In February, the Federal Energy Regulatory Commission (FERC) issued a historic regulation to ensure that energy storage resources can participate in the competition in the “ISO/RTO” wholesale power market. The ISO/RTO market has a lot of similarities with the spot market that is being piloted in several provinces in China. The ISO/RTO is an independent agency responsible for regulating the market, acting as a system operator (called a “dispatch center” in China) and managing the transmission system to ensure it is open and fair to all buyers and sellers in the market. Utilities are usually the owners of transmission assets, and they hand over the operation of transmission assets to the ISO/RTO.
The rule will help broaden the scope of fair competition in ISO/RTO markets so that energy storage—and soon other distributed resources—will compete directly with traditional resources such as coal and gas-fired power plants. The rule requires each ISO/RTO to complete a compliance filing with FERC within the next nine months (by the end of the year), which will outline changes to market rules and rates to facilitate the participation of energy storage resources, including small-scale energy storage at the distribution grid and even at end users (“behind the meter”). Later this year, FERC will further consider distributed energy resources after considering how to handle load aggregation and other thorny issues.
Overall, this regulation represents a very positive development trend, with several important points that can serve as a reference for the design and implementation of China's ongoing spot market:
Although the first ISO/RTO markets were implemented in the late 1990s and early 2000s, ISO/RTO officials and stakeholders have been continually examining the market and considering changes as the technology and environment in the power industry evolve, such as the challenges posed by the integration of variable renewable energy and new energy storage technologies. The work of market design never ends.
The rule requires each ISO/RTO to modify their tariff rules and market rules to take into account the specific characteristics of energy storage. In particular, the rule proposes 13 "physical and operational characteristics of energy storage resources," including characteristics related to charge state, charging time, charge/discharge limits, operating hours, charge/discharge ramp rates, etc. In short, ISO/RTOs will have to plan and optimize their dispatch systems to have more realistic capabilities to utilize energy storage resources. This will improve the effectiveness of the market and the physical operation of the grid.
At the heart of this rule is FERC’s determination to remove barriers to energy storage resource participation in the market and to allow energy storage resources to compete to sell all power system services (energy, various ancillary services, and capacity markets) based on the full technical capabilities of their resources. Clearly, FERC recognizes the range of valuable services that energy storage can provide. In the official release, FERC members argued that “energy storage participating in the energy market as a buyer and seller can alleviate the pressure on the system caused by peak load shaving and reducing overgeneration during low loads…Electricity storage resources can also provide frequency regulation and ramping services, which are the first countermeasures to regulate system frequency and help avoid accidents.”
Other benefits that could come from greater participation of energy storage in ISO/RTO markets include avoiding capacity charges, reducing peak electricity prices, reducing the cycling of fossil fuel units, managing net load ramping, minimizing generator startup and shutdown costs, and absorbing excess generation.
Another key principle of the regulation notes the importance of dispatching all available resources at the lowest cost. The regulation states that not allowing energy storage and other resources to participate in the market fairly “would reduce the efficiency of the ISO/RTO market, potentially leading the ISO/RTO to dispatch more expensive resources to meet system needs.”
Existing barriers to energy storage in ISO/RTO markets include high minimum power limits, restrictions on centralized energy storage assets, and stringent requirements in service capacity markets that inhibit energy storage participation.
The new rules require that small energy storage resources of 100kW must be allowed to participate in all markets (such as electricity, capacity, and ancillary service markets) independently. Energy storage companies that purchase electricity and charge from ISO/RTO should pay the marginal electricity price at the wholesale node.
Energy storage resources smaller than 100 kW should be able to participate in the market through load aggregators—although FERC has delayed its decision on a proposal that would have promoted the use and development of integrated resource aggregation models and opened up greater market participation in ISO/RTO markets to a broader range of resources, including distributed solar.
Consistent with FERC’s past process, the draft rule was issued for public comment in November 2016. FERC’s final rule, released in February, included considerations and responses to suggestