Sreeram Bhargav Dhurjati Master of Engineering Management Candidate Duke University | Pratt School of Engineering [email protected] | 919.949.1560 https://www.linkedin.com/in/sreerambhargav Conquering the Empire State A Roadmap to Capture New York’s Lucrative Energy Storage Business
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TESLA ENERGY
Conquering the Empire State A roadmap to capture the lucrative energy storage business within the state of New York
Sreeram Bhargav Dhurjati Master of Engineering Management Candidate Duke University | Pratt School of Engineering [email protected] | 919.949.1560 https://www.linkedin.com/in/sreerambhargav
Conquering the Empire State
A Roadmap to Capture New York’s Lucrative Energy Storage Business
Chapter 01: Introduction to NYISO Electricity Markets .................................................................................................. 3
1. New York Independent System Operator Electricity Market ............................................................................. 4
Chapter 02: Reforming the Energy Vision (REV) Initiative .............................................................................................. 5
2. About the REV Initiative ....................................................................................................................................... 6
Chapter 03: Value Proposition for an Energy Storage System ........................................................................................ 8
3. What services can batteries provide to the electricity grid? .............................................................................. 9
Chapter 04: Potential Opportunities for Tesla within New York State ........................................................................ 10
4. Potential Opportunities for Tesla within New York State ................................................................................ 11
4.1.1. Energy Arbitrage ................................................................................................................................. 11
4.1.2. Frequency Regulation ......................................................................................................................... 14
4.1.4. Voltage Support .................................................................................................................................. 16
4.1.5. Black Start ........................................................................................................................................... 16
4.3.3. Backup Power ..................................................................................................................................... 25
5. Mapping Tesla’s Powerwall and Powerpack Offerings with 13 fundamental electricity services .............. 27
5.1. Tesla Powerwall ...................................................................................................................................... 27
5.2. Tesla Powerpack ..................................................................................................................................... 27
6. New York Battery and Energy Storage Technology Consortium (NY‐BEST) ................................................. 31
6.1. About NY‐BEST ........................................................................................................................................ 31
6.2. NY‐BEST Energy Storage Roadmap for NY Electric Grid 2016 ............................................................... 31
About the Author ........................................................................................................................................................... 33
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Executive Summary Tesla’s CEO Mr. Elon Musk once said “The world does not lack for automobile companies, the world lacks for
sustainable energy companies”. Subsequently Mr. Musk announced plans to sell batteries for homes and
industrial energy storage. With the impending Solar City merger, Mr. Musk has given birth to an enticing
vision of clean energy vertical integration. In future it will be possible for a person to walk into a store, buy
rooftop solar panels which will turn sunlight into electricity, a swanky car to use that electricity and a battery
to store whatever energy is left. “Tesla as a whole is building the model of an energy company of future” said
Mr. Matt Roberts, executive director of the Energy Storage Association, an industry trade group.
USA seeks to regain leadership in clean energy adoption after more than a decade of ceding the pole position
to Europe. Unfortunately, most of the renewable energy technologies do not follow the traditional demand
supply cycle and are unable to meet the grid’s demand when needed. So if USA seeks to improve its pace of
clean energy adoption and meet its electricity demand, it needs to figure out a way to store energy. Using
PV panels and its energy storage solutions, Tesla can fulfil USA’s needs.
The rise of energy storage industry in USA is attributed to falling costs and increasingly favorable markets
and policy. Last month, Massachusetts became the third state in the USA to pass energy storage procurement
goals and California is pursuing a goal of 1.325GW of energy storage by 2020 for its public utilities. One of
the many progressive states in USA, New York is attempting to rebuild, strengthen and modernize its energy
system while bringing in economic growth. Under its Reforming the Energy Vision initiative, it aims to create
a cleaner, more affordable, more modern and more efficient energy system through the increased
development of distributed energy resources. The initiative includes aggressive targets of reducing
greenhouse gas emissions by 40% from 1990 levels, obtaining 50% of the state’s generation from renewable
sources, and reducing the energy consumption of buildings by 23%, all by 2030. To achieve its targets, it is
estimated that it will require as much as 4 GW of storage by 20301 to balance the increased penetration of
intermittent renewable energy generation.
