The Evolving Landscape of Energy Storage Policies in the U.S.
Energy storage solutions are increasingly pivotal as the energy sector transitions from traditional fossil fuels to renewable energy sources. In the United States, there's a growing momentum towards clean energy goals, with 23 states, along with the District of Columbia and Puerto Rico, having established goals for achieving 100% clean energy. Energy storage systems play a crucial role in this transition, acting as an alternative to physical infrastructure that can enhance grid stability and provide necessary services as renewables like wind and solar step in to replace conventional fossil fuel power plants. The U.S. energy storage market experienced a record-breaking third quarter in 2023, adding a substantial 2,354 megawatts (MW) or 7,322 megawatt-hours (MWh) to the overall grid capacity. Projections indicate that between 2023 and 2027, the market could install around 63 gigawatts (GW) of storage capacity. As we stand in 2023, there's approximately 8.8 GW of operational utility-scale battery storage in operation across the country.
California and Texas lead in terms of installed utility-scale storage due to their supportive state policies and the substantial solar and wind capacities that storage systems support. By the end of 2023, Texas boasted 7.3 GW of installed storage capacity, while California reached 3.2 GW. In 2022, the five major independent system operators—CAISO, ERCOT, NYISO, PJM, and ISO-NE—had roughly 4.3 GW of standalone storage capacity, anticipating an additional 24 GW coming online in the years between 2024 and 2025. States that have adopted incentives for energy storage development have seen notable progress in battery storage deployment. These states have encouraged growth through various means such as utility procurements, favorable regulatory frameworks, and investment in demonstration projects. Around 16 states have implemented some form of policy directed at energy storage, which broadly fall into five categories: procurement targets, regulatory adaptation, demonstration programs, financial incentives, and consumer protections. Below provides an overview of each category of these energy storage policies.
U.S. State Energy Storage Procurement Targets and Regulatory Adaptations
Procurement targets are a cornerstone of state-level energy storage policies, aimed at driving the installation of a specified amount of energy storage by a set deadline. To date, eleven states including California, Oregon, Nevada, Illinois, Virginia, New Jersey, New York, Connecticut, Massachusetts, Maine, and Maryland have established such targets. California pioneered this approach by mandating its investor-owned utilities to procure 1,325 MW of energy storage by 2020, later amending the target to include an additional 500 MW of distributed storage for a cumulative goal of 1,825 MW. In 2015, Oregon set a minimum requirement of 5 MWh each for its two largest Investor-Owned Utilities by 2020, with an upper limit of 1% of their 2014 peak load. Nevada followed suit in 2017, directing the Public Utilities Commission (PUC) to set targets culminating in 1,000 MW by 2030, starting with an initial target of 100 MW by the end of 2020.
New Jersey's Clean Energy Act of 2018 was notable, setting a substantial milestone of 2,000 MW of energy storage by 2030. Massachusetts also made significant strides in 2018 with the Act to Advance Clean Energy, tasking the Department of Energy Resources to set a target of 1,000 MWh by 2025. Virginia's legislature enacted a law in 2020, decreeing a substantial energy storage goal of 3,100 MW to be achieved by 2035. The Illinois Commerce Commission received a directive in 2021 to establish storage procurement targets for major utilities, aiming for completion by 2032. Connecticut and Maine both set progressive goals in 2021, with Connecticut eyeing 300 MW by 2024, escalating to 650 MW by 2027, and reaching 1,000 MW by 2030. Maine aimed for 400 MW of installed storage capacity by 2030, with an intermediate objective of 300 MW by 2025. New York initially set its sights on procuring 3 GW of energy storage by 2030, but Governor Kathy Hochul announced an ambitious plan to double that to reach 6 GW by the same year.
In May 2023, Maryland became the eleventh state to implement an energy storage target, committing to deploy 3 GW of storage capacity by 2033. This new law mandates the Maryland Public Service Commission to establish the Maryland Energy Storage Program by July 1, 2025 and provides incentives for storage development. Procurement targets serve as vital tools, providing clear directives for investors while minimizing regulatory uncertainty. These targets range from broad requirements in megawatts to specific mandates focusing on certain storage technologies. For instance, California specifically limited pumped storage to only 50 MW of their total procurement goal. States have set procurement targets at both the utility commission level, such as California, Colorado, Massachusetts, Nevada, and New York, and through state legislatures, like Oregon and New Jersey.
