8 th Annual UT Texas Energy Law Symposium (CLE) Developments In Energy Storage January 17 th , 2013 Amanda Brown

1. 8th Annual UT Texas Energy Law Symposium (CLE)Developments In Energy StorageJanuary 17th, 2013Amanda Brown

2. The Journey.

3. Types of Energy Storage

4. Overview • Introduce Xtreme Power, Inc. • Battery Energy Storage 101 (the very basic) • Policy Initiatives Shaping the US Market for Energy Storage • Recent Policy Market Development for Energy Storage in Texas & ERCOT

5. Xtreme Power, Inc.Company Overview Delivers power management software & energy storage solutions which enables digital control at utility scale. • Founded in 2004 in Austin, Texas; ~70 employees • 20+ years of R&D in our technology • Industry leader in energy storage system controls and integration services with>75MW’s of Utility-Scale energy storage projects delivered or in construction • US-based manufacturing • Oklahoma and Texas • 200 MWh of capacity • Expansion option: > 1 GWh • Utility industry leadership on our Board – Pat Wood, Former FERC Chairman and Foster Duncan, Former EVP/CFO of Cinergy

6. Target Segments • Renewable Integration • Transmission & Distribution Providers • Ancillary Service Providers

7. Xtreme Power delivers on the numbers > 75* Megawatts Installed (*End of 2012) > 241,125 Hours of Integrated Power Module Operation > 545 Gigabytes of Recorded Data > 5,000 MWh Charged & Discharged Leadingthe Market with Operational Experience

8. A (very) Quick Guide to Battery Storage 5 Questions in 5 minutes • Why Storage? • How does it work? • What else is required? • Where is it operating? • Can we have it in Texas?

9. Why Energy Storage? (1) • Provides Fast and Accurate response to dispatch signals to support second-by-second system operation needs • Supplies new sources of ancillary servicesoperating around a zero base-point, reduce Minimum Gen requirements and related emissions impacts • Supports ongoing integration of “new” technologies to ERCOT e.g. Renewable energy facilities, and evolving grid needs • Introduces an additional tool for flexibility on the system  reduced dependency on large conventional plant to manage system variability, more efficient use of existing Transmission infrastructure • Potential option for T&D solutions leading to deferred T&D investment & customer savings (e.g., Presidio)

10. How Does it Work? (2)Battery Energy Storage 101 Back to Basics… Energy & Power! • Power (P): A specific rate (MW) at which energy is being expended to achieve a task • Energy (E): The total amount of effort/work (MWh) it takes to accomplish a task • Energy (MWh) = Power (MW) * Time (hours) • Time <=> Duration Energy Storage technologies charge (‘store’) and discharge (‘inject’) at a particular RATE for a particular DURATION The Rate and the Durationare variablesbounded by technical limits of a BESS (Battery Energy Storage System)

11. Water Tank Battery Storage • Battery Storage Definitions • Battery: Converts stored energy into electricity (MWh) • Charger: Converts alternating current to direct current • Inverter: Converts direct current to alternating current WATER TANK BATTERY Control System (Rate) Control System (Rate) Valve (Rate) Valve (Rate) MWh (Energy) Gallons (Energy) MW (Power) MW (Power) Charger Inverter Water In/Gallons per Minute (Power) Water Out/Gallons per Minute (Power)

12. Re-Cap • Maximum water level dependent on size of tank • Filling/empting of tank is dependent on rate of water flowing in/out through the pipes • Valve controls the rate of flow • Energy depends upon duration of Power flowing in/out • Power flow (MW) depends on size of Charger/Inverter and rate allowed by the Control system • State of Charge (SOC) = the current MWh level in a battery

13. What else is required for complete Storage system? (3) • Power Electronics • Bi-directional electricity conversion (inverter/charger) • Response-time functionality • Real/Reactive control • Battery Storage • Energy and power capability in storage medium (battery) • Efficiency dependent on Storage type • Modular • Life dependent on Storage cycles • Controls • Automated, microsecond response • Configurable system logic • Response to external signals • Cyber security provisions • System Integration • Coordination with external signals • Customization for specific applications

14. Where is it Operating? (4) 14

15. Duke Energy NotreesLargest Battery Energy Storage System with Wind

16. Texas Has Over 10,000 MW of Deployed Renewables, With Over 18,000 MW Soon

17. At Times, Wind Provides Nearly 30% of ERCOT’s Power, But Is Intermittent

18. Demonstrated Benefits of Storage with Wind

19. Proof of Storage Performance

20. Can we have it in Texas? YES, but Rules Matter! • Is it a generator, a load, or a transmission or distribution system device? YES. • Presidio 4MW NaS battery treatment “BOB” • Duke Energy 36MW Notrees Storage Project • SB 963, 82nd Texas Legislature • PUCT Rules • ERCOT Protocols

