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Tesla, SolarCity's dream of energy storage in hands of utilities -- for now

Investors have been buzzing about the possibilities of Elon Musk's Tesla battery "gigafactory" and U.S. solar panel giant SolarCity enabling consumers to pair rooftop solar with affordable backup storage to free themselves from the grip of utilities and centralized power.

To achieve that dream, however, they have to first go through the utilities they are challenging to test the batteries on the system. And it has been a long slog so far.

SolarCity says it has about 500 customers who have signed up for a pilot program launched three years ago that pairs solar panels with backup battery storage.

So far, only 12 systems have been approved and connected by the utilities, according to spokesman Will Craven.

"The first year of the pilot, we were willing to give everyone the benefit of the doubt as this is a new technology and there are things to be figured out," Craven said in a phone interview. "But as time has gone on, we have begun to lose faith that we have a partner in the utility that wants to help out.

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"It is a little bit like death by 1,000 letters."

Craven added that SolarCity has chosen to stop submitting applications for solar paired with backup storage systems for customers and won't submit any more until "the queue starts to move."

California's big three investor-owned utilities insist they are "actively working" and "responded promptly" to the SolarCity applications. But the issues, they say, are new and complicated, and there is some uncertainty because the California Public Utilities Commission (CPUC) has to finalize a rule on what fees they can charge for things like interconnection, standby charges and infrastructure.

Steve Malnight, vice president of customer energy solutions at Pacific Gas and Electric Co. (PG&E), said that, although there may be hundreds of people who would like battery storage systems, his company has received only 20 applications so far. Of those 20, eight have been approved and 12 are still working through the system, including four that are considered incomplete, according to PG&E.

"The facts don't always align with statements made by others in the industry right now," Malnight said. "We are consistently focused on looking at new technology to bring them forward and bring them on to improve the system for customers and to help us reach our clean energy goal."

He added, "Our focus is ensuring ... the safety and reliability for the system and the customer who is doing the installation."

Similarly, San Diego Gas & Electric, a Sempra Energy company, said SolarCity has only submitted three applications -- and two have been approved. SolarCity says only one of its SDG&E customers has been connected to the grid.

As a first-mover in modernizing the grid, California's challenges could have an impact on the nationwide advance of energy storage integration into the system. Energy storage on the grid is critical, as it offers important tools to balance load and frequency as more renewable energy is used for power generation.

Batteries are also important for the future of developers like SolarCity when state and federal grid incentives start to phase out, as well as the success for battery manufacturers like Tesla. Musk announced last month that Tesla planned to build a battery "gigafactory" to help drive down the cost of lithium batteries by producing 500,000 batteries per year by 2020 to lower the cost of its electric vehicles and provide energy storage to "non-wheeled" structures, like homes and businesses. Musk is also a part owner of SolarCity and is the cousin of SolarCity's CEO Lyndon Rive and Chief Technology Officer Peter Rive, also co-founders of SolarCity.

As the largest developer of U.S. rooftop solar photovoltaic, SolarCity's pilot program for solar paired with energy storage can provide important data and lessons for developers, the utilities, the regulators and other stakeholders about the different services energy storage could offer. The uncertainty and delay are also affecting a larger commercial backup storage program SolarCity rolled out with Tesla at the end of last year, as they are beginning to run into similar fees and issues, Craven said.

California regulators attempted to accelerate the energy storage timeline last fall by mandating that PG&E, SDG&E and Southern California Edison, a subsidiary of Edison International, add 1.3 gigawatts of energy storage to their grids by 2020. Even energy storage advocates concede it is an ambitious number and that these projects could certainly help alleviate a bit of the pressure of meeting that deadline.

$2,900 roadblock

SolarCity's customers are only some of the 667 active storage applications -- about 33 megawatts of capacity -- for California's Self-Generation Incentive Program (SGIP), according to CPUC. Almost half of those applications, or about 10 MW of capacity, are storage paired with rooftop solar, as well as other generation that counts toward the state's renewable portfolio standard. Under SGIP, the state pays for about one-third of the cost of the installed systems in an effort to boost distributed generation.

It costs SolarCity and other developers $800 per application to the utilities for the storage systems, and if the paperwork stays too long in the queue, applicants have to pay another $800 to reapply, according to Craven.

