FERC Transforms the Role of Storage in Wholesale Markets

  • Tim Olson

Last week, the Federal Energy Regulatory Commission (FERC) unanimously approved a rule that will break down barriers for energy storage deployment in wholesale energy markets.

Current regional transmission organization (RTO) and independent system operator (ISO) rules for resource participation in wholesale electricity markets reflect the fact that for the last century electricity generation has been largely a one-way street: assets produce electrons and move them onto the grid. While some RTOs/ISOs have resource participation plans for energy storage, they do not encompass the full spectrum of ancillary services and benefits storage can provide to the grid. This framework has made it difficult for energy storage to participate in wholesale markets. The FERC rule is a major step towards unlocking the value of storage and opening up these important markets, which account for approximately 75 percent of the nation’s electricity supply.

Breaking Down the Rule

FERC’s decision approves a rule that was first proposed in November 2016, and then put on hold after the election while FERC was without a quorum. The newly adopted rule requires each RTO/ISO to revise its tariff and market rules so that they recognize the physical and operational characteristics of electric storage resources and accommodate their participation in wholesale markets. The rule gives significant leeway to RTOs/ISOs, even as it sets five parameters for new participation models.  Under the new rule, they must:

  1. “ensure that electric storage resources are eligible to provide all capacity, energy and ancillary services that they are technically capable of providing in the organized wholesale electric markets” (give value to all of the energy storage services)
  2. “Incorporate bidding parameters that reflect and account for the physical and operational characteristics of electric storage resources” (make the rules specific to storage and account for storage’s limitations such as duration)
  3. “ensure that electric storage resources 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” (ensure storage can buy and sell, it isn’t a one-way street)
  4. “establish a minimum size . . . for participation . . . that does not exceed 100 kW” (set a minimum size but don’t make it unreasonably large to keep storage out of the market)
  5. “specify that the sale of energy from the organized wholesale electric markets to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price” (storage cannot buy at wholesale prices and take advantage of other markets such as retail consumption).

What this Decision Means for Renewable Energy

The FERC decision continues a 2017 trend that saw a number of big headlines for energy storage. Last year witnessed record low prices for energy storage combined with renewables. NextEra Energy Resources contracted for a solar-plus-storage 20-year PPA at the lowest rate seen yet (4.5 cents/kWh), while Xcel Energy could break that record this year after seeing a median bid for solar-plus-storage at 3.6 cents per kWh last year. Tesla caught the attention of the industry as it succeeded on its pledge to deliver the world’s largest battery in 100 days. In California storage was quickly deployed to fill an energy shortage caused by the worst natural-gas leak in U.S. history at Aliso Canyon. By requiring RTOs/ISOs to create rules that reflect the many services energy storage can provide, FERC’s decision will help ensure that we build on last year’s progress for energy storage in the U.S.

The new rule is a welcome forward-thinking policy that embraces the value and role of renewables and energy storage in the 21st Century grid, at a time when it seems new technologies are often on the defensive federally. In 2016, ACORE released a report detailing the multi-faceted value proposition for energy storage, and the failure of electricity markets to recognize these capabilities. It’s encouraging to see a FERC decision that embraces suggestions such as those in our report on how to unlock the full potential of energy storage in organized markets.