September 2022 Alberta Electricity Newsletter: The Outlook for Energy Storage in Alberta

September 30, 2022
Leonard Olien

Energy storage is on the move in Alberta.  The 20 MW eReserve 3 Mercer Hill project is now online, bringing total grid-scale installed storage capacity to 70 MW with another 26 MW under construction and a further 230 MW have received regulatory approval.  Although   not large numbers, remember that the first project was not online until 2020 and that significant barriers to storage development have persisted… until now.

In spring 2022, the Alberta government passed Bill 22: The Electricity Statutes (Modernizing Alberta’s Electricity Grid) Amendment Act.  The Act contains two key provisions related to energy storage.

The first is legislated definitions for both an energy storage resource and an energy storage facility.  The key component of the definitions is technology that uses electricity as an input, stores the energy for a period of time, and returns energy as an output.

The legislated definition means that energy storage is not generation and energy storage is not load.  Energy storage is now a unique class of technologies.  This has direct implications for the Alberta Utilities Commission and the AESO.

The Commission can now create specific facilities process for energy storage.  Up until now, project developers had to file a power plant application for energy storage projects, which has been less than ideal.

Similarly, the AESO can consider energy storage as a unique technology class without running afoul of the regulations requiring fair, efficient and open competition on the electricity market.  After all, “fair” doesn’t just mean treating everything the same; it is also fair to treat different things differently, and the legislation makes it clear that storage technologies are different.

The second key component in the act is the requirement for regulated utilities to engage in a competitive process before owning energy storage projects themselves.  This is one area that we expect will require further elaboration in related regulations.  In the meantime, it has initiated a conversation amongst market participants that could lead to novel revenue stacking models.  For example, a utility could contract from a private storage developer to have access to the storage resource for certain months of the year when the resource will provide congestion management services.  In the rest of the year, the private developer uses the storage resource to earn revenue in the energy and ancillary services markets.  In this model, the utility meets their needs at a lower cost than owning the facility outright, while the developer has access to a low-risk cash flow which lowers the cost of capital for the project.  There are many details to be worked out, but the conversations have begun.

At this time, we are also waiting for a decision from the Alberta Utilities Commission on the ISO tariff that was filed last fall.  While the majority of the filing concerns the Bulk and Regional Tariff, the filing also included a proposal for to modernized Demand Opportunity Service (DOS) and allow DOS use by energy storage resources.

The current tariff treatment for charging energy storage resources is to require a DTS contract, which, for a one-hour resource cycling daily, works out to about $130/MWh.  Under modernized DOS, that cost would reduce to $8 to $15/MWh depending on the outcome of the Bulk and Regional Tariff. Under DOS, storage resources will be subject to a must-bid provision, which allows system operators to reduce storage withdraws from the system when needed.  Also, the system planning process will not consider DOS load for the purposes of determining the need for new transmission build.  It is anticipated that storage market participants should be able to manage these two requirements.

As filed, modernized DOS represents a significant cost savings compared to DTS.  There are three components in the proposal that are designed to prevent load customers from migrating to DOS inappropriately:

1. 20% Maximum Annual Load Factor (MALF)
2. Economic Declaration
3. Audit provision

In the hearing, CanREA and Energy Storage Canada argued that, in general, these three provisions are not relevant to storage because storage would not be using DTS anyway, and so there is no need to prevent storage migration to DOS from DTS.

Specifically, the MALF could interfere with the operations of longer duration storage resources, or technologies such as pumped hydro where the “charging” capability may be smaller than the “discharging” capability.

The economic declaration is required at the time of filing the System Access Service Request (SASR).  The proponent is required to declare that the proposed activity would not be economic under DTS.  CanREA provided evidence that charging storage under DTS is generally not economic and therefore the declaration is redundant.

Finally, the audit provision allows the AESO to review the resource after a period of time determine if the resource continues to meet the DOS requirements.  One the of requirements is that the facility remains uneconomic under DTS, consistent with the economic declaration.  While this provision makes sense for load customers, storage will continue to be storage, and it is not fair for the AESO to determine that changes in market conditions warrant a change in tariff treatment for a given resource.

While it is not ideal for these provisions to apply to storage, it is Power Advisory’s opinion that they do not constitute a fatal flaw in the tariff design.  It would be better if they were changed, or if a storage-specific service were created, but approving modernized DOS as filed still represents a significant improvement in the tariff treatment for storage.

A decision from the Commission is due before the end of October and implementation of a new tariff treatment for storage is expected by January, 2024 at the latest.