A new study from the Brattle Group predicts that co-located solar-plus-storage projects are “expected to increase dramatically in the next couple of years” even as the investment tax credit (ITC) available to the developers of those projects declines in the coming years.
The report comes in the wake of the Public Utilities Commission of Nevada’s Dec. 4 approval of three solar-plus-storage power purchase agreements (PPAs), including one that would be the world’s largest battery project with a capacity of 380 MW, 1,416 MWh.
The Commission’s approval relied in part on analyses from the Brattle Group, including an October 2018 study and expert testimony by Ryan Hledik, a principal at Brattle.
The new report, Solar-Plus-Storage:The Future Market for Hybrid Resources, notes that solar-plus-storage projects already account for over 40% of all capacity in the California Independent System Operator interconnection queue and those projects are also experiencing “sizeable growth” in the PJM Interconnection queue.
The drivers behind the surge in solar-plus-storage project come from a combination of factors, including cost reductions that can result in co-locating solar and storage projects, such as shared facilities and permitting, reduced interconnection costs, and more the optimal matching of solar output to the size of the direct current inverters used in the project.
Other factors driving solar-plus-storage projects include falling costs of both solar and storage equipment, demand for solar generation as a capacity resource, state mandates that encourage the deployment of both solar and energy storage projects, and the federal ITC that provides a 30% reduction in storage costs when it is paired with a solar project.
In late November, the Nevada PUC unveiled a proposal that would, among other things, set a 2030 statewide energy storage target of 1,000 MW.
The Brattle report drew on work it has done for the Nevada PUC, as well as for other utilities around the United States over the past couple of years. The report was released following the PUC’s December announcement because of its “topical relevance,” Hledik, one of the report’s authors, said via email.
While the ITC provides some of value of pairing solar power and energy storage, Brattle expects that the continued need for firm capacity, flexibility, and clean energy that can come from co-location will allow solar-plus-storage projects to remain competitive with other resources despite uncertainty about the ITC.
The current 30% credit provided by the ITC steps down in the coming years until its reaches 10% in 2022. At that point, “more than a decade of continued technology cost declines could be needed for project economics to return to current levels,” according to the report.
The decline of the ITC also means that “improved solar-plus-storage sizing and dispatch strategies will be needed as standalone storage becomes more competitive with hybrid projects,” Hledik said in a statement. One result is that standalone storage could become more attractive in jurisdictions that place a high value on avoided transmission and distribution costs and on reliability improvements.
Brattle’s analysis of markets in California, Nevada, New England and Virginia has found that the potential value of solar-plus-storage projects can “significantly exceed estimates of unsubsidized costs.”
In markets such as those, solar-plus-storage costs can often be lower than the cost of comparable conventional generation, but relying too heavily on a levelized cost of energy (LCOE) can be a “red herring” Hledik said. “If you focus on LCOE, you only capture the cost of the battery but not the added value it provides. So it’s important to compare these projects based on their net economic benefit, which accounts for both the costs and benefits of the projects.”
For the Nevada PPAs, the $1.4 billion value of the energy generated by the solar-plus-storage project exceeded the $902 million of costs, but when ancillary services revenues and environmental benefits are added in, Brattle estimated the total benefits to be $2.1 billion.
That same project configuration might not work when the ITC is lower, however, and could require a different analysis. To optimize the value of the ITC, a storage device paired with a solar project must derive most of its charge from the solar project for at least the first five years of the project. That requirement could result in a 12% to 28% reduction in potential storage related energy revenues and a 41% to 60% reduction in ancillary service revenues, Brattle estimated. With a lower ITC benefit, a standalone storage project could be more competitive if it were designed to take full advantage of all its potential revenue sources, Brattle said.
In general, the report found that standalone storage would be more attractive in jurisdictions where it could provide a higher investment in wires while ensuring reliability, while solar-plus-storage projects would be more attractive where cost savings from co-location benefits, such as from lower interconnection costs, are significant.
Public power utility solar plus storage projects
Several public power utilities have pursued solar plus storage projects.
Arizona public power utility Salt River Project on Nov. 14 announced investments in two new solar energy plus battery storage plants.
The Los Angeles City Council on Nov. 6 approved power purchase agreements for the Eland Solar and Storage Center, which will be the Los Angeles Department of Water and Power’s first utility-scale, integrated solar and battery project engineered to provide fully dispatchable power to customers in the evening and night time hours.
The office of Los Angeles Mayor Eric Garcetti said that the Eland project was selected out of a pool of 130 proposals because of the project’s scope and competitive price, which includes a fixed cost of less than 2 cents per kilowatt-hour for solar power, marking the lowest price offered in U.S. history.