El Paso Electric wants to build new natural-gas generation to meet its summer peaks, but it also selected solar and, unusually for Texas, energy storage resources.

After evaluating its 2017 all-source request for proposals, the company decided to expand its Newman Power Station with a 226-megawatt natural-gas combustion turbine, but additionally picked 200 megawatts of utility-scale solar and 100 megawatts of battery storage. The company could also contract for up to 150 megawatts of additional wind and solar power.

The portfolio's heavy battery component breaks new ground for Texas, a massive energy market where energy storage has had an exceedingly difficult time breaking in, as previously reported by GTM. A few battery projects have moved forward as research efforts, and some have succeeded with creative business models, but never before on the scale of 100 megawatts.

On its face, the development sounds like a major victory for the storage industry in a lucrative and largely untapped market. However, there are a few important caveats to note. Here’s what the development portends for the Texas cleantech industry.

Unique case

El Paso Electric is an outlier among Texas utilities, because it’s vertically integrated and lies outside of the Electric Reliability Council of Texas grid.

ERCOT features a highly competitive generation marketplace, with energy transported and delivered by separate, regulated wires companies. The fierceness of the competition, plus the ban on wires companies owning assets considered to be generation, have made it hard for storage technology to find a role in that region.

Not so in El Paso. The investor-owned utility serves electric generation, transmission and distribution to 424,000 customers in the western tip of Texas and part of southern New Mexico. This structure allows for more holistic planning, which works well for storage, a tool that defies the simple wires/generation dichotomy that worked for the industry until recently.

The winning projects still require regulatory approval, contract finalization and permits. Assuming those all check out, El Paso’s experience developing energy storage won’t translate directly to the bulk of Texas, which plays by different rules.

“While there is relatively limited opportunity for utility-owned energy storage in broadly deregulated Texas, this could serve as a sign that renewables and storage are increasingly competitive in the state, which could have significant ripples through ERCOT's markets in the next three to five years,” said Daniel Finn-Foley, a storage analyst at Wood Mackenzie Power & Renewables.

That said, there are a few other investor-owned utilities outside of ERCOT, and Texas has several notable municipal utilities, like Austin Energy and CPS Energy in San Antonio. The case study of using storage and solar to deliver peak capacity could inform their planning more directly.

The resource mix is changing

El Paso doesn’t reflect the broader Texas energy world. But it’s still a utility in a state with minimal policy support for energy storage that adopted the technology based on its performance in a competitive solicitation.

“The resource mix for new generation is a pure sign of the times, and it reflects growing investment in more diverse resources in utility integrated resource planning processes,” Finn-Foley said. “It's particularly notable that the only natural gas included is a new turbine at an existing facility, while the rest is solar, wind and energy storage.”

Count El Paso with the likes of Arizona Public Service, Xcel Energy and NV Energy, which all selected battery projects in the past year, not because regulators or legislators told them to, but because of the competitive economics for storing cheap solar power for more crucial times of the day.

Learning by doing

Regulators have had years to get familiar with gas generators, but batteries are a relative newcomer to the grid.

There’s a learning curve to master in going from small R&D pilots to regularly considering battery plants as a core part of grid infrastructure. California couldn’t have responded as swiftly in the Aliso Canyon battery procurements if regulators hadn’t gotten comfortable with analyzing the technology over the previous years.

Every regulatory body is different, but it stands to reason that as the Public Utility Commission of Texas analyzes storage projects in the few vertically integrated utilities it oversees, any insights it gains will inform its outlook on future projects.

That could prove valuable as Texas electricity stakeholders continue to debate the proper role for storage technology in a grid where low-cost intermittent renewables are already changing the competitive landscape for all the other dispatchable generators.