FERC Moves to Integrate Energy Storage into National Wholesale Markets

Jesse Remillard, ERS, for Zondits

Over the last few years, the Federal Energy Regulation Committee (FERC) has been implementing policy to build energy storage into electricity markets. FERC Order 745, which required grid regulators to allow energy storage resources to bid into wholesale markets, was initially passed in 2012. In 2014, Order 745 was challenged by the Electric Power Supply Association but was upheld in early 2016. In another step forward, FERC issued a notice on November 16, 2016, for proposed rulemaking that would require regional transmission organizations (RTOs) and independent system operators (ISOs) to:

  1. “Establish a participation model consisting of market rules that, recognizing the physical and operational characteristics of electric storage resources, accommodates their participation in the organized wholesale electric markets.”
  2. “Define distributed energy resource aggregators as a type of market participant that can participate in the organized wholesale electric markets under the participation model that best accommodates the physical and operational characteristics of its distributed energy resource aggregation.“

Previous policies by FERC supporting energy storage include FERC Order 755 and Order 784, which provide pay-for-performance requirements and direct utilities and ISOs to consider speed and accuracy when purchasing frequency regulation.
The proposed FERC rulemaking comes in response to comments from the Energy Storage Association (ESA) made in June 2016. ESA makes the point that the Pennsylvania, New Jersey, Maryland Power Pool (PJM) territory has nearly 300 MW of installed advanced electric energy storage, while the ISO-New England, Midcontinent ISO, and Southwest Power Pool markets have 0 MW of advanced electric energy storage. The filing argues that energy storage has been contending against rules designed for traditional generators, and it makes a series of recommendations on how to equalize the playing field for energy storage resources both in front of and behind the meter. Those recommendations are:

  1. Write tariff language that defines resources types for electric energy storage to participate in all market services.
  2. Require ISOs/RTOs to implement nondiscriminatory bid parameters and resource models giving guidance on how storage assets will be utilized in markets.
  3. Change the qualification criteria so that eligible electric energy storage resources are not excluded from participating in markets due to criteria designed for generators.
  4. Reform capacity markets to include an avenue for energy limited resources to participate, and create rules for storage participation in energy markets.

To date, energy storage investment activity has been concentrated mostly to the California and PJM markets. This is a result of strong policy support in these states through implementation of rules to clarify exactly how energy storage can participate in those energy markets. This has been driven by the need for flexible demand management and frequency regulation solutions, as well as support for intermittent renewables.
The proposed rulemaking would require regulators to set up policy infrastructure for energy storage and distributed energy resources, which would lead to code definition and established procedure on both sides of the meter to participate in wholesale markets. This would provide the structure needed to assess the value of energy storage equipment investments and legitimize these resources in the eyes of financiers, which would likely lead to investment in these resources, as seen in the California and PJM markets.
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