There is also a great deal of discrepancy between what the utilities are charging SolarCity for various other fees, Craven said, including the meter to monitor electrons flowing from and into the grid. The investor-owned utilities have quoted costs ranging from $400 from PG&E and SDG&E to $2,900 just quoted a few weeks ago from SCE. PG&E has even varied in meter quote costs, jumping from $400 to $1,500 back down to $600, according to emails provided by SolarCity.

What is worse, however, Craven said, is that the utilities are taking the maximum amount of time possible to answer questions -- needing a couple of weeks of back and forth instead of days to respond to simple questions.

Lyndon Rive said at a recent CPUC event on a panel with Musk and CPUC President Michael Peevey that it is taking on average about eight months per application. Musk said that was "crazy," and Peevey noted that the process would probably be shorter after the panel, seeming to allude that the time period was unsustainably long.

Rive said the utilities are incentivized to delay the game because they win under the current system. It is up to regulators to ensure "roadblocks aren't intentionally being put there," he said.

Malnight said PG&E's process currently takes eight to 10 weeks once an application is completed. If an application is incomplete, PG&E sends correspondence to the vendor or customer outlining what information is missing from the application, including a check list of missing items, according to Ellen Hayes, a PG&E spokeswoman.

There are five steps PG&E follows once a complete application has been submitted, Malnight said: an engineering review to ensure safe operation on the grid; an interconnection agreement; the connection of a new meter, if necessary; the final field inspection; and approval to operate.

He also noted that the process would likely get faster over time, similar to what happened to connect solar panels to the grid. What once took months for solar panel interconnection can now be done online in five days, and Malnight said a similar system could eventually become the norm for the solar energy storage systems as well, although the process is slightly more complicated.

"I think this process will absolutely get faster over time as we continue to find efficiencies and standardizations in the system," he said.

Look out below

The key sticking points appear to be what utilities consider a completed application and the additional questions and answers they need to ask on an application -- and what developers consider just slow-walking an application, as well as the charges for the meter and associated services.

Jon Wellinghoff, the former chairman of the Federal Energy Regulatory Commission, said it is in the best interest of the utilities to accelerate this process no matter what the issues are.

"Ultimately it should be something the utilities should embrace," Wellinghoff said. He noted that other energy storage projects utilities are working on do not appear to be on the slow track the way these rooftop solar battery systems are, even though there doesn't seem to be a significant difference between them.

It is not just SolarCity and Tesla lining up to offer these services either, Wellinghoff said. Although they are different types of battery storage, companies like Ambri, Aquion Energy and EOS Energy Storage are coming online quickly and building factories.

"The dam is going to bust, and consumers are demanding these products," said Wellinghoff, now a partner at Stoel Rives LLP. "The utilities need to figure out how to make money off of it and work with SolarCity and others or get out of the way."

All stakeholders are currently awaiting a ruling from the CPUC on important guidelines for distributed solar projects with batteries. Utilities want to ensure that customers are not "gaming" the system by storing electricity when the price is low and selling it back when it is high, instead of selling renewable-energy-generated electricity back to the grid. They are also waiting to find out reasonable costs such as fees for meters, as well as the cost of service for utilities to "stand by" to provide electricity in case the solar battery system fails or runs out of power.

Peevey released a preliminary or "assigned commissioner ruling" last October that said utilities should waive the standby fee for now and that utilities should study the issue through 2015 and then report back to the commission on any lost revenue or other issues with backup storage interconnection. The final CPUC ruling has not been issued yet.

Back at the CPUC panel, Peevey advised SolarCity and other developers to "woo" the incumbents a bit more, "spending more time in trying to be more inclusive in trying to bring all the participants of the party at the same pace."

"But when you are running fast, like these two gentlemen are, you don't have time. You want to get ahead. There is a lack of tolerance," he said.

Hanan Eisenman, an SDG&E spokesman, said in an email that SDG&E expects the current rate reform process to create a more sustainable and balanced rate structure "that can best account for developments in technology" such as batteries.

"This process is intended to allow utilities to charge each customer for the services they receive and not the ones they don't," he said. "We look forward to working with the CPUC and other energy stakeholders on this collaborative process, which will encourage technology developers to get involved in this market and open up the utility space to more innovation, bringing new technologies and services to our customers."

Similarly, Southern California Edison said in a statement that the company "is working to address many of the complex issues raised by emerging technologies, including the additional costs of these interconnections, and is actively engaging with the California Public Utilities Commission and other stakeholders to address questions related to safely integrating solar energy and storage into the grid."

Twitter: @lingkate6

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