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FERC Lowers Barriers to Electricity Storage

The Federal Energy Regulatory Commission (FERC), with four new Commissioners confirmed during the latter half of 2017, including a new Chairman, is taking a critical next step toward clearing away obstacles to wholesale market participation by storage resources, a key emerging technology.

At its recent public meeting, FERC approved a final rule that largely adopted its 2016 proposed rule aimed at knocking down barriers to electricity storage resource participation in markets administered by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).[1]  Four of the FERC commissioners issued separate statements supporting the rule.[2]

As reported on this blog, FERC’s 2016 proposal also would have required RTOs and ISOs to allow distributed energy resource aggregators to participate in the markets.  However, the Commission said it needs additional information on aggregator participation and will hold a technical conference.

The Energy Storage Association said FERC’s new rule “signaled both 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.”

In the wake of this final rule, market observers are expecting a flurry of activity and development in storage.  How FERC manages RTO implementation, and how innovative technology providers respond to the RTO market rules, will continue to shape the nascent market for real-time electric storage resource services.  Energy storage has been a prominent issue among California policymakers.

Market rules for storage resources

Current market rules designed for traditional generation resources can create barriers to entry for emerging technologies, such as electric storage resources, and limit the services they can provide.  In its order, FERC finds that better integration of electric storage resources into the RTO markets is necessary to enhance competition and ensure that these markets produce just and reasonable rates.

The new final rule requires each RTO to adopt market rules that recognize the physical and operational characteristics of electric storage resources.  Those rules must do the following:

Ensure that electric storage resources are eligible to provide all services that they are technically capable of providing.  Some organized wholesale market rules now limit the services that electric storage resources may provide.  For example, smaller electric storage resources are  generally restricted to participating in the markets as demand response, which can limit their ability to employ their full operational range and prohibit them from injecting power onto the grid.

Ensure that storage resources can be dispatched and can set the wholesale market clearing price as both a wholesale seller and wholesale buyer.  Storage resource participation as both sellers of services and buyers of energy will improve market efficiency and competition by allowing the RTO to dispatch these resources in accordance with their most economically efficient use.  In addition, participation as dispatchable load will allow storage resources to set the market clearing price, thus better reflecting their value and ensuring they are dispatched based on the highest value service they are capable of providing.

Account for the physical and operational characteristics of storage resources through bidding parameters or other means.  The physical and operational characteristics of a resource must be accounted for so that the RTO can model and dispatch the resource consistent with its operational constraints.  Some characteristics are flexible and can be changed through a resource’s offer or bid while others are static and thus would not change in an offer or bid.  Accordingly, FERC recognizes there may be means other than bid parameters to account for physical characteristics that do not change over time, such as reporting that information when registering as a market participant, and allows RTOs some flexibility.

Set a minimum size requirement not to exceed 100 kW for participation in the organized wholesale markets.  Electric storage resources range in size from 1 kW to 1 GW, and most of them tend to be under 1 MW.  FERC observes that all RTOs already have the modeling and dispatch software capabilities to accommodate the participation of resources that are as small as 100 kW.

Specify that the sale of energy from the market to a storage resource that the resource sells back to the market must be at the wholesale market clearing price.FERC has found that the sale of energy from the grid that is used to charge electric storage resources for later resale into the energy or ancillary service markets constitutes a sale for resale in interstate commerce.  As such, the just and reasonable rate is the RTO market’s wholesale Locational Marginal Price.

The rule applies to resources that voluntarily participate in RTO markets and are capable of receiving electric energy from the grid and storing it for later injection back to the grid, regardless of their storage medium (e.g., batteries, flywheels, compressed air, and pumped-hydro).  FERC clarified that the rule applies to storage resources located on the interstate transmission system, on a distribution system, or behind the meter, and rejected a request to allow states to decide whether storage resources located behind a retail meter or on the distribution system may participate in the RTO markets.

Each RTO must file tariff changes needed to implement the requirements of this final rule within 270 days of its publication in the Federal Register.

Market rules for distributed energy resource aggregators

FERC’s 2016 proposal recognized that individual distributed energy resources may be too small to participate directly in the organized wholesale electric markets on a stand-alone basis.  For example, they may not meet the minimum size requirements to participate or have difficulty satisfying all of the operational performance requirements.  The proposal would have required each RTO to allow distributed energy resource aggregations, including electric storage resources, to participate directly in the wholesale electric markets under rules that best accommodate the physical and operational characteristics of the aggregation.

FERC found that it needs additional information before deciding what action to take regarding distributed energy resource aggregation reforms.  Accordingly, the Commission will hold a two-day technical conference in April.

[1] For brevity, this post will use the term RTO to refer to both RTOs and ISOs.

[2] Separate statements were issued by Commissioners LaFleurChatterjeePowelson and Glick.

© 2018 Covington & Burling LLP

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About this Author

Wilbur C. Earley, Energy attorney, Covington Burling
Energy Policy Advisor

Drawing on has over 39 years of experience in the energy industry, Bud Earley, a non-lawyer senior advisor, provides analysis and advice on a wide range of federal and state energy regulatory issues, including transaction and rate issues, regional transmission organization (RTO) tariffs and rules, interconnection, retail choice and demand response for electricity customers, a natural gas pipelines and hydroelectric facility licenses, and LNG export authorizations.

202-662-5434