21. Texas law: 1999-2011 • The architecture of Texas law and ERCOT’s systems did not really recognize “stored electricity” or an “electricity storage” function. • The first utility-scale ESR application in Texas skirted this issue by operating outside the ERCOT market as a regulated TSP asset. [ETT NaS battery at Presidio] • The PUCT acknowledged lack of clarity in Texas law when authorizing the battery installation, saying the battery is necessary for reliability and that the ruling should not be considered precedent for any other TSP application to own an ESR. PUCT Final Order: http://interchange.puc.state.tx.us/WebApp/Interchange/Documents/35994_114_613205.PDf ERCOT Protocol Revision excluding Presidio energy from market settlement: http://www.ercot.com/mktrules/issues/nprr/126-150/141/index

22. Summary of Recent Developments in TX Texas Legislature SB 943 passed in 2011 to clarify rights of storage resources providing wholesale service(s) in competitive areas Public Utility Commission of Texas Multiple projects and rulemakings to explore issues and remove barriers for storage, including establishing settlement rules and granting authority for ERCOT to establish pilot projects for emerging technologies ERCOT • Fast Responding Regulation Service (FRRS) pilot • Settlement protocols (NPRR 461) • Discussion of other market participation rules/protocols

23. SB 943 Details SB 943 Enrolled: http://www.capitol.state.tx.us/tlodocs/82R/billtext/pdf/SB00943F.pdf#navpanes=0 Texas Legislature passed TESA bill in 2011 clarifying that energy storage resources offering services in the competitive wholesale market have the same rights as a generator • Solved immediate issues of storage’s right to interconnect and who pays the related costs Consensus bill did not address TDSP ownership of storage, settlement issues, or load charges PUC and ERCOT have been implementing requirements and addressing related issues Ambiguity/uncertainty remains for storage in other markets and applications

24. Public Utility Commission Details Specific Actions: • Project 39764 explored general storage issues • Project 39657 was the rulemaking to implement SB 943 (2011) • Project 40150 was the rulemaking for ERCOT pilot project authority • Project 39917 was the rulemaking for settlement issues ( March 2012) • Also exempted storage from retail load fees and 4CP cost allocation methods “We need to remove as many impediments to storage as we can.” - Texas PUC, September 2011

25. ERCOT Details Specific Actions: • Established Emerging Technologies Working Group (ETWG) • Establishing Fast Responding Regulation Service (FRRS) pilot • Drafted protocols for the (WSL) Wholesale Storage Load settlement rule (NPRR 461) • Required registration as a Generator & Load resource • May modify other market participation rules and protocols as needed

26. Nodal Protocol Revision Request (NPRR) 461 • EROCR worked with stakeholders to implement PUCT wholesale settlement rule into the ERCOT protocols • Approved by ERCOT Board in Dec. 2012 • Implementation in ERCOT Settlement systems will take 6-9 months Download the final version of 461 here: http://www.ercot.com/mktrules/issues/nprr/451-475/461/index

27. FRRS pilot project Summary • ERCOT proposed a Fast Response Regulation Service (FRRS) pilot project • High speed ESRs (Energy Storage Resources) will likely participate if qualified • Planned service is faster than primary frequency response – up to 65 MW response within 60 cycles (1 second) • ERCOT proposes to run pilot from mid/late Feb – late June 2013 • Somewhat similar to fast regulation service pilot conducted by PJM & other ISO’s Follow the ERCOT FRRS Pilot Project here: http://www.ercot.com/mktrules/pilots/

28. Speed Matters: FRRS pilot developed in response FERC Order 755 Slow ramping Generator vs. Advanced Energy Storage • New Storage resources have a speed and precision of response which is unattainable by traditional generator ramp limitations • Fast response capability demonstrated in ISO-NE, NY, CA, PJM, Midwest Source: Beacon Power Presentation to ERCOT ETWG Jan 5, 2011

29. What is Fast Responding Regulation Service (FRRS)? FRRS is intended to complement current regulation service. FRRS can be ramped to its full output within 60 cycles. FRRS is intended to respond first and help slow down the frequency decay while other resources start to respond. FRRS is intended to respond to large frequency drops to promptly help arrest the frequency decay. California ISO, New York ISO, PJM, ISO New England and MISO will have or already have fast responding regulation.

