Why new storage credit is sector game changer

• New York announces storage credit seen as benchmark for all US states
  
• Storage, unlike solar and wind, has not had a renewable energy standard
  
• Sector leaders see New York’s initiative as game changer for storage

The lack of state-wide mechanisms for supporting energy storage in the US has long been a frustration for storage professionals.

In what has been a major oversight on the part of renewable energy policymakers, energy storage in the US has not benefitted from a renewable energy standard (RES) in the same way that the wind and solar sectors have.

How does a RES work? In simple terms, it requires utility companies to source a certain amount of the energy they generate or sell from renewable sources such as wind and solar.

In addition, storage has, up to now, not been supported by a system of renewable energy certificates [RECs]. Such certificates certify that the bearer owns one megawatt-hour of electricity generated from a renewable energy source. When the power provider has fed the energy into the grid, they are then able to sell the REC they receive on the open market as an energy commodity. For example, an REC earned may be sold to other polluting entities as a carbon credit to offset their emissions.

But now, in a major breakthrough for the storage sector, the US state of New York has developed a REC-like instrument that could prove to be a game changer and the model for all US states that are serious about fostering the wider deployment of grid-scale storage.

New storage credit expected to provide project certainty

Three weeks ago, New York state governor Kathy Hochul announced a new framework for the state to achieve what it described as a “nation-leading” six gigawatts of energy storage by 2030.

The part of the framework that has really captured the imagination of the wider storage sector is the inclusion of an index storage credit (ISC) mechanism, which the New York State Energy Research and Development Authority (NYSERDA) says is “anticipated to provide long-term certainty to projects while maximising savings for consumers”.

The index tax credit: How it works

How would the ISC work? NYSERDA said it was important to incentivise discharge “when it is most needed rather than to reward as much discharge as possible”. On this basis, NYSERDA and staff from New York State's Department of Public Service have proposed that each ISC should represent one MWh of energy storage capacity that is operational on a given day. This means that each day a storage project is operational, it would be credited with and compensated for a number of ISCs equal to the MWh of storage discharge capacity of the unit. “ISCs would be credited only for days when the project is operational and available for dispatch” and not, for example, during days of outage or maintenance, NYSERDA said.

Under this approach, projects would generate ISCs on operational days regardless of whether and how much they discharge. In other words, there would be no performance, discharge, throughput, or operational requirements under the ISC contract. “This should not lead to the conclusion that the performance-based element that underpins the Index REC programs for renewable electricity is lost in an ISC structure,” NYSERDA said. “Under the ISC structure, NYSERDA’s payments for ISCs would be calculated as the Strike Price minus the Reference Price. Projects therefore would remain exposed to price signals from the commodity markets – if they do not discharge when it makes sense given market prices, they will not generate market revenue.”

Has New York ‘cracked the code’?

Meanwhile, the ISC also includes measures to address the issue of contract terms. NYSREDA said the duration of the ISC support payments offered to storage projects will have an impact on the overall cost of bulk storage projects and the effectiveness of the commodity revenue hedge. “If the term is too short, the project will carry additional risks in the later years of the project’s operational life that are not covered under the contracted revenue mechanism – conversely, terms of excessive lengths may result in uncertainty both for the project (which may discount such future support payments in the very distant future) and in bid evaluation”, NYSERDA explained. In this context, NYSERDA recommends a contract term of 15 years.

New York’s ISC has impressed the US storage community. Storage policy experts have said the state has “cracked the code” and developed an REC-like instrument for energy storage.

Will New York’s approach be the template for other US states?

Furthermore, there is a belief that New York’s innovative approach – which was developed in partnership with organisations such as storage owner and operator Key Capture Energy – has, in effect, produced the template for all US states seeking to provide a framework for wider storage deployment.

The implementation of the New York ISC will be watched with interest by many in the US storage sector. The framework – of which the ISC is a feature – is currently available for public comment on the New York State’s Department of Public Service website and a decision is expected later this year.

Energy storage is on the verge of a seismic shift in the way in which its development is facilitated by policymakers in the US. As William Acker, executive director of NY-BEST [The New York Battery and Energy Storage Technology Consortium] put it, the proposed framework, including the ISC, will have the effect of “reinforcing New York's position as a global leader in energy storage”.