Tesla with a fully integrated suite of PV Panels and energy storage solutions can take advantage of the above
developments and offer as much as 13 fundamental electricity services for three major stakeholder groups
(ISO/RTO, Utility and Customers) within the New York state. Its proposed integrated PV manufacturing
facility at Buffalo, New York can cater to the increasing demand for roof top PV panels. Its energy storage
solutions Powerpack and Powerwall can offer key grid/residential energy storage applications such as
shaping and balancing load, improving resiliency and reliability, and deferring T&D investments. This report
aims to provide a detailed analysis of all the available opportunities across the 13 fundamental electricity
services aimed towards the three major stakeholder groups. The report also proposes a timeline of actions
which Tesla can adopt to penetrate and gain market share within New York’s electricity market.
1 NY‐BEST: Energy Storage Roadmap for NY Electricity Grid, 2016
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Chapter 01: Introduction to NYISO Electricity Markets
INTRODUCTION: NEW YORK INDEPENDENT SYSTEM OPERATOR ELECTRICITY MARKET
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1. New York Independent System Operator Electricity Market The New York Independent System Operator (NYISO) operates competitive wholesale markets to manage
the flow of electricity across New York—from the power producers who generate it to the local utilities that
deliver it to residents and businesses.2
NYISO can be broadly classified into 11 zones (Figure 1) mostly controlled by 6 investor owned utilities. The
NYISO monitors a network of 10,892 miles of high‐voltage transmission lines and serves approximately 400
market participants3. In February 2007, the Federal Energy Regulatory Commission (FERC) sought to reduce
barriers to the inclusion of alternative power suppliers in electricity markets.4 The NYISO, consistent with the
FERC’s guidance, is working with alternative suppliers to facilitate their integration into the New York
electricity market. In 2009, the NYISO, working with stakeholders via its shared governance process,
developed new market rules and related market software that specifically supported the integration of a
class of resources known as Limited Energy Storage Resources or “LESRs.”5 LESRs act as a consumer of
electricity (an electrical load) when they store energy delivered by the electric grid. When they later release
that stored energy, they act as a supplier of electricity6. Energy storage is classified as a LESR and the
opportunities that exists for it to play a prominent role within the NYISO market are discussed in subsequent
sections.
Figure 1: New York Control Area Load Zone
2 https://home.nyiso.com/ 3 https://www.ferc.gov/industries/electric/indus‐act/rto/metrics/nyiso‐rto‐metrics.pdf 4 FERC Order No. 890 5 FERC Order Accepting Tariff Revision; Docket Nos. ER09‐836‐000 and ER09‐836‐001; May 15, 2009 6 NYISO: Energy Storage in the New York Electricity Market
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Chapter 02: Reforming the Energy Vision (REV) Initiative
INTRODUCTION: NEW YORK’s REFORMING THE ENERGY VISION INITIATIVE
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2. About the REV Initiative In the aftermath of Super‐storm Sandy, Governor Cuomo sought to rebuild, strengthen, and modernize New
York’s energy system while bringing economic growth to New York. His strategic vision gave birth to the
Reforming the Energy Vision initiative (REV).
"Reforming the Energy Vision" (REV) is a major decision‐making process underway now to transform the
retail electricity market and overhaul New York's energy efficiency and renewable energy programs. The
stated goal of the proceeding is to create a cleaner, more affordable, more modern and more efficient energy
system in New York, through the increased development of distributed energy resources, like rooftop solar,
energy efficiency, and battery storage.
Energy storage has a major role to play in the transformation of New York’s electric grid and in achieving the
goals of REV. Energy storage is already a cost‐effective solution for many applications on the grid and it will
be essential for meeting the State’s renewable energy goals. However, in order for the energy storage
industry to achieve its full potential to fundamentally change the nature of the State’s electricity system, it
must overcome a number of obstacles.