30. Result: Key Market Opportunities for Storage in Texas Regulation Service • Faster, more accurate response • Results in reduced need for regulation service • Frees up conventional generation to participate in the energy market addressing resource adequacy concerns Renewables Integration / Time-Shifting • Maximizes production from intermittent resources • Can firm and shape load • Helps with ramp control And storage resources likely will need a combination of both…

31. What are others saying about Storage? • FERC has found that utilization of energy storage resources can reduce the total amount of regulation service that needs to be procured to reliably manage the grid, provide the grid operator increased flexibility to deal with system imbalances and variability, and reduce overall emissions, thus providing cost, reliability and environmental benefits for ratepayers1. • KEMA study found that a 30-50 MW fast-response storage device could provide as much or more regulation capability than a 100 MW combustion turbine. Using energy storage to provide ancillary services also frees up traditional generation resources to provide energy to the system2. 1. Frequency Regulation Compensation in the Organized Wholesale Power Markets, Order No. 755, 137 FERC ¶ 61,064 (2011) 2. Research Evaluation of Wind Generation, Solar Generation, and Storage Impact on the California Grid, Study by KEMA, Inc., done for California Energy Commission funded via the Public Interest Energy Research Program (PIER), June, 2010, at p. 6.

32. Policy Initiatives Shaping U.S. Storage Market

33. POP Quiz! 1. Which of the following is not a type of energy storage? Batteries Pumped Hydro Wind Generation Resource Flywheels

34. 2. What is an Energy Storage Resource? • Generator • Load • Transmission/Distribution system reliability tool • All of the above

35. 3. Energy storage in ERCOT is settled at wholesale for both charging and discharging. True False

36. 4.Fast responding resources have significant advantages in providing frequency regulation. True False

37. 5. Energy storage systems must be registered in ERCOT as: A generation resource A load resource Both None of the above

38. Appendix & Resources

39. FRRS-pilot Qualification Criteria Resources providing FRRS must be able to follow FRRS signal. Resources requesting FRRS-up qualification Must be able to respond to large frequency decay triggered by loss of generation. Resources providing FRRS-up must provide full MW response within 60 cycles after frequency hits 59.91 Hz trigger. Resources requesting FRRS-down qualification Must be able to respond to high frequency. Resources providing FRRS-down must provide full MW response within 60 cycles after frequency hits 60.09 Hz trigger.

40. Pilot FRRS Qualification Criteria (continued) Resources providing FRRS (Up and Down) must be able to continuously remain deployed for up to 8 minutes with 95% or more of the requested MW for successful qualification. Resources that successfully demonstrate the requirement above will be qualified as FRRS capable Resources for the capacity that was requested for qualification.

41. How is FRRS Procured during the Pilot? FRRS-up and FRRS-down amounts are specified in advance for each hour. For the pilot, ERCOT will procure up to 65 MW per hour for FRRS-up and will procure up to 35 MW per hour for FRRS-down. No changes are made to the existing REGUP and REGDN requirements. ERCOT has a list of “Qualified” FRRS Pilot Resources. Each Tuesday QSEs inform ERCOT of the amounts available for Saturday through Friday. ERCOT prorates amounts to Pilot Resources as necessary. Final quantities sent to QSEs (for the upcoming week). COPs for Pilot Resources shall reflect the final schedule as REGUP and REGDN.

42. Example: FRRS Deployment Logic and Expected Impact Deploy current Reg-Down Recall Reg-Down and Deploy Reg-Up Deploy FRRS-Up

43. Senate Bill 943 (2011) •Explicitly authorized Power Generation Companies to own, register, and operate ESRs. –Ability for ESR developers to interconnect under the rules and costs applicable to other generators clearly established (addressed a key regulatory uncertainty) –Legislation exempted the AEP Presidio installation from the bill and was intentionally silent on the TSP ownership policy question –An amendment to the bill near the end of the process added a section of session law (not included in Utilities Code) which specifically took a neutral position on all wholesale market cost allocation questions related to energy withdrawn from the ERCOT system for the purpose of storage or injected to the ERCOT system from an ESR SB 943 Enrolled: http://www.capitol.state.tx.us/tlodocs/82R/billtext/pdf/SB00943F.pdf#navpanes=0

44. Project 39917: PUCT energy storage settlement rule •PUCT adopted follow-up rule in March 2012 which decided key policy issues related to energy storage settlement. •The PUCT decided that: –Energy Storage Load purchased at wholesale for resale at wholesale is a wholesale and not a retail transaction (addressed tax issues and certain retail charge type and reporting issues) –Energy Storage Load is not subject to the allocation of transmission service costs by a TSP nor ancillary services costs or other Load Serving -Entity-type charges by ERCOT (addressed tariff treatment and ERCOT settlement issues) –Energy storage load (withdrawals from system) and generation (injections to system) shall both be settled at nodal price, unlike “other loads” which are settled on a zonal weighted average (addressed potential arbitrage issues) Final Order adopting rule: http://interchange.puc.state.tx.us/WebApp/Interchange/application/dbapps/filings/pgSearch_Results.asp?TXT_CNTR_NO=39917&TXT_ITEM_NO=41

45. Amanda (Stevenson) Brown Vice President, Policy & Regulatory Affairs Email: abrown@xtremepower.com