Opening Marketplace to Storage
Andrew Kaplan is a partner with Pierce Atwood LLP. Kaplan served as general counsel and chief of staff to the Massachusetts Department of Public Utilities. He has a comprehensive understanding of federal and state rulemaking throughout the regulatory process.
Thomas Edison foreshadowed the potential for energy storage as "one of those peculiar things which appeal to the imagination and no more perfect thing could be desired," as early as 1883.
With FERC's February 2018 decision requiring RTOs/ISOs to establish rules that allow energy storage resources to provide wholesale market services, Edison's vision is about to be realized.
Until now, participation by energy storage resources, including batteries and flywheels, has been limited to frequency regulation. In 2007, FERC opened the ancillary services markets to non-generators: energy storage technologies were technologically advanced enough to participate in the wholesale energy markets.
At that time, the best operational fit for those fifteen-minute energy-neutral resources was the frequency regulation market.
Frequency regulation requires immediate changes in power. Energy storage resources proved a suitable fit, given that they are designed to remove from or restore electricity to the grid within four seconds of being dispatched.
For many years, the industry worked closely with FERC and the ISO/RTOs to ensure that energy storage resources were allowed to participate in the frequency regulation market. They participated on par with traditional generators, and were paid for the value they provided to the grid.
During the eleven years after opening the markets to non-generation resources, FERC recognized that energy storage resources could do much more than frequency regulation. Energy storage technologies also reduce carbon emissions and defer the imminent need for new transmission infrastructure.
FERC reasoned that if allowed to participate in more markets, energy storage resources could assist grid operators in providing additional services to the nation's grids at just and reasonable rates. Thus, FERC undertook the process of evaluating the best uses for storage resources in the energy, capacity and ancillary services markets.
There was an understanding that those resources are technically capable of providing services outside the frequency regulation market, but that they are currently barred from effective participation because of existing rules.
For example, the Southwest Power Pool has no participation model for storage. Instead, energy storage resources must register as generators or load resources; that results in insufficient bidding parameters to participate in the marketplace.
NYISO has fragmented participation options for storage. Storage is allowed to participate in multiple asset classes, each with various restrictions and allowances.
In opening the process for its Notice of Proposed Rulemaking, FERC acknowledged that regional market rules largely rely on market participation by traditional generation and load resources. It recognized that effectively, grid operations are limited to dispatching more expensive resources to meet system needs.
FERC noted the resources' ability to inject energy into the grid and to receive energy from the grid. The agency required market designs to better incorporate energy storage resources to enhance competition and to support the resilience of the bulk power system.
FERC took an extraordinary step: to mandate rules that provide for the eligibility of energy storage resources in the capacity, energy, and ancillary services markets.
Specifically, Order 841 requires regional operators to propose ESR participation models that:
Ensure that a resource using the participation model is eligible to provide all capacity, energy, and ancillary services that the resource is technically capable of providing in the RTO/ISO markets;
Ensure that a resource using the participation model can be dispatched and can set the wholesale market clearing price, as both a wholesale seller and wholesale buyer consistent with existing market rules that govern when a resource can set the wholesale price;
Account for the physical and operational characteristics of electric storage resources through bidding parameters or other means;
Establish a minimum size requirement for participation in the RTO/ISO markets that does not exceed a hundred kilowatts; and
Ensure that the sale of electric energy from the RTO/ISO markets to an electric storage resource that the resource then resells back to those markets is at the wholesale locational marginal price.
Response to these new FERC requirements has been largely positive. "Electric storage technologies already fulfill crucial functions in the bulk power system, to provide reliable power and a more resilient grid," stated Kelly Speakes-Backman, CEO of the Energy Storage Association.
With FERC's unequivocal action, "The Commission signaled a recognition of the value provided by storage today, and more importantly, a clear vision of the role electric storage can play, given a clear pathway to wholesale market participation," she explained.
The RTOs/ISOs and most market stakeholders also support FERC's Order 841, while also raising several concerns. Some questioned the mechanics or timing for compliance with the order.
Others are seeking rehearing, claiming that FERC's decision could be interpreted to pre-empt state commission decisions or prohibit behind-the-meter storage resources from participating in the wholesale markets.
At the same time that those issues are under consideration, RTOs/ISOs will need to draft new market rules to comply with FERC's directives. The FERC-imposed deadline to submit proposed rules is December 2018.
Until then, the RTOs/ISOs will be meeting with stakeholders to design tariffs that meet certain guidelines. Amid other requirements, the tariffs must improve dispatch flexibility and price formation, acknowledge the physical and operating characteristics of storage, ensure that charging energy is priced appropriately and allow storage resources the right to manage their own state of charge.
As is frequently the case, the devil will very much be in the details. Order 841 provides significant flexibility as to how the RTOs/ISOs design their tariffs. It is conceivable that some RTOs/ISOs will maintain the status quo and remain reliant on traditional generators to provide market services.
Therefore, it is imperative that energy storage companies and other stakeholders - individually and collectively - work collaboratively with grid operators. They must ensure that FERC's rule truly results in wins for the energy storage industry, the grid operators, the economy, the environment, and the nation's ratepayers.
The energy storage industry has waited many years for this opportunity. The stage is now set. Industry participants must assure an efficient, cost-effective and environmentally sound entry to the full energy marketplace, making Thomas Edison's one hundred thirty-five-year-old vision a reality at last.