[BETA] Fortnightly

Energy storage holds immense potential to transform our power infrastructure into a more reliable, efficient, and economical system, with increased capacity precisely when and where it’s needed. Often called the “silver bullet” of intelligent electric grids, storage can provide unprecedented control when it comes to balancing power sources and loads, while providing green energy that reduces reliance on fossil fuels. But more progressive regulatory policies and proactive legislation are needed, including more tax credit incentives to offset significant up-front investment costs, in order to accelerate the development and deployment of clean, grid-connected energy storage.

The U.S. energy storage market exceeded $1 billion in 2011 and could surpass the $5 billion mark in 2014, according to a recent KEMA study. This growth is driven heavily by the renewables market, which benefits from storage technologies to integrate wind, solar, and other variable resources into the grid. In a more fertile regulatory and legislative climate, the U.S. energy storage market could swiftly grow into the tens of billions of dollars, particularly as the diverse applications and value of energy storage—beyond renewables integration—are more widely acknowledged and promoted by industry and government.

Until recently, legislative and regulatory milestones were few and far in between, slowing market adoption of newer energy storage technologies. Storage is complex in that it can’t always be neatly categorized as generation, transmission, or distribution—it cuts across all three sectors. Finding proper, effective ways to integrate storage into the utility rate base presents real challenges, yet it needs to happen in the very near future. The difficulty in categorizing storage has created barriers to policy and legislation, which also view generation, transmission, and distribution as separate entities. However, now that more application data is becoming available to reinforce the diverse benefits of energy storage, regulators are better armed to break down these barriers faster.

Regulatory Milestones and Obstacles

The world’s first grid-scale flywheel energy storage plant, Beacon Power’s 20-MW facility provides rapid-response frequency regulation service to the state of New York’s electric grid. (Beacon Power)

In October 2011, the U.S. Federal Energy Regulatory Commission (FERC) issued Order No. 755, which promotes energy storage through one of its key applications, frequency regulation, an ancillary service that helps stabilize the grid. A breakthrough for smart grid energy storage and fair business practices, FERC 755 established a new “pay for performance” compensation method for frequency regulation services provided to the grid in regional transmission organization (RTO) and independent system operator (ISO) markets, which cross state lines. It should be fully implemented by the end of 2012.

Previously, RTOs and ISOs had paid providers the same rate for frequency regulation services supplied by fast-ramping storage systems, such as batteries and flywheels, as they paid for services supplied by traditional fossil-fuel plants and gas-fired turbines, which are slower, less efficient, and not as environmentally friendly. FERC 755 helps level the playing field, encouraging the development and deployment of more types of storage systems, which can correct grid imbalances faster than traditional assets and cut the overall energy costs to provide these services.

In addition to FERC’s pivotal pay-for-performance rule for organized U.S. wholesale electricity