Solar-based arbitrage driving storage growth in western US

• ‍US west has best solar resources, with nation’s statistically sunniest cities
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• ‍Opportunities for using batteries for solar arbitrage abound
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• ‍Arbitrage revenue helping to ensure ‘full equity return’ on storage investment

The energy storage boom in the US is centred on the western part of the country. New data from S&P shows that in the second quarter of 2023, nearly 95 per cent of US battery storage capacity additions were in the US West, specifically the California Independent System Operatior (CAISO) region, which contributed 58.1 per cent of new capacity during the period, and the Western Electricity Coordinating Council (WECC) region, which was responsible for 36.7 per cent of the new capacity.

With regard to cumulative capacity, CAISO leads the way with just shy of 50 per cent (6.314GW) of total US capacity, second is ERCOT [Electric Reliability Council of Texas] with slightly over a quarter (25.9) per cent of US capacity, which amounts to 3.287GW. In third place is WECC, which accounts for slightly under 10 per cent of capacity, amounting to 1.255GW.

Indeed, the five largest storage projects completed in the second quarter of this year were all located in the US West, specifically California and New Mexico. They were: 

1. Vistra's 350-MW Moss Landing Energy Storage 3 project in California

Phase three of the Moss Landing project was able to make rapid progress – at a time when US interconnection queues are growing – because it made use of an already-approved development permit, as well as its location on a Vistra-owned power plant site with existing interconnection and infrastructure. At its plant sites in California and elsewhere in the US, Vistra claims it is “leading the way in responsibly reclaiming and repurposing sites that have been historically used for fossil fuels, transforming them with renewables and battery storage, leading to economic activity and tax base for the communities”.

2. D.E Shaw Renewable Investments' 150-MW Arroyo Energy Storage project in New Mexico

The Arroyo project is co-located with 300 MW_AC of solar. David Zwillinger, chief executive officer of D. E. Shaw Renewable Investments has said that incorporating battery storage in solar projects has the potential to “change the landscape of the renewable energy industry going forward." The project represented NORD/LB's first solar-plus-battery storage project financing in the US.

3. Clearway Energy Group's 149-MW Daggett Solar Power 3 in California

This represented the third phase of the Daggett project – the entire project encompasses 482 MW of solar power and 394 MW of energy storage capacity, making it the “largest solar and battery storage project currently built in California”, according to Clearway. The project involved repurposing land previously occupied by a fossil fuel plant. The Daggett project is seen as helping California solve one of the biggest obstacles to renewable energy, that is, by helping to correct the imbalance between solar oversupply when the sun is shining and undersupply at other times, thereby reducing the need to rely on California’s polluting gas-powered plants.

4. RWE Clean Energy's 137-MW Fifth Standard Solar PV project in California

The Fifth Standard project incorporates a 137MW/548MWh utility-scale battery energy storage system and a 150MW solar PV facility. “Projects like Fifth Standard, with its co-located battery storage system, will become increasingly important to help ensure that, as renewables form a bigger part of the energy mix, the electricity produced can be used when it is needed most,” said Mark Noyes, CEO of RWE Clean Energy.”

5. San Diego Gas & Electric's 131-MW CE Westside Canal Battery Storage project in California

The 131MW Westside Canal project located in Imperial Valley – which is home to a high concentration of solar, wind, and geothermal generation facilities – is the largest storage asset in San Diego Gas & Electric’s utility-owned energy storage portfolio.

Why is storage deployment increasing so rapidly in the western US?

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The western part of the US is home to the best solar resources in the country. For example, of the ten sunniest cities in the US – all of which have sunshine more than 78 per cent of the time from sunrise to sunset – nine are located in the states of Arizona, California or Nevada, all of which are in the CAISO and WECC regions. Similarly, nine of the ten cities with the most ‘clear days’ in the US – that is the average number of days per year when clouds cover less than one-third of the sky – are also located in Arizona, California or Nevada. 

Consequently, it comes as no surprise to learn that Arizona and California and Nevada make up three of the top six US states for installed solar capacity. In fact, California is the top state for solar capacity by a considerable margin, with nearly 40GW installed, more than twice its nearest challenger, which is Texas, with slightly over 17GW.

The result is that the solar fleet in the western US offers potentially lucrative returns for battery storage projects in the form of solar arbitrage, that is, storing solar-produced energy when the price is low and selling when the price is high.

As S&P has highlighted, “most planned storage in the West is co-located with another generation source, specifically solar”. This assertion is borne out following an examination of relevant data. Figures from Berkeley Lab – a US Department of Energy Office of Science national laboratory managed by the University of California – show that, of planned US storage projects currently in interconnection queues, the majority (52 per cent, or 358GW) is in a hybrid configuration.

The attractiveness of solar-storage hybrid investments has been highlighted by S&P, which says that “arbitrage revenue and capacity revenue combined are forecast to be enough for battery storage projects to make a full equity return on investment throughout much of the West — particularly in California, Nevada, Arizona and Colorado”. Meanwhile, the appeal of this part of the US is also heightened by the fact that five states in the West — California, Nevada, New Mexico, Oregon and Washington — have 100 per cent clean energy targets in place. 

It is for these reasons that the trend for energy storage deployment to be largely focussed on the western US is set to continue for the foreseeable future. In the third quarter of this year, it is forecast that a total of 3.555GW of storage capacity will be added to the US grid, with developers in the CAISO region expected to contribute more than 2GW, or 59.3 per cent, and developers in the WECC area set to add 843MW, or 23.7 per cent.

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