The growth trajectory for the Massachusetts energy storage market looks clearer thanks to a compromise struck last week.

The agreement divvies up the benefits of the forthcoming solar incentive program in a way that the state’s distribution utilities, clean energy companies, ratepayer advocate and the Department of Energy Resources could all support.

The utilities had hoped to win control of capacity rights for storage that third parties developed. Instead, the compromise stipulates that storage developers will retain the rights to bid their facilities into the forward capacity market, and will have the option to buy out the capacity rights for connected solar facilities.

That gives the storage industry assurance that it can have control and finance its assets, while establishing a revenue stream from the solar capacity buy-outs that will mitigate the cost of the program to ratepayers.

“We believe that this compromise will allow us to fully develop and operate energy storage in Massachusetts,” said Juliana Mandell, who participated in the negotiations as director of market development at Engie Storage.

If the compromise next wins approval from regulators, it will usher in a major new benefit for pairing solar power with energy storage. Massachusetts’ leaders hope to jump-start a storage industry where there has been little activity, in order to better handle the changes underway in grid modernization and renewables expansion.

That program could give Massachusetts an edge over New York, which has also taken steps to incubate energy storage activity in support of its grid reform goals.

Deciding capacity rights under SMART

The Solar Massachusetts Renewable Target (SMART) provides an incentive for solar power deployment, with the goal of encouraging 1,600 megawatts of additions over the next several years.

The regional grid, though, has already shown signs of the duck curve, in which significant solar production lowers midday demand and steepens evening peaks. Another 1,600 megawatts of distributed solar will accelerate that phenomenon, which complicates grid operations.

Governor Charlie Baker has prioritized storage development to help smooth out those issues. Besides offering a slew of new, well-paying jobs for the state, storage can also help keep homes and business powered through the region’s frequent storm-induced blackouts.

The DOER designed SMART with a storage adder, which pays a few cents more per kilowatt-hour for solar generation attached to energy storage. The rules leave the actual use of the storage largely up to developers to figure out.

The conflict arose when the distribution utilities wanted to own the capacity rights to energy storage installed as part of this program.

In a quirk of bygone clean energy policy, Massachusetts gave capacity rights for net-metered solar plants to its utilities back in 2009. The idea was that ratepayers were footing the bill for the solar compensation, so the utilities could bid the capacity rights into the wholesale market and use that revenue to defray some of the program’s costs.

Eversource and National Grid, however, never bid any solar into the capacity markets.

They admitted in filings that they thought it would be too risky to commit capacity owned and operated by third parties into the market, where they would face penalties if the promised capacity did not show up.

That didn’t stop them from wanting capacity for batteries built under the SMART incentive. Storage developers countered that control of battery dispatch is crucial to the business case of a project. Handing over rights to the utility, they argued, would kill their chances of financing, and crush the budding storage industry that the governor so clearly wants.

After a week huddled in a room together, emissaries from the major stakeholders ironed out their differences.

The agreement

Residential customers will keep the capacity rights to solar and storage. That avoids the unfortunate scenario that Sunrun had hypothesized, in which a homeowner turns to batteries in an outage only to find the utility had depleted their capacity to make money in the forward capacity market.

For larger systems, the owner retains the storage capacity rights, and has the option to buy the solar capacity rights for a one-time payment before the system receives an authorization to interconnect.

That clears up the confusion that would ensue if the utility bid solar capacity connected to a battery that was also participating in the markets. If those assets deployed at the same time, tracking down what performance came from which asset behind the same meter would be an administrative headache to say the least.

The accounting approaches downright impossible in DC-coupled systems, in which both solar and storage route their electrons through the same inverter. In some cases, the combined solar and storage capacity might exceed the capacity of the inverter, meaning both entities would have to figure out who gets precedence if their dispatches coincided.

“The prospect of having two market participants behind the same interconnection, it’s doable but you’d need to be able to negotiate and come to reasonable financial terms,” said Ilan Gutherz, senior director of policy and strategy at Borrego Solar and a participant in the deal.

Even if that was doable, the added burden of having to negotiate with a utility, for however long that may take, could easily jeopardize financing for an asset that is already considered new and risky for many lenders.

Now that risk has been averted, because the developers can buy the rights upfront instead of hammering out complex accounting deals.

The deal amounts to a win for ratepayers, too. Compared to the utter lack of revenue that the utilities managed to generate from all these years of untrammeled solar capacity rights, even a single storage developer buying out solar rights would mark an improvement.

Finalizing the SMART order

Now attention turns back to the regulators at the Department of Public Utilities to finalize the SMART order, with the most contentious element in it laid to rest.

If and when the program goes into effect, it could make Massachusetts the first major East Coast bastion of the behind-the-meter storage industry, which has been overwhelmingly concentrated in California.

“The storage industry in general is very excited about SMART and the potential that it brings,” Mandell said. “People are really viewing this as a game-changer for the state.”

Nearby New York has established substantial storage goals of its own. That state had been uncomfortable with promoting storage through central planning rather than market reforms, but its attitude has evolved.

A recently developed New York storage road map calculated that a bridge investment of $350 million would pay for itself by accelerating cost declines on the way to the state's deployment goals.

--

If you're interested in understanding more about how ongoing policy developments in Massachusetts are impacting the solar and storage landscape in greater New England, be sure to attend our New England Solar and Storage Forum in Boston on October 23