The Public Utility Commission of Texas plans to write the state’s first rule book for utilities that want to use batteries to store and deliver power to the grid, a move that could potentially trigger changes to how electricity is produced, delivered and regulated in the state.
The commission’s rule-making process could open the floodgates for utilities to use large grid-scale batteries to avoid shortages that drive power costs higher and spread a technology long considered vital to making Texas’ intermittent wind and solar resources more reliable and larger components of the state’s power mix.
That future, however, is unlikely to come easily. In a separate decision on Thursday, the commission rejected a two-year-old proposal from one of the state’s largest utilities, AEP Texas, to use two batteries to back up overloaded transmission systems in two small Texas towns — a plan opposed by a merchant power industry likely to a play key role in developing any rules governing the use of batteries.
The commission, in turning away AEP, echoed the arguments of the state’s power plant owners, citing a lack of a regulatory framework for battery use and concerns that the project would dismantle Texas’ unique competitive power market.
“Batteries are coming — there is no question,” said Brett Kerr, a spokesman for the Houston-based merchant power company Calpine Corp., one of the companies that opposed AEP’s project. “Let’s all get together and come up with a way we can best integrate them into the market.”
Batteries have long been viewed as a game changer for the power grid, a technology that would make it easier to manage supply and demand, smooth out price spikes in wholesale markets, lessen the need for expensive transmission projects and accelerate the growth of wind, solar and other renewable energy sources. Battery technology has continued to improve and, most importantly, get cheaper.
Prices for utility-scale lithium-ion batteries have dropped 80 percent since 2009, according to testimony filed with the PUC. And as batteries become more affordable, electric grids around the country have been forced to adapt, most recently in California, where the state adopted rules allowing multiple uses for batteries.
In Texas, there is at least one 4.8-megawatt battery attached to a transmission system in the border town of Presidio. In West Texas, E.On, a German renewable energy company, built two battery systems last year to support a wind farm.
Batteries are anything but traditional — they can store and generate energy, and don’t neatly fit into the lines drawn in Texas between deregulated power generators and regulated power distribution companies. Battery installations at private homes with rooftop solar systems could mean residents take less power from the grid, undercutting utilities.
And batteries attached to wind and solar farms would make those notoriously fickle sources of energy able to provide power when the wind isn’t blowing or the sun isn’t shining, to the detriment of merchant power companies.
“Batteries are the common-sense response to the renewables that we are going to see increase in our market,” Texas Public Utility Commissioner Brandy Marty Marquez said Thursday.
AEP proposed its battery project in September 2016. The company asked to install two lithium-ion batteries near the towns of Paint Rock and Woodson, each home to a few hundred people and hundreds of miles away from any major city. In Woodson, where AEP Texas serves 217 customers in the North Texas community, a hard-to-access distribution line that traverses pastures and fields means that outages are frequent and last for an average of eight hours — three times longer than outages for any other AEP customers in that region.
In Paint Rock, a West Texas town named for ancient pictographs painted by Native Americans on a rock outcropping, power demand for AEP’s 273 customers overloads their substation.
A $1.6 million battery in Woodson and a $700,000 battery in Paint Rock would resolve their issues, AEP said, and save their customers millions of dollars by averting more expensive upgrades to the transmission system. The batteries would store energy that would flow into the grid when an outage knocks out the power.
But the PUC and merchant power companies worried that AEP’s plan to use the batteries would violate a fundamental regulation in Texas that prevents most utilities from delivering as well as generating power. Merchant power companies also worried that adding the batteries’ power into the mix when demand is high would smooth out price spikes, hampering their ability to make money.
A spokesman for AEP would not comment on its plans, now that the battery project has been killed. But the company intends to participate in the rule-making.
Merchant power companies had good reason to be wary of AEP’s proposal, said Michael Jewell, an Austin lawyer and consultant for electricity policy issues. Because AEP is a regulated distribution company, it can include the cost of the batteries in its rates, which are set by the PUC to help the company recoup expenses.
But companies like Calpine and NRG can’t rely on regulated rates to get back money spent on equipment. They depend on prices determined by supply and demand in wholesale power markets.
The companies have traditionally made their money during the hot Texas summers, when high demand strains supplies and drives prices higher. Bringing new supplies into the mix — whether from batteries, wind farms or solar arrays — eases the strains, lowers prices and hurts profits. The PUC has promised the power industry that it would review the market’s pricing structure over concerns that power companies won’t have the incentives to maintain, upgrade and operate power plants, which would threaten the reliability of the state’s electric system.
Now, the industry and its regulators may have to adapt to another change.
“Batteries are a new tool in the tool box, and we’ve got to figure out how to handle them,” Jewell said.