The Energy Storage Roadmap released by New York Battery and Energy Storage Technology Consortium in
2016 lists the following as some of the major obstacles for the growth of energy storage market within New
York:
1. Inability to participate in existing markets: The capacity threshold for resources to participate in the
PJM frequency regulation market is 100 kW; on the other hand, NYISO requires 1 MW systems.
2. High soft costs: Soft costs can account for as much as two‐thirds of the total installed cost of storage
systems. Many of these costs are driven by the geographic location where storage is deployed and
can only be addressed locally. Furthermore, with hardware costs dropping by 8‐10% a year, the
impact of soft costs has been growing.
3. Lack of standardized safety procedures and regulations: The current New York City fire code does not
address the use of stationary battery systems for energy management activities in buildings. It does
address the use of five types of batteries (non‐recombinant, recombinant (vented and sealed lead
acid, primarily), nickel cadmium, lithium ion and lithium metal polymer) but only when used for
“facility standby power, emergency power or uninterrupted power supplies”. Because energy
management is not a prescribed use in the current code, all stationary battery systems must be
submitted for approval to the Fire Department of New York and to New York City Department of
Buildings Office of Technology Certification and Research (OTCR). At present, every installation must
apply on a site‐by‐site basis. This process adds significant delay and expense in attempts to site
stationary storage projects — typically requiring multiple meetings, information exchanges, in‐person
discussions over a period of months that can exceed a year.
INTRODUCTION: NEW YORK’s REFORMING THE ENERGY VISION INITIATIVE
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4. Inability to monetize the full value of storage: There are still multiple DER benefits that are not
recognized or monetized through these programs. These benefits may include services to the local
distribution system (such as for upgrade deferrals and voltage/VAR support) or a number of
environmental or other public policy benefits.
5. Lack of common financing vehicles: There is a lack of standardized and transparent processes,
procedures and associated documentation that help investors reduce perceived risks and increase
the likelihood of high rewards. The development of third‐party financing, solar leasing, power
purchase agreements, and other financial vehicles has played a huge role in the explosive growth of
the PV industry. Loan guarantees, manufacturing incentives, investment tax credits, and tax
exemptions have all helped to create an active financing market for solar power. Energy storage
technology must develop a similarly robust financing market in order to achieve widespread
commercial adoption.
REV aspires to address these issues and create pathways for DERs such as energy storage to gain space
within the electricity market.
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Chapter 03: Value Proposition for an Energy Storage System
VALUE PROPOSITION FOR A BATTERY STORAGE SYSTEM
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3. What services can batteries provide to the electricity grid? The Rocky Mountain Institute in its report “The Economics of Battery Storage” states that energy storage can
provide thirteen fundamental electricity services for three major stakeholder groups (Figure 2) when
deployed at a customer’s premises (behind the meter).7
Key stakeholders are:
1. ISO/RTO services
2. Utility services
3. Customer services
Figure 2: Batteries can provide up to 13 services to three stakeholders8
7 The Economics of Battery Energy Storage, Rocky Mountain Institute: www.rmi.org/electricity_battery_value 8 http://www.rmi.org/electricity_battery_value
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Chapter 04: Potential Opportunities for Tesla within New York
State
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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4. Potential Opportunities for Tesla within New York State
4.1. ISO/RTO Services: Targeting NYISO
4.1.1. Energy Arbitrage
Currently New York uses its pumped storage facilities for energy arbitrage. A pumped storage facility is a
hydropower generating facility that stores water as potential energy during off‐peak hours for later use when
demand is higher.
Pumped storage facilities actually consume more electricity than they generate on a net basis, so unlike
conventional hydropower there is a short‐run cost to storage. The value (in terms of both economics and
reliability) of pumped storage resources is derived from their ability to deliver power when it is needed the
most. When the cost of pumping is less than the price differential between on and off‐peak pumped storage
facilities can effectively arbitrage these prices by purchasing power off‐peak and selling the power at peak.
