November 25, 2016

Federal Power Regulators Propose Rule to Remove Barriers to Energy Storage Participation in US Markets

The Federal Energy Regulatory Commission (FERC) on Nov. 17 issued a noticed of proposed rulemaking (NOPR) that plans to direct U.S. transmission system operators (TSO) to establish market rules to accommodate energy storage participation in organized wholesale electric markets.

FERC said in the NOPR that it hopes to remove barriers to the participation of energy storage resources and distributed energy resource aggregations in the capacity, energy, and ancillary service markets of TSOs.

As part of the NOPR, TSOs would also define distributed energy resource aggregators as a type of market participant that can participate in the organized wholesale electric markets under a model that best accommodates the physical and operational characteristics of distributed energy resource aggregation.

FERC said that TSOs currently establish the participation models for different types of resources, but some models place limitations on the services that some resources can provide. For example, stored energy resources are only allowed to provide regulation service in certain TSO territories, and some energy storage resources participate as demand response because, absent appropriate participation models, demand response most closely resembles the manner in which energy storage could participate in markets.

Comments on the NOPR will be due 60 days after publication of the proposed rule in the Federal Register.

Stakeholder Insight

During a Nov. 9 technical conference on utilization of energy storage as transmission assets, some stakeholders expressed concerns about creating unique mechanisms for energy storage in markets.

A representative of the California Independent System Operator (CAISO) on Nov. 9 told FERC that, in CAISO’s experience, energy storage more effectively fits within the framework of market resources providing local capacity than as transmission assets.

In a statement to FERC, CAISO Executive Director, Infrastructure Development, Neil Millar said that CAISO has studied a number of potential electric storage projects as reliability solutions, ranging from transmission asset models to local resources participating in markets.

“The former has not resulted in energy storage transmission assets moving forward, whereas the latter has resulted in a number of energy storage projects providing local capacity,” Millar said.

Millar said that, to the extent that TSOs have developed models for energy storage to participate in energy and ancillary services markets, exploring a separate mechanism to compensate energy storage resources for these services could distort efficient market outcomes.

PJM Interconnection, in its statement to FERC for the technical conference, said that the question of whether energy storage can be considered a transmission asset requires “careful consideration” of the overall market opportunities provided to all resources, and whether there are particular “niche” applications where energy storage can provide a more cost-effective solution than new transmission or system upgrades.

PJM said that FERC should not “bend the market design” to give energy storage, or any technology, a competitive edge.

To date, PJM has incorporated more than 300 MW of emerging energy storage resources, such as batteries and flywheels, into its ancillary service markets, according to the statement.

FirstLight Power Resources, an owner of hydroelectric and pumped storage hydro facilities in the U.S. Northeast, agrees with PJM’s estimation that all energy storage resources should participate on a “level playing field” in the wholesale market.

Tom Kaslow, policy director for FirstLight, said in a statement to FERC that, while all existing and new energy storage resources can be operated in a way that “mimics a wholesale transmission function,” this single aspect of service does not warrant compensation as a transmission asset.

Compressed air energy storage (CAES) developer WindSoHy told FERC that current regulations have effectively prohibited the development of CAES projects.

“CAES is an incredibly flexible energy storage technology that blurs the lines between generation and transmission/distribution,” WindSoHy CEO Joe Spease said. “Therefore, it is important for FERC to update the energy market regulations related to energy storage before we can take full advantage of the capabilities of CAES.”

Spease said that, although FERC has deregulated generation allowing providers to sell wholesale electricity at market-based rates into organized markets, transmission remains subject to strict adherence of open-access transmission tariffs and cost-of-service ratemaking.

Since CAES can act like a generator and a transmitter, under the current market design, CAES developers must choose between participating solely as a generator providing energy for the organized wholesale markets, or solely as a transmitter that receives cost-based returns through an open access transmission tariff.

Spease said, in this way, FERC is preventing CAES from realizing the full value potential of its abilities, and delaying needed investment for the growth of the wind and solar industries.

FERC said in its NOPR that it is taking action in the proposed rule so that electric resources will be able to participate in markets to the extent they are technically capable of doing based on rules that take into account their unique characteristics and not based on market rules designed for the unique characteristics of other types of resources.

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