A recent federal ruling is likely to give energy storage its biggest boost in years, and buoy microgrids along the way, by granting storage more access to revenue from competitive wholesale electricity markets.
Issued February 15 by the Federal Energy Regulatory Commission, the rule aims to eliminate barriers that prevent energy storage from taking part in wholesale capacity, energy and ancillary services markets.
This is a critical issue for the storage and microgrid industries, whose members have said that storage should be able to participate on a level playing field with generation and other resources.
Grid-connected microgrids benefit from the new rule because they increasingly use energy storage as a tool to enhance project economics.
In the final decision, FERC required regional transmission organizations (RTO) and independent system operators (ISO) to revise their tariffs and create models that allow energy storage into the market.
Game changer for microgrids too
“The new FERC rules will be a game changer for energy storage in microgrids because they will create more economic options for storage, with less risk involved,” said David Jones, manager at ICF, which provides business consulting. “The guarantee of participating in wholesale electricity markets will provide more certainty and stability compared to the currently available frequency regulation, demand response, and price hedging options for energy storage in grid-connected microgrids.”
The ruling will allow microgrids to pencil out better by letting them pull in revenues from different streams, including wholesale and retail-level streams, said Kelly Speakes-Backman, CEO of the Energy Storage Association (ESA). She noted that wholesale prices ultimately affect retail prices.
The ruling will allow microgrids to pencil out better…
For the ESA, the ruling comes after two years of hard work pushing the changes.
“We’re really excited about this,” she said. ”By asking the RTOs and ISOs to look at integrating electric storage into the grid, they are saying, ‘Take a look at the different products storage can offer, and make sure they are incorporated into different opportunities.’”
Path to 35 GW of energy storage
Speakes-Backman added that the FERC ruling will have the biggest impact she’s seen on storage in many years. “It opens the market for so much more storage to come online.”
An ESA vision statement said that if regulatory barriers were removed, allowing storage to participate in wholesale and retail markets, the industry could aim for a goal of 35 GW of storage online by 2025, she said. As of 2017, the U.S. had only 0.5 GW of energy storage.
“This decision had to happen in order to reach that goal,” Speakes-Backman said.
However, some challenges remain.
The regional markets — RTOs and ISOs — operate differently and have distinct needs that storage can supply. As a small organization, ESA has a lot of work to do to address those different markets. ESA already has been talking to the California Independent System Operator and PJM, a regional transmission system operator, about using storage to provide multiple values. With the rule in place, ESA now can address specifically what those products can be and how to create them.
Sammy Chu, CEO of energy consulting company Edgewise Energy, agreed that adopting the ruling will take some work.
“We still need tariffs and policy adoption by local utilities to properly understand how distributed energy resource (DER) aggregators are going to be able to participate in the market and to determine the overall value proposition,” he said.
In addition to removing barriers for energy storage, FERC also issued some important clarification about its use in wholesale markets.
During the February 15 open meeting, FERC said in Order 842, Docket RM 16-6 that ISOs should not require that storage operators run batteries outside of the batteries’ operating range, said Speakes-Backman. FERC ruled that storage operators can identify their operating range in their applications to provide services, and that ISOs must work within those ranges.
When energy storage is viewed solely as a generation resource, ISOs call for a nameplate capacity, just the way they call for nameplate capacities for more traditional types of generation, she explained.
“For storage, yes there is nameplate capacity, but there is an operating range, and if you go all the way from one to the maximum capacity, it shortens the life of the battery,” she said.
“Order No. 842 demonstrates a further commitment by FERC to ensuring that electric market operators effectively integrate energy storage resources onto the grid while taking account of their unique characteristics, which will serve to boost wholesale markets (and thus provide downstream relief on retail rates),” said Speakes-Backman.
Compensated for multiple value streams
FERC also ruled that energy storage can provide primary frequency response while simultaneously offering other services. That means energy storage can get compensated for multiple value streams, she said.
Charlie Palmer, managing director at Opportune’s Process and Technology energy consultant practice based in Houston, described the new rule as “a great start to push the ISO/RTO’s to figure out how to effectively incorporate (storage) into the wholesale markets. It forces recognition of all potential benefits for storage – broader access to ancillary and energy markets. “
However, he said, the ISOs and RTOs still need to address many “sticky issues” with solid implementation plans.
“We’re building a building here,” added David Schlissel, director of resource planning analysis for the Institute for Energy Economics and Financial Analysis. “The FERC rule is another big block in the foundation of that building, and the decline in wind and solar installation costs is another step in that direction. This is a big deal.”
Learn more about energy storage in microgrids. Join us at Microgrid 2019 in San Diego May 14-16.