US government action to protect power grid potentially impacts energy storage

US energy storage market participants operating at the bulk power system level should evaluate their supply chains and take other measures in light of recent US government action to protect national security by limiting equipment transactions involving foreign adversaries, experts said Thursday.

In September 2019, the US Trade Representative imposed tariffs on Li-ion batteries imported from China that are used in stationary energy storage systems.

Earlier this month President Trump signed an executive order on Securing the United States bulk power system that lays the groundwork for a ban on power grid equipment from foreign adversaries posing a national security threat, according to the Energy Storage Association trade group.

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These actions raise import issues related to certain energy storage equipment potentially with regard to China.

The Trump administration has favored the use of tariffs as part of its intense enforcement of trade, which has caused Congress to question whether it wants to claw back some of the authority it has granted the president under various trade laws, Devin Sikes, counsel for law firm Akin Gump Strauss Hauer & Feld, said during a webinar hosted by the ESA.

Lithium ion batteries were covered in the list of equipment subject to tariffs, and the ESA submitted a request for exclusion for those batteries, but to date the US Trade Representative has not acted on ESA's request, Sikes said.

EXECUTIVE ORDER 13920

Additionally, the recently issued Executive Order 13920 is "causing a bit of a kerfuffle," Elizabeth Crouse, partner at law firm K&L Gates, said.

It orders the US Department of Energy to issue regulations in the next six months regarding transmission system reliability due to potential risks related to cyberattacks or other threats.

And a recent announcement imposes on US buyers of certain equipment a higher diligence standard for supply chains, Crouse said.

In addition to the DOE, the US Department of Defense, Interior, Homeland Security, Tennessee Valley Authority, the Director of National Intelligence and other agencies could provide input on formulating the regulations, she said.

"Although the EO by its terms is currently effective, all indications are that it will not actually be enforced for some time," Crouse said.

The order covers bulk power system electric equipment if DOE determines it would pose a national security risk and a foreign adversary is involved in the supply chain.

It is not yet clear if the EO covers energy storage but it might because storage can be used to provide reliability services either stand-alone or paired with generation, she said.

"It's entirely possible that storage could be excluded entirely, but we just don't know right now," she said.

However, it would only apply to storage connected to the bulk power system and when it's used for reliability, which excludes quite a bit of the storage assets currently deployed in the US.

The language regarding what constitutes an undue national security risk is complicated, and the national security agencies will be consulted on how this is drafted, but the point is there will be a determination that equipment poses a risk due to hacking or something else, Crouse said.

Suppliers should seek pre-qualification and deepen diligence of supply chains, among other precautions, she suggested.

Developers also need to focus on their supply chains, while asset owners should evaluate their portfolios and consider replacing equipment if it might be covered by the EO. Investors should think harder about diligence and not necessarily stop buying from China but think hard about it the context of this EO, Crouse said.

Utility-scale energy storage developers should monitor market developments, develop diversified and advanced supply chain strategies and conduct due diligence on system sub-components, Andy Klump, CEO of global advisory company Clean Energy Associates, said.

Initially storage developers relied on "wrapped solutions" from system integrators, but the future will require more focus on sub-components, Klump said.

He also recommended diversifying supply bases and ensuring control systems come from US-headquartered firms.