The vast majority of power generated from pumped storage resources in New York comes from the
Blenheim‐Gilboa facility. Owned by the New York Power Authority (NYPA), Blenheim‐Gilboa is located in the
Catskill Mountains west of Albany, NY. The facility is the fifth largest in the U.S. on a capacity basis and has
four generating units that have a combined nameplate capacity of 1,116 MW. New York State’s other major
pumped storage facility is the Lewiston Pump‐Generating Plant, also owned and operated by NYPA. With a
nameplate capacity of 240 MW, the Lewiston plant is part of the Niagara Power Project complex near Niagara
Falls, which includes a reservoir that allows the conventional portion of the power project to store some
energy as well.
Within New York State, pumped storage accounted for 4% of capacity (Figure 3) and 1.1% (Figure 4) of all
generation output in 2015. The pumped storage portfolio in New York is not expected to expand significantly
during the near term due to a lack of sites where pumped storage facilities can be economically constructed.9
Additionally, most of the pumped storage facilities are located upstate (Figure 5) whereas most of the
demand fluctuations take place in the downstate (Figure 6).
Using Tesla’s Powerpack energy storage systems, NYISO can augment its storage resources and also obtain
the flexibility to locate these resources near the demand centers.
9 NYISO: Energy Storage in the New York Electricity Market
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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Figure 3: Generation Capacity in New York State by Fuel Source ‐ Statewide, Upstate New York and Downstate New York: 201610
Figure 4: Electric Energy Production in New York State by Fuel Source ‐ Statewide, Upstate New York and Downstate New York: 201511
10 NYISO: Power Trends 2016 11 NYISO: Power Trends 2016
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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Figure 5: Generating capacity comparison between Upstate and Downstate New York12
Figure 6: Regional Usage and Production in New York State13
12 NYISO: Power Trends 2016 13 NYISO: Power Trends 2016
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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4.1.2. Frequency Regulation
The Federal Energy Regulatory Commission (FERC) Orders 755 and 784 relate to equitable compensation in
the ancillary services markets. It created new compensation rules for frequency regulation and recognizes
the value of speed and accuracy.
It also created two‐part payment (Figure 7):
Figure 7: Two‐part payment14
In 2009, the NYISO became the first grid operator in the nation to establish market rules for a new category
of energy storage resources, which provide frequency regulation service to balance supply and demand on
the grid. Under the new rules, a Limited Energy Storage Resource (LESR) is allowed to offer services on a
comparable basis while continuing to schedule resources to satisfy all reliability criteria.
Limited Energy Storage Resource (LESR): It’s a generator authorized to offer Regulation Service only and
characterized by limited energy storage, that is, the inability to sustain continuous operation at maximum
energy withdrawal or maximum energy injection for a minimum period of one hour.15
Key points:
1. NYISO does 5 minute State of Charge management which results in “effective capacity” less than
Notably, the fast responsive gas turbines situated in Zone J and possessing a combined generation capability
of 144.6 MW are being deactivated. It may lead to supply/demand gap and dearth of spinning/non spinning
reserves within Zone J. Tesla’s Powerpack energy storage systems can definitely fill those capability gaps.
16 http://www.cesa.org/assets/Uploads/Webinar‐Slides‐9.30.15.pdf 17 The Economics of Battery Energy Storage, Rocky Mountain Institute: www.rmi.org/electricity_battery_value 18 NYISO: Power Trends 2016
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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4.1.4. Voltage Support
The voltage on the transmission and distribution system must be maintained within an acceptable range to
ensure that both real and reactive power production are matched with demand.
