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US battery storage boom hits COVID-19 roadblock as project delays mount

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US battery storage boom hits COVID-19 roadblock as project delays mount

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San Diego Gas & Electric's Escondido Battery Storage Project, completed in 2017, was part of an accelerated procurement to offset the loss of the Aliso Canyon gas storage facility. Similarly fast installations in the second half of 2020 could help battery developers overcome delays due to COVID-19.
Source: San Diego Gas & Electric Co.

After entering 2020 buoyed by aggressive growth forecasts, U.S. energy storage developers now face widespread project delays as a result of disruptions caused by the global coronavirus pandemic.

Pacific Gas and Electric Co.'s 182.5-MW Tesla Moss Landing Battery Energy Storage Project (Elkhorn), for instance, a marquee project planned near the shores of California's Monterey Bay, was on track to start construction in late March. That will not happen now as Pacific Gas and Electric, or PG&E, has postponed groundbreaking "until after the stay-at-home order is lifted," according to Paul Doherty, a spokesperson for the utility.

Gov. Gavin Newsom issued the statewide order March 19 without naming a specific end date. In the meantime, the PG&E Corp. subsidiary is prioritizing "critical and essential safety and maintenance work" on its electric and natural gas system, Doherty said.

The utility still hopes to have the system, which uses lithium-ion batteries from Tesla Inc., "energized by the end of 2020 and fully operational in the first quarter of 2021," Doherty said. But that depends on when Newsom deems it safe for Californians to resume their normal daily lives.

Such postponements and risks are mounting fast, jeopardizing the momentum of an emerging industry in a critical year in which some market observers had expected annual U.S. battery storage additions to exceed 1,000 MW for the first time.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Responses from 175 industry representatives surveyed in March by the U.S. Energy Storage Association, or ESA, indicate that 62% are already experiencing project delays and 37% said they anticipate setbacks of six months or longer.

The trade group, which released the results March 23, said developers are facing delayed or canceled component shipments, travel restrictions, isolation from customers and closed government permitting agencies.

"These results portend immediate and significant risks of job losses and economic damage," ESA said.

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Seeking stimulus

Like the U.S. solar industry, energy storage companies are asking Congress for economic stimulus to blunt the far-reaching economic ramifications of COVID-19, the disease caused by the coronavirus.

Current rules allow residential battery systems to qualify for federal tax incentives if charged 100% by solar power, while commercial and utility-scale energy storage systems qualify if they are at least 75% charged by solar. To offset a possible downturn in tax equity financing in 2020, developers are urging Congress to allow them to receive direct cash payments in lieu of tax credits when storage projects are coupled with solar arrays.

The tax incentives are scheduled to fall to 10% of project cost for businesses in 2022, from 26% in 2020 and 22% in 2021, while falling to zero for individual tax filers. The Solar Energy Industries Association has asked for an extension and option for developers to choose cash instead, which would apply to both standalone solar and solar-plus-storage projects.

ESA wants Congress to make the tax credit available for standalone storage as well, with the option for direct payments.

An exclusion from trade tariffs that apply to materials for energy storage systems, grants for distributed storage resources and funding for demonstration projects are additional measures that would help the industry weather the downturn, ESA said.

'Only certainty ... is uncertainty'

Uncertainties around tax policy, project delays, financing and the trajectory of virus outbreaks make forecasting 2020 additions nearly impossible, say industry analysts.

"Almost all projects that started construction this year are in states with shelter-in-place orders," said Felix Maire, a senior analyst at S&P Global Platts Analytics. "How rapidly China recovers and ramps up lithium-ion battery manufacturing, and the impact of COVID-19 on global EV sales, will also affect the near- to medium-term outlook for utility-scale battery storage."

Some developers and analysts are still hoping for a robust year.

"We haven't seen [delays] yet," said Dan Vickery, energy storage manager for sPower. Legally known as Sustainable Power Group LLC, the developer is a joint venture of power plant operator AES Corp. and Canadian fund manager Alberta Investment Management Corp. SPower has several solar and solar-plus-storage contracts with community choice aggregators in California, including projects scheduled to break ground this year that remain on track, Vickery said.

In New York, however, where sPower is developing a large pipeline of energy storage, the epidemic has started to delay utility procurement. In a March 23 letter to state energy regulators, National Grid USA said it would postpone making any awards from a recent storage solicitation to mid-May from March "given the challenges presented by the COVID-19 pandemic."

"Speed could prove to be the storage industry's salvation, squeezing a year's work into 6 months or less once again," said Daniel Finn-Foley, head of energy storage at research and consulting firm Wood Mackenzie, in an email. But developers would need to muster a "multi-month all-hands-on-deck effort" reminiscent of prior responses to grid emergencies in California and Australia.

Alternatively, extensions on contracts or tax incentives could push "potentially hundreds of megawatts" into 2021, according to Finn-Foley.

"The only certainty for now is uncertainty," he said.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.