By Michael J. Gergen, Marc T. Campopiano and Andrew H. Meyer

On September 5, 2014, San Diego Gas & Electric (“SDG&E”) issued a 2014 Energy Storage System (“ESS”) Request for Offers (“RFO”) soliciting at least 25 MW—and up to 800 MW—of energy storage (the “2014 ES RFO”).  SDG&E’s 2014 ES RFO is among the largest solicitations to date in the U.S. for grid-scale energy storage resources.

SDG&E’s 2014 ES RFO solicits bids from a variety of parties, including:

  1. Offers from owners and operators of ESS facilities to negotiate and enter into an Energy Storage System Power Purchase Tolling Agreement (“ESSPPTA”), or
  2. Offers from ESS developers to negotiate and enter into an Energy Storage System Turn-key Build, Own, Transfer Agreement (“ESSBOT”) under which the ESS developers would construct an ESS project on its land and SDG&E would acquire the ESS project from the ESS developer upon project completion, or
  3. Offers from ESS developers/contractors/equipment suppliers to negotiate and enter into an Energy Storage System Turn-key Engineering, Procurement and Construction Agreement (“ESSEPC”) under which the ESS developers / contractors / equipment suppliers would construct an ESS facility on SDG&E land.

SDG&E will consider any proposal for a transmission- or distribution-connected ESS with a nameplate capacity between 500 kW and 800 MW, so long as it satisfies the definition of “energy storage system” under the Section 2835 of the California Public Utilities Code.  In particular, an ESS must “be cost effective and either reduce emissions of greenhouse gases, reduce demand for peak electrical generation, defer or substitute for an investment in generation, transmission, or distribution assets, or improve the reliable operation of the electrical transmission or distribution grid.”  Additionally, SDG&E will only consider proposals for ESS that will help it to satisfy its local Resource Adequacy obligations.  Certain other conditions apply, depending on the type of offer; for example, SDG&E will give preference to ESSPPTA offers that have completed a System Impact Study, a Phase I interconnection study, or have passed the Wholesale Distribution Access Tariff (“WDAT”) or California Independent System Operator (“CAISO”) Fast Track screen.

SDG&E’s 2014 ES RFO is the first of four bi-annual solicitations intended to satisfy SDG&E’s obligations under California’s landmark Energy Storage Procurement Framework, through which the California Public Utilities Commission (“CPUC”) mandated that the state’s investor-owned utilities (“IOUs”) collectively procure over 1,300 MW of energy storage by 2024.    SDG&E’s obligation under this mandate amounts to 165 MW.  (On September 12, 2014, the Administrative Law Judge in the CPUC’s Energy Storage Procurement Framework proceeding issued a proposed decision approving the IOUs’ storage procurement framework and program applications for the 2014 biennial procurement period.   The proposed decision provided that SDG&E has already met its 2014 target procurement level of 20 MW in total (with a small relative shortfall regarding its distribution level-specific target) but approves SDG&E’s proposal to procure 16 MW or more (depending on cost, viability, and other factors) of energy storage in its upcoming solicitation to meet its 2016 and 2018 targets.)

At the same time, SDG&E’s 2014 ES RFO is intended to satisfy its Local Capacity Requirements (“LCR”) under Track 4 of the Long-Term Procurement Plan, which calls for SDG&E to procure between 200 MW and 800 MW of preferred resources, of which at least 25 MW must come from ESS.  However, SDG&E has separately filed an application for CPUC approval of a 600 MW bilateral contract for a natural gas-fired power plant, the Carlsbad Energy Center.  If approved, 600 MW of SDG&E’s need will be filled by this contract and SDG&E will be authorized to procure only 200 MW of preferred resources, including at least 25 MW of energy storage.  Additionally, as required by the Track 4 Decision, SDG&E is soliciting a broad range of resources, including energy efficiency, demand response, renewables, combined heat and power, and conventional fossil fuel plants. 

Offers in response to SDG&E’s 2014 ES RFO will be considered (alongside offers made through these other solicitations) pursuant to  a Least-Cost / Best-Fit (LCBF) / Net Market Value (“NMV”) analysis.  Offers are due no later than January 5, 2015.  Offers that make the shortlist will be notified on June 5, 2015.