Federal Energy Regulatory Commission’s much-anticipated new rule will enhance the participation of electric storage resources in the organized wholesale electricity markets.
Nearly a year and a half after issuing its original proposal, the Federal Energy Regulatory Commission (FERC or Commission) has unanimously adopted its final rule—Order No. 841—on Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators (Storage Rule). The Storage Rule is the culmination of FERC’s proceedings following the notice of proposed rulemaking issued in November 2016 (Storage NOPR) whereby FERC originally proposed enhancing the participation of electric storage resources in the organized capacity, energy, and ancillary service auction markets operated by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).
The Storage Rule recognizes the improving capabilities and cost-competitiveness of electric storage resources (such as batteries, flywheels, pumped-hydro, etc.) and is designed to further pave the way for such resources to participate in the organized wholesale electricity markets alongside conventional energy sources. At the same time, the Commission determined that further information is needed about proposed reforms related to market participation of aggregations of distributed energy resources (DERs) in the RTO/ISO markets. The Commission therefore directed FERC staff to convene a technical conference on April 10-11, 2018 to gather additional information before deciding what action to take on those proposals.
Storage Rule Requires RTOs/ISOs to Establish Participation Models
The Storage Rule specifically requires each RTO/ISO to revise its tariff to establish a “participation model consisting of market rules that, recognizing the physical and operational characteristics of electric storage resources, facilitates their participation in the RTO/ISO markets.” By “participation model,” FERC refers to tariff provisions that RTOs/ISOs create specifically for certain types of resources with physical or operational characteristics warranting distinctive treatment from other market participants. Under the Storage Rule, these participation models must:
- Ensure that an electric storage 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
- Ensure that an electric storage 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
- Account for the physical and operational characteristics of electric storage resources through bidding parameters or other means
- Establish a minimum size requirement for participation in the RTO/ISO markets that does not exceed 100 kW
- Require that sales of power from the RTO/ISO markets to an electric storage resource, which the resource then resells back to those markets, be at the wholesale locational marginal price (LMP)
RTOs/ISOs will have 270 days after the publication of the Storage Rule in the Federal Register on March 6, 2018 to file their proposed tariff revisions with FERC, followed by an additional 365 days to implement the revisions.
Scope of the Definition of Electric Storage Resource
In the Storage NOPR, FERC initially proposed to define an electric storage resource “regardless of where [it] is located on the electrical system,” and to include such resources in the definition “whether the resource is located on the interstate grid or on a distribution system.” In the Storage Rule, the Commission opted to drop the first phrase from the definition, while still encompassing “electric storage resources located on the interstate transmission system, on a distribution system, or behind the meter.”
In doing so, the Commission’s stated goal is to “ensur[e] that the market rules will not be designed for any particular electric storage technology,” yet, at the same time, ensure that RTO/ISO market rules “account for the unique physical and operational characteristic of electric storage resources, namely their bidirectional capability to both inject energy to the grid and receive energy from it.” The Commission specifically notes that an electric storage resource injecting energy back to the grid to participate in an RTO/ISO market is engaging in a sale of electricity at wholesale in interstate commerce, which is within FERC’s exclusive jurisdiction under the Federal Power Act.
The Commission therefore declined to expand the definition to those behind-the-meter resources that do not inject electric energy onto the grid at all. This applies whether they are physically incapable of doing so or “contractually barred” from doing so by any interconnection agreement with a distribution utility.
Minimum Run-Time Requirements
In some of the RTO/ISO capacity markets, a participating resource must meet a minimum run-time duration. For example, in the capacity market administered by the New York ISO, there is a four-hour minimum run-time requirement. Such minimum run-time requirements can be problematic for electric storage resources, which are generally energy-limited. For example, a 10 MW battery with an energy capability of 20 MWh can supply its full capacity of 10 MW for only two hours.
Recognizing this limitation and its potential as a barrier to participation in the RTO/ISO capacity market, FERC proposed in the Storage NOPR that an electric storage resource be permitted to offer less than its nameplate capacity (known as de-rating) to meet minimum run-time requirements to provide capacity or other services. This applies so long as the de-rated capacity value remains consistent with the quantity of energy that must be offered into the applicable RTO/ISO day-ahead energy market for resources with capacity obligations. Following the previous example of a 10 MW/20 MWh battery, this would mean that the battery could de-rate its capacity to 5 MW to meet a four-hour minimum run-time requirement.
In the Storage Rule, the Commission largely adopts this proposal. However, in response to comments, the Commission clarifies that the rule does not exempt electric storage resources participating in RTO/ISO capacity markets from meeting those markets’ performance metrics and criteria, such as minimum run-time requirements, that apply to other participating resources. The Commission also acknowledges “reasons why the de-rated capacity value for electric storage resources might not be consistent with the quantity of energy that must be offered into the day-ahead energy market,” but aims to “provide each RTO/ISO flexibility either to use its existing rules for must-offer quantities or to modify its existing rules as necessary.”
Upcoming Technical Conference
In the Storage NOPR, FERC had proposed to take action to remove barriers to participation of DER aggregations in RTO/ISO markets. However, in the Storage Rule, the Commission declined to take any action at this time regarding specific market participation rules for DER aggregations. While the Commission voiced continued support for the goal of removing such barriers, it instead elected to issue a Notice of Technical Conference under a new docket to have FERC staff gather additional information and comments on the DER aggregation proposals in the NOPR. The Technical Conference will take place on April 10-11, 2018, and will also cover “other technical considerations for the bulk power system related to distributed energy resources.” The Commission’s decision to put off final action on DER aggregations indicates that, far from being over, discussions are still in the early stages with respect to these reforms.