NYISO incentivizes reactive power service to those Voltage Support Suppliers (VSS) who meet the following
criteria. Each resource must:
1. Have Automatic Voltage Regulator (AVR)
2. Successfully perform MVAr capability testing
a. Production ‐ Lag Var
b. Absorption ‐ Lead Var
3. Maintain specific voltage level as directed by NYISO/Transmission Operators
By meeting the above requirements, Tesla’s energy storage systems can unlock an additional revenue
stream. As of now VSS Suppliers Receive Weekly Payments based on an Annual Rate of $2,592/MVAr.19
4.1.5. Black Start
Black start capability represents the key Generators that, following a system‐wide blackout, can start without
the availability of an outside electric supply and are available to participate in system restoration activities
that are under the control of the NYISO or, in some cases, under local Transmission Owner Control. If a partial
or system‐wide blackout occurs, these units assist in the restoration of the New York Control Area (NYCA).20
NYISO develops and reviews black start restoration plan, identifies generating units in critical areas, manages
and deploys black start service and seeks new bids as needed. Payments are made against participant’s
annual submitted cost which is its O&M and personnel expense.
Daily Black Start Payment Calculated as Follows:
1. Statewide & Local = Annual Cost $ / # Days in Previous Yr. May 1st to April 30th
2. For Con Ed Providers = Annual Compensation $ + Cost $ / # Days in Previous Yr. May 1st to April 30th21
Tesla can pitch its Powerpack energy storage systems as an alternative to traditional generators possessing
black start capabilities. The current technologies require high capital investments and take time to restore
themselves during a black start. A typical energy storage system such as the Powerpack possess the capability
to come online immediately and it requires considerably less capital expenditure.
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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4.2.2. Transmission Congestion Relief
NYISO’s markets are designed to use the lowest cost power available to reliably serve demand. However,
physical transmission constraints limit the economically‐efficient dispatch of electricity and can cause
“congestion” on the system. NYISO charges utilities to use congested transmission corridors during certain
times of the day. Tesla’s Powerpack energy storage systems can be deployed downstream of congested
transmission corridors to discharge during congested periods and minimize congestion in the transmission
system.25
The 2015 Congestion Assessment and Resource Integration Study conducted by NYISO identified all or parts
of the high‐voltage transmission path from Oneida County through the Capital Region (Central East) and
south to the Lower Hudson Valley (New Scotland – Pleasant Valley), as well as the 230‐kV system in Western
New York (Western 230kV) 26 (Figure 10).
Figure 10: Transmission Congestion Corridors in New York State27
25 The Economics of Battery Energy Storage, Rocky Mountain Institute: www.rmi.org/electricity_battery_value 26 NYISO: Power Trends 2016 27 NYISO: Power Trends 2016
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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4.2.3. Transmission Deferral
Over 80 percent of New York’s high‐voltage transmission lines went into service before 1980 (Figure 11). Of
the state’s more than 11,000 circuit‐miles of transmission lines, nearly 4,700 circuit‐miles will require
replacement within the next 30 years, at an estimated cost of $25 billion.28
Tesla’s Powerpack energy storage system can delay, reduce the size of, or entirely avoid utility investments
in transmission system upgrades necessary to meet projected load growth on specific regions of the grid.
Figure 11: Age of New York Transmission Facilities by Percentage of Circuit Mile29
28 New York’s State Transmission Assessment and Reliability Study Phase II Study Report, STARS Technical Working Group, March 30, 2012. 29 NYISO: Power Trends 2016
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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4.3. Customer Services
New York State Energy Research and Development Authority (NYSERDA) conducted a Technical and Market
Assessment of behind‐the‐meter battery storage. It concluded that electricity rates and the Demand
Response programs available to the customers both in terms of service territory and rate structure play a
major role in realizing value from a battery storage project at customer’s end (behind‐the‐meter). The study
suggested that for a battery storage project to make an economic sense, the customer’s site should:
1. Be located in Con Edison territory: Con Edison’s demand charge rates are significantly higher than
those in the rest of New York. During the summer, Con Edison’s demand charges are almost seven
times as much as those in the Albany area for National Grid customers.
2. Be a low‐tension service customer and have access to the Standby Service and Hourly Pricing rate
structures: Facilities with low tension service pay higher demand charges, so peak clipping can be
more lucrative. The vast majority of facilities receive low tension service, though industrial facilities
are occasionally the recipient of high tension service.
