On February 15, 2018, the Federal Energy Regulatory Commission (FERC) provided a victory for proponents of energy storage when it issued an important new rule to expand the use of battery storage, flywheel, and other energy storage resources’ (ESR) participation in regional wholesale electricity markets. In its Order, FERC held that “better integration of ESR into the RTO/ISO markets is necessary to enhance competition and, in turn, help to ensure these markets produce just and reasonable rates.”[1] Thus, the rule provides for ESR eligibility in the capacity, energy, and ancillary services markets.

FERC’s 2016 Notice of Proposed Rulemaking stated that regional market rules largely reflect participation by traditional generation and load resources, and “in effect limit the services that emerging technologies can provide.”[2] Such traditional market design that fails to account for substantial ESR participation may lead “an RTO/ISO to dispatch more expensive resources to meet system needs.” [3] Requiring market designs to better incorporate ESR will enhance competition, and support the resilience of the bulk power system, given ESRs’ “ability to both inject energy into the grid and receive energy from it.[4]

Regional operators must propose ESR “participation models” conforming to FERC’s final rule later in 2018. Participation models must:

  1. Ensure that a resource using the participation model is eligible to provide all capacity, energy, and ancillary services that the resource is technically capable of providing in the RTO/ISO markets
  2. Ensure that a resource using the participation model 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
  3. Account for the physical and operational characteristics of electric storage resources through bidding parameters or other means
  4. Establish a minimum size requirement for participation in the RTO/ISO markets that does not exceed 100 kW.
  5. Ensure that the sale of electric energy from the RTO/ISO markets to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price.[1]

The final rule will result in long-term and substantial changes to the regional markets for ESR. Interested parties will have the opportunity to comment and provide input on the ISO/RTOs’ proposed participation models in the various regional stakeholder processes and upon filing of such proposals with FERC.