Two states have adopted legislation guaranteeing protections to customers that install energy storage.

In 2017, Nevada enacted legislation prohibiting customers that own an energy storage resource from being placed in a separate rate class solely for that reason and also required utilities to develop optional TOU rates.[34] In 2018, Colorado enacted a law providing utility customers a right to install storage, and directed the Colorado Public Utility Commission to adopt rules to ensure the interconnection process to do so was efficient.[35]

It is apparent that energy storage resource procurement has been growing in certain regions of the United States. This growth is largely a result of the various law and policy tools that states have employed to set procurement targets, develop programs to better understand the technologies, and provide funding to implement projects. All of these mechanisms act as indicators to both the market and other states to continue the growth of the energy storage industry.

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