3. Experience spikes in load that are intermittent, short in duration (ideally less than 2 hours in
aggregate duration), and large enough30 to be worth the effort of following through on the project.
The assessment suggested that as a rule‐of‐thumb, an appropriate load shape will be associated with
demand charges that are greater than 50% of the total electric utility bill.
4. Have space sufficiently large and safe enough to accommodate the necessary battery.31
30 In outdoor settings, customers have followed through on projects as small as 8 kW. In indoor settings, where the installation is more disruptive and costly, vendors suggest that a project must be at least 100 kW to be worth the trouble. 31 Behind‐the‐Meter Battery Storage: Technical and Market Assessment, NYSERDA, https://www.nyserda.ny.gov/‐/media/Files/Publications/Research/Electic‐Power‐Delivery/Behind‐Meter‐Battery‐Storage.pdf
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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The assessment also looked into the viability of a battery storage project within different market segments:
Figure 12: Market Sector Summary32
32 Behind‐the‐Meter Battery Storage: Technical and Market Assessment, NYSERDA, https://www.nyserda.ny.gov/‐/media/Files/Publications/Research/Electic‐Power‐Delivery/Behind‐Meter‐Battery‐Storage.pdf
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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4.3.1. Time‐of‐Use Bill Management and Demand Charge Reduction
Currently, Con Edison rate structure consists of the 15 service classifications (SC) out of which SC‐08 covers
multifamily buildings on a master meter and SC‐09 covers commercial and industrial customers and the
common areas of multifamily buildings where apartments are separately metered.
Each service classifications has 5 rate classes which can be categorized under 3 main billing structures:
1. Standard Service (Rate I)
2. Time‐of‐Day Service (Rate II & III)
3. Standby Service (Rate IV & V)
Across the board, they have seasonal variability, with higher rates for the summer months (June through
September), and lower rates during the rest of the year.
A summary of SC‐08 and SC‐09 rate characteristics is provided below:
Figure 13: Con Edison SC‐08 & SC‐09 Sub‐Rate Characteristics33
Note: For Standard Service and Time‐of‐Day Service, peak demand is applied on a monthly basis, whereas
for Standby Service the peak demand is applied daily. Thus, a one‐day lapse in peak‐clipping activities (as the
result of, for example, poor planning on the part of the battery control software or participation in a DR
event) would result in a forfeiture of the demand‐charge savings for an entire month for Standard and Time‐
of‐Day Service, but only one day’s savings for Standby Service.34
33 Behind‐the‐Meter Battery Storage: Technical and Market Assessment, NYSERDA, https://www.nyserda.ny.gov/‐/media/Files/Publications/Research/Electic‐Power‐Delivery/Behind‐Meter‐Battery‐Storage.pdf 34 Behind‐the‐Meter Battery Storage: Technical and Market Assessment, NYSERDA, https://www.nyserda.ny.gov/‐/media/Files/Publications/Research/Electic‐Power‐Delivery/Behind‐Meter‐Battery‐Storage.pdf
POTENTIAL OPPORTUNITIES FOR TESLA WITHIN NEW YORK STATE
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Customers having on‐site generation can avail Standby service whereas other on the Time‐of‐day Service can
arbitrage energy using battery storage system and purchase electricity in periods of lower rates as against
purchasing during peak electricity‐consumption hours when time‐of‐use (TOU) rates are highest.
Estimating Savings from Peak Clipping35:
= [( × ) + ( ‐ × ‐ )] ×
×
Where,
1. : The number of days June through September
2. : The maximum $/kW charge incurred during summer months
3. : The number of days in the other months of the year
4. : The maximum $/kW charge incurred during non‐summer months
5. : The kW reduced; this is equivalent to battery power capacity
6. : The percentage of peak clipping potential actually achieved net of mistakes, variations
in load peaks and valleys, and Demand Response (DR) events; for purposes of calculation, we assume
90% in general and 80% for batteries participating in Demand Response
For a 100kW battery system that’s not a part of DR event and charged through Standby Service rates, the