FERC Advances the Ball on Electric Storage, Calls for a Huddle on Distributed Energy Resource Aggregation

Stephen C. Zumbrun

In a move that has excited the renewable energy and electric storage industries, the Federal Energy Regulatory Commission (“FERC”) last month voted to remove barriers to the participation of electric storage resources in the capacity, energy, and ancillary service markets operated by Regional Transmission Organizations (“RTO”) and Independent System Operators (“ISO”). Pursuant to Section 206 of the Federal Power Act, which requires “just and reasonable rates,” FERC amended 18 C.F.R. § 35.28 to require RTOs/ISOs to revise their tariffs to establish market rules that recognize the physical and operational characteristics of electric storage resources and to facilitate their participation in the RTO/ISO markets. In the same order, FERC also punted on a decision for distributed energy resource aggregation reforms and called for a technical conference to further study possible reforms for the RTO/ISO markets.

Electric storage resources, those that are capable of receiving electric energy from the grid and storing it for later injection back to the grid, are already providing services in some RTO/ISO markets. However, FERC concluded that these resources use existing participation models designed for traditional generation or load resources which limit the full operational services that electric storage resources could provide. In its decision, FERC argued that these barriers reduce competition, create inefficiencies in the markets, and cause more expensive resources to be utilized; thus the models do not ensure “just and reasonable rates.” FERC claims that removing barriers for electric storage resources will enhance overall competition and support the resilience of the bulk power system.

To achieve these goals, FERC’s order requires each RTO and ISO to revise their tariffs within a year to create a participation model that, briefly stated, (1) ensures that resources are eligible to provide all technically capable services, (2) ensures that a resource can set the wholesale market clearing price as both a wholesale seller and wholesale buyer, (3) accounts for the specific characteristics of electric storage resources, and (4) establishes a minimum size for participation of 100 kW. Additionally, sales to an electric storage resource that the resource then resells back must be at the wholesale locational marginal price. Once the tariff revisions are developed, implementation by the RTOs/ISOs of these new tariff revisions are to occur the following year.

This FERC decision is an important development for both the renewable and electric storage industries. Energy storage can be a crucial element for renewable energy projects because the wind does not always blow and the sun does not always shine, or projects are located in areas away from population centers. While this is a substantial development, what could be another game-changer for renewable energy advocates is the outcome of FERC’s actions for distributed energy resource aggregations.

The original FERC Notice of Proposed Rulemaking (“NOPR”) that preceded the February FERC decision also called for new actions on distributed energy resource (“DER”) aggregations. DERs are smaller power sources, for example smaller-scale electric storage resources, thermal storage, or electric vehicles, which can be aggregated for purposes of greater participation in energy markets. The FERC NOPR called for revisions to RTO/ISO tariffs to allow DER aggregators to participate directly in organized wholesale electric markets.

Like the electric storage resources, FERC argued that DER aggregation has existing market barriers, such as being limited to participating as a demand response, and current demand response models can prohibit DERs from injecting power back onto the grid. Additionally, FERC noted that technology advancements support DER aggregation in the organized wholesale electric markets under participation models other than demand response and greater participation of these resources will allow RTOs/ISOs to capitalize on an aggregation’s full operational range.

A FERC decision requiring greater DER aggregator participation could have significant impacts going forward. FERC’s position was that DER cost reductions and technological advancements create greater opportunities for these resources to contribute to the wholesale markets with aggregation. Additionally, FERC cited reports by the Lawrence Berkeley National Laboratory that indicated significant increases are forecast for DER penetration rates in both the Eastern and Western Interconnections by the 2030s.

Suffice it to say that this recent FERC decision for electric storage and the upcoming technical conference for DER aggregation, scheduled for April 10–11, 2018, appear to be only starting points for more developments in this space. By next year we will see compliance filings from the RTOs/ISOs regarding electric storage participation, with implementation to occur by the following year. A small amount of time considering these projects are designed to last for decades. We will likely see increased development in electric storage project proposals, with some energy industry commenters suggesting that energy storage could compete directly with natural-gas peak generators. Additionally, should there be considerable reforms from FERC regarding DER aggregation, there will certainly be an increased push for DER aggregation projects. Stay tuned.

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