Enabling a Dispatchable Renewable Standard: Paving the Way to a 100% Carbon-Free Grid

As renewable penetration continues to climb across the US grid, the traditional design behind renewable portfolio standards programs will begin to yield diminishing returns in terms of greenhouse gas (GHG) emissions reductions, system reliability, and market efficiency. To ensure that renewables continue to deliver a higher order of value, renewable energy must be able to be delivered at all hours of the day, most acutely at peak times. 

During peak hours, thermal generation resources from most efficient to least efficient are dispatched and subject to transmission constraints, with the least efficient power plants contributing most relatively to GHG emissions. These low efficiency plants are known as peakers since they operate only during peak load conditions. By shifting more clean energy production to peak hours, a higher level of GHG reduction is realized. Additionally, it entirely offsets the need for hydrocarbon-based generation resources that address peak hour needs. 

Renewable Resources plus BESSs Establishes Controllability

While GHG-free renewable technologies are not dispatchable on their own, renewable resources coupled with battery energy storage systems (BESS) would enable controllability over the flow of energy based on market price signals, improving the overall grid efficiency. As the overall intermittent renewable contribution on the grid begins to exceed 50%, storage will be needed to address the peak and erode baseload resource needs until even baseload thermal generation is no longer required. Therefore, over the longer term, storage will not only result in the establishment of a clean peak but also provide all-hour dispatch capability. It is only at this point that we would have achieved the 100% carbon-free grid of the future. To take the US through the clean peak and toward a 100% carbon-free future, states should adopt what I would call the dispatchable renewable standard (DRS).

The key to enabling the DRS is through the ability to capture and manage the flow of renewable energy during all times of need, which varies significantly by season. This can be enabled by the buildout of renewable plus storage projects, and the development of standalone storage projects in regions where there is already a high renewable penetration. For states within organized wholesale markets, market price signals alone may help shape the dispatch profiles in order to achieve an optimal and efficient grid solution. In other markets, more sophisticated dispatch logic can achieve similar results.

States can shape their energy policy by deploying incentives and compliance schemes on utilities and load-serving entities within their jurisdictional boundaries. However, they typically need to avoid setting the actual price of electricity or risk running afoul of FERC jurisdiction. An incentive may be set for storage; however, states avoid directing when power is delivered onto the grid—leaving this to the market and grid operators to manage efficiently and effectively. 

The Incentive Mechanism Design Is Key

Storage alone, or renewable plus storage, may carry a cost that may be uneconomical under current wholesale market conditions. This is reflective of historically low gas prices and rules which may not be accurately compensating storage for its grid benefits (although this is subject to change under FERC order 855). The key is in the design of the incentive mechanism—how can regulators encourage storage adoption to enable a GHG emissions free grid? Several options exist, including:

• Establish the Dispatchable Storage Energy Credit (DSEC). Similar to renewable energy credits (RECs), DSECs can be minted upon the injection of 1 MWh of energy, subject to a daily maximum, onto the grid by a qualified storage resource. Qualification criteria can be based on local market conditions and ISO rules that ensure the resource will be counted. Load-serving entities would be required to purchase a commensurate level of DSECs in accordance with sales.
• Create a new class of REC, Dispatchable Renewable Energy Credits (DRECs), specifically for renewable plus storage projects. Renewable projects that couple with storage can qualify for the Federal Investment Tax Credit, which steps down in 2021 but is not entirely going away. To capture that value, storage projects have to charge solely from the renewable resource. DRECs will provide a higher level of compensation as compared to traditional RECs, which may help push the market toward greater storage adoption.
• Offer a Storage Capacity Incentive Payment (SCIP). As an alternative to RECs, a capacity incentive may be provided in lieu of a variable credit. The capacity credit may be stylized on the kilowatt output capability of resources with a 4 hour or greater capability based on local market reliability rules ($/kW per month) or based on the storage capacity of the unit on a per-megawatt-hour basis. This would leave current market price signals to decide the optimal duration.

The above options may be applied to both behind-the-meter and grid-connected projects. Behind-the-meter projects have the potential to access additional value streams in terms of locational system relief that results in distribution and transmission capital deferrals, depending on the regulatory framework of the state.

The DRS is necessary to achieve the ultimate vision policymakers had in establishing a renewable energy portfolio standard: the complete elimination of all carbon-emitting power generation resources. To do so, the standards and incentives available for both renewable generation and storage should be aligned and planned in a step-wise fashion.