California's latest effort to increase generation of renewable energy through an expanded renewable portfolio standard will be a benefit to both the energy storage and natural gas industries as the states tries to meet its ambitious goals and overcome the intermittency issues that have made scaling up renewables problematic thus far. Whether it is successful or not, California will help set the standard for how other states and the federal government address renewable generation and reduce carbon emissions in the future. In this Energy and Climate Brief, Garten Rothkopf examines what factors will be key to meeting its renewable energy goals, as well as what possible impact its new policy will have on energy policy around the country.

At the same time that Washington is tied in knots over the budget fight and EPA greenhouse gas regulations, California is moving rapidly toward a state-mandated target for renewable energy. Perhaps more significantly, the state is advancing the most aggressive emissions control and trading system in the country. Whether the policy goals laid out in terms of the emissions standards and renewables targets are realistic is questionable, particularly given California’s severely constrained fiscal situation. However, even if they miss their targets, there will be significant knock-on effects nationally. The natural gas and energy storage industries will play an expanded role in lowering costs and addressing intermittency and ultimately be beneficiaries of California’s aggressive RPS approach. Today’s GR Energy and Climate Brief reviews issues that are critical to the success or failure of the law, and its potential national implications.

Keys to Success

Though most of the attention has been given to the impact of the law on the renewable energy industry, the challenges created by the intermittency associated with many renewable technologies-- namely wind and solar-- also make natural gas and energy storage winners. Grid-tied energy storage provides emission-free backup energy sources during periods of intermittency, which is critical for California’s abundant solar and wind assets. The bulk of current storage capacity, up to 90%, is currently in pumped hydro, but these systems are geographically limited and cannot charge and discharge at quick rates necessary for renewable back up. Instead, developers are now looking at flywheels and batteries to provide additional generation and greater grid stabilization. In California, energy storage will get an additional boost from AB 2514, a bill that requires the CPUC to set by 2013 appropriate grid-tied energy storage targets for 2015 and 2020. The biggest hurdle increased energy-storage systems face is high costs, up to $1,000 per kWh for lithium-ion batteries compared to a few cents for natural gas, the significance of which cannot be overstated in a period of fiscal austerity and slow growth.

For that reason, lower cost natural gas is currently the more favored backup to renewable generation.  Open-cycle plants, which have more flexibility in their electrical output than their combined-cycle equivalents, can generate electricity much cheaper than any existing alternative backup capacity. Natural gas plants benefit from a large domestic supply, the ability to use existing capacity, relative ease in building any needed new capacity, and significantly lower emissions than coal. However, there is also the risk that with the upsurge in renewables, backing up wind capacity could increase overall emissions due to the lost efficiencies of turning plants on and off in rapid succession.

See full article here.