Regulatory adaption is another key component of energy storage policy, involving changes to state energy regulations that create opportunities for storage. All states with a storage policy have either a Renewable Portfolio Standard (RPS) or a non-binding renewable energy goal. Regulatory modifications can enhance competitive access to storage, such as updating resource planning requirements or allowing storage participation through rate proceedings. Several states require utilities to produce Integrated Resource Plans (IRPs), demonstrating how they will meet long-term demand using a mix of generation, transmission, and efficiency investments while minimizing costs. In recent years, states including Arizona, California, Colorado, Connecticut, Florida, Hawaii, Indiana, Kentucky, Massachusetts, Michigan, New Mexico, North Carolina, Oregon, Utah, Virginia, Washington, Missouri, Minnesota, Maryland, and Maine have mandated that utility resource plans must include energy storage. Incorporating storage into IRPs presents unique challenges due to the distinctive nature of storage compared to conventional electricity generators and demand-side resources. Storage systems have operational constraints, can connect at various points in the grid, serve multiple applications, and face uncertainties in policy and regulation that could impact profitability.
Demonstration Programs and Financial Incentives for Energy Storage
State demonstration programs play a crucial role in exploring and gathering data on energy storage operation. These programs, where states authorize and sometimes fund energy storage initiatives, allow for an incremental study of benefits and logistics associated with deploying energy storage solutions. Five notable examples include:
- **Washington State** has allocated $14.3 million from its Clean Energy Fund to support four utility-scale energy storage projects, aiming to evaluate different technologies and use cases.
- **Massachusetts** has granted $20 million to storage projects through the Advancing Commonwealth Energy Storage program to demonstrate various applications.
- **Utah** has enabled utilities to invest in storage resources through legislative permission.
- **New York** facilitates collaboration between developers and utilities under the Reforming Energy Vision program, which includes a request for project proposals and matching them with utilities after independent evaluation.
- **Maryland** has initiated a pilot program allowing utilities to develop projects across different ownership structures.
Financial incentives, another policy tool, come in forms such as direct subsidies or tax credits, particularly for behind-the-meter storage installations by end-use customers. Jurisdictions that have adopted Time-of-Use (TOU) rates often see progress in behind-the-meter development. TOU rates, which are higher during periods of high demand, send economic signals encouraging reduced consumption or meeting demand through customer-sited resources like storage. California leads with the most substantial financial incentive policy through its Self-Generation Incentive Program (SGIP), allocating $450 million for behind-the-meter storage support. Following suit, Maryland introduced a state income tax credit in 2022 for energy storage, offering up to $5,000 for residential and up to $75,000 for commercial and industrial customers, capped at $750,000 annually.
In September 2022, the New Jersey Board of Public Utilities proposed the Storage Incentive Program (SIP), offering incentives for both front-of-meter and behind-the-meter standalone energy storage devices. The SIP incentive is divided: 38% as a fixed annual payment per kilowatt-hour of storage capacity and the remainder based on performance. Front-of-meter storage will be compensated by carbon emissions reduction, while behind-the-meter will be rewarded for power injection into the distribution system effectively. The proposal seeks maximizing private investment, allowing private ownership of storage systems, revenue collection from the electricity market, cost reduction through distribution-level energy management, and participation in aggregated distributed energy resource services. The BPU continues to refine this proposal. On August 8, 2023, they sought feedback on revisions to their energy storage incentive framework, specifically regarding the pros and cons of utility control over storage systems, expected costs of storage systems through 2030, and whether distributed storage resources providing grid services should opt for either front-of-the-meter or behind-the-meter programs.
Consumer Protections and Energy Storage Policies in the U.S.
As the adoption of energy storage systems increases, consumer protection policies have been established to safeguard the rights of those installing such systems. A few states have taken legislative measures to ensure these protections:
- **Nevada (2017)**: Enacted legislation that prevents customers with energy storage from being placed in separate rate classes solely due to their storage ownership. Additionally, utilities are required to offer optional Time-of-Use (TOU) rates, enhancing customer choice and potentially reducing energy costs.
- **Colorado (2018)**: Passed a law granting utility customers the right to install storage and directed the Colorado Public Utility Commission to create rules that streamline the interconnection process for storage installation, ensuring efficiency and customer benefits.
The growth of energy storage procurement is evident in certain regions of the United States and is largely driven by state laws and policy tools. These include setting procurement targets, running demonstration programs for better technological understanding, and providing financial support for project implementation. Such mechanisms serve as signals to both the market and other states, encouraging the continued expansion of the energy storage industry.