The Federal Energy Regulatory Commission (FERC) finalized a rule to make it easier for energy storage resources to participate in capacity, energy, and ancillary services in wholesale electricity markets.

The final rule, approved unanimously by the five-member commission, will require independent system operators (ISOs) and regional transmission organizations (RTOs) to revise tariffs to establish a participation model for energy storage that should be designed to properly recognize the physical and operational characteristics of electric storage resources. The rule also requires that the sale of power from the wholesale electricity market to an electric storage resource (which the resource then resells back to those markets) must be at the wholesale locational marginal price.

FERC declined, however, to act on a proposal to require incorporation of aggregated distributed energy resources (DERs) into wholesale markets, saying it will further consider those issues at a technical conference to be held this April.

A Major Development for Energy Storage

The “Final Rule on Electric Storage Resource Participation in Markets Operated by Regional Transmission Organizations,” issued on February 15 follows a November 2016 FERC Notice of Proposed Rulemaking (NOPR), and it will take effect 90 days after publication in the Federal Register.

Under the rule, participation models required from ISOs and RTOs must ensure that an energy storage resource using the model is eligible to provide all capacity, energy and ancillary services that it is technically capable of providing; that it can be dispatched; and that it can set the wholesale market clearing price as both a seller and buyer consistent with existing market rules. The participation model must also account for physical and operational characteristics of energy storage through bidding parameters and other means, and it must set a minimum size requirement that is below 100 kW.

Compliance filings are due from RTOs and ISOs 270 days after the effective date. Grid operators under FERC’s jurisdiction will then get a year to implement tariff revisions.

The final rule is a major victory for energy storage providers, which have pushed FERC to establish more transparent and standardized policies governing how electric storage technologies participate in wholesale markets, especially as storage installations proliferate and costs decline. Partly owing to dramatically falling costs, energy storage capacity is projected to increase by 750% in just five years, according to GTM Research.

In its proposed rule, FERC agreed, noting that market rules, which were designed for traditional generation resources, have evolved to accommodate demand response, variable energy resources, and other technologies, but still create barriers to entry for emerging technologies like energy storage resources.

Kiran Kumaraswamy, market applications director for Fluence— a joint venture recently launched by storage heavyweights Siemens and AES Energy Storage to provide energy storage technology and services to the burgeoning market—told POWER on February 16 that the commissioner’s unanimous vote showed support for energy storage’s increasing value to the grid in the form of  greater flexibility, reliability and resilience.

“How the regional wholesale markets implement FERC’s order is where the rubber hits the road on maximizing storage’s value to utilities and end-use customers – value we know storage can deliver from a decade of deployments in 15 countries,” he said. “We are already seeing a big opportunity for storage to provide flexible peaking capacity and in storage+solar configurations, displacing traditional power assets like natural gas peaking plants.”

Kelly Speakes-Backman, CEO of the Energy Storage Association, in a February 15 statement also expressed enthusiasm about the rule. “The full actions taken this morning by the FERC represent the culmination of a concentrated and holistic review of the framework needed to support participation of vital electric storage technologies in the wholesale markets,” she said.

FERC Commissioners: Storage Poised to Provide Critical Role

According to FERC Commissioner Cheryl LaFleur, the vote to remove barriers to storage resource participation in RTO/ISO markets is timely. Electric storage has myriad benefits, such as providing energy in conjunction with variable renewable generation, as well as frequency regulation and other ancillary services, both which can help defer distribution and transmission needs.

It is something of a cliché to refer to electric storage as a game changer, but it is also true,” she said in statement, noting that technologies including batteries, flywheels, compressed air, thermal storage and others are rapidly gaining commercial viability and scale.  “Given the ongoing changes in our nation’s resource mix, and the changing capabilities needed to serve customers, electric storage is poised to provide a critically important role.”

Commissioner Robert F. Powelson in a separate statement said the final rule struck an appropriate balance between “prescriptive requirements and high-level directives.” By ordering RTOs and ISOs to adopt a participation model, FERC has “given the RTOs and ISOs significant latitude to develop market rules that work best with existing market constructs and are respectful of regional differences,” he said.

Commissioner Richard Glick commented that the removal of market barriers for energy storage is required not only by FERC’s statutory mandate to ensure just and reasonable rates, but also by the Federal Power Act’s prohibition against undue discrimination or preference.

“Simply put,” he said, “because energy storage resources are capable of providing wholesale market services on a basis that is equal to or, in some cases, superior to conventional forms of generation, the maintenance of barriers to these resources’ participation in the wholesale market is, on its face, discriminatory and preferential.”

More Information Needed on Aggregated DERs

On February 15, FERC also concluded that more information is needed to identify what action it should take to remove unnecessary barriers to market participation by aggregated DER resources.

DERs—which FERC staff defines as “small, geographically dispersed generation resources, such as solar or combined heat and power, installed and operated on the distribution system at voltage levels below the typical bulk power system levels of 100 kV—have increased significantly nationwide, owing to technology advances and state energy policies,” agency staff said in a report released on February 15. In 2016, it said, DERs accounted for about 2% of installed generation capacity in the U.S. In 2016, however distributed solar photovoltaic represented 12% if new capacity additions.

According to FERC staff, a series of technical assessments showed that increasing DER capacity—if not properly accounted for—could cause “reliability concerns for the bulk power system.”

Yet much remains to be studied, such as sensitivities with higher DER penetration levels, changes in siting patterns, and potential impacts to the system’s response to events, disruptions and outages, including frequency events, FERC said. That information will be gathered and refined in a discussion with industry at a technical conference FERC will convene on April 10–11, 2018.

FERC said it also intends to use the conference to discuss other technical considerations for the bulk power system related to DERs, and it encouraged broad participation from state regulators, distribution utilities, distributed energy resource experts, market operators, and others.

For LaFleur, the technical conference should address two broad sets of issues: “The first relates to ensuring just and reasonable payment for distributed services. Since storage and other distributed resources are technically capable of providing many different services at both the wholesale and retail level, there needs to be a crisp understanding of who pays what to whom for what, which encompasses service definition, accounting, metering, and billing,” she said.

“The second set of issues relates to operational coordination. I know, from experience, that distribution systems tend to be operated very dynamically. We need to figure out how the transmission and distribution control centers will coordinate so that there is appropriate visibility of the deployment of distributed resources to ensure reliability and safety at all levels,” she added.

Industry experts also widely lauded FERC’s approach. Avi Zevin, attorney at the Institute for Policy Integrity at New York University School of Law, said, “FERC has once again shown that it is putting rationality above politics while it manages complex changes in electric markets. The storage rule gives RTOs time to implement this important policy. And by gathering more information before acting on distributed energy resources, FERC can harmonize its policy with state efforts to compensate resources for distribution and environmental benefits.”

—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)

Updated (Feb. 16): Adds comments by Kiran Kumaraswamy,  Fluence market applications director