California’s Clean Power Plans: Decarbonise the Grid and Incentive Energy Storage

11th Sep 18

Written by James Doyle

California has been a global innovation hub not only for solar photovoltaic systems, but for technology in general. Before other US states started investing in solar power at a large scale, California was home to 50% of the country’s solar power capacity.

Consider that the Power Purchase Agreement (PPA) business model was invented in California, before being replicated globally and driving growth in the solar industry. As we discussed in a previous article, the solar PPA is a business where all the parties involved win, making it an excellent way to attract investment in the solar industry.

In August 2018, California lawmakers passed two bills to accelerate the state’s clean power industry even more. One of them mandates a complete decarbonisation of the electricity grid by 2045, while the other funds an incentive program for behind-the-meter energy storage systems.

These two bills will drive continuous investment in solar power systems: Photovoltaic arrays contribute towards the decarbonisation goal, while achieving synergy with the energy storage systems incentivised by the second bill.

Decarbonising the Electricity Grid

California has set the target of achieving a 100% emissions-free grid by 2045, and it is important to note that the target is based on emissions and not only renewable energy. This means the use of natural gas can continue, but only if a technology that fully captures its emissions is developed. Although this concept has been deployed experimentally, it is still far from being commercially viable.

The main challenge to achieve full decarbonisation of an electricity grid is becoming completely independent from fossil fuels. Although the cost of solar and wind power has been decreasing rapidly in recent years, these two technologies still have a limitation: they depend on inputs that cannot be controlled, so you cannot rely on them as the only electricity sources connected to a grid.

Hydroelectricity is an excellent complement for solar and wind power, for the simple reason that the input is water, which can be accumulated in a reservoir. However, hydroelectric power plants are extremely demanding in terms of site conditions. Also consider that hydroelectricity causes a significant disruption of surrounding ecosystems during initial construction – there are no emissions during operation, but it would be incorrect to say there is no environmental impact.

The most likely candidate to complement large-scale solar and wind power is energy storage, specifically with lithium-ion batteries. Just like solar panels and wind turbines one decade ago, batteries are experiencing a rapid cost reduction, and California utilities have already started with the development of large-scale energy storage. Pacific Gas & Electric, one of the three main electricity companies in California, will deploy the largest battery systems in the world so far:

  • A 300 MW and 1200 MWh battery array by Vistra Energy.
  • A 182.5 MW and 730 MWh battery array by Tesla. This is a larger system than the Hornsdale Power Reserve in Australia, also from Tesla, with 100 MW and 129 MWh.

These large-scale battery systems will be deployed to perform the same role as peaker power plants fired by natural gas, providing electricity during the hours when the network faces its highest demand.

Multimillion Dollar Funding for Energy Storage Behind the Meter

The Self-Generation Incentive Program (SGIP) in California has existed since 2006, originally focused on generation as its name implies. However, the program also started providing incentives for energy storage systems in 2017.

  • Originally, the SGIP incentive for energy storage was only running until the end of 2019.
  • The total funding announced for storage was slightly over 400 million USD, with 13% of the budget set apart for small installations below 10 kW.
  • With the new bill signed in late August, an additional 830 million USD of funding are added, and the program is extended until 2023.
  • In other words, 166 million USD are available for energy storage rebates each year.
  • When the incentive program ends, it will have delivered over 1.2 billion USD in energy storage rebates.

With that amount of funding available for energy storage systems, California is expected to deploy over 3,000 MW of behind-the-meter battery capacity by 2026. Considering that the state currently has around 176 MW of behind-the-meter storage, this represents an increase of over 1700%.

California followed a similar strategy to become a solar power leader, with an incentive program that started in 2007 and delivered over 3.3 billion USD in solar funding. Eventually, the state was installing over 1,000 MW of solar power per year.

Although the SGIP program for energy storage is significantly smaller, it still represents a huge boost for the battery market. The purpose of the bill is to create a large market for energy storage: just like a high demand for solar power reduced the price of photovoltaic technology, this measure could drive innovation to make batteries more affordable.


California continues to lead the way in clean power innovation and legislation, and the two latest bills for zero-emissions power and energy storage are an example of this. The huge demand from batteries that will result from the 1.2 billion dollar incentive program is good news for the clean energy industry globally. The expected price reductions in battery technology will benefit all regions with large amounts of solar and wind power capacity, not only California.

Electricity rates in some parts of California are as high as those of Australia, but consider that solar power systems are much more expensive in the US. Since Australia does not have a major solar manufacturing industry, there are no protection tariffs applied to imported photovoltaic equipment. In addition, Australia is closer to China, allowing lower shipping costs. Thanks to these factors, a solar power program that is deployed successfully in the USA can be easily replicated in Australia, achieving an even better business case for the end user.

In short, any program that works with expensive solar systems in the US is much more viable with the cheaper solar systems available in Australia!

Facebook Comments

  • Download our free guide to
    power purchase agreements 7 things you must know when dealing with PPA

new paper
  • Download our free guide to
    power purchase agreements 7 things you must know when dealing with PPA

  • Download our free guide to
    power purchase agreements 7 things you must know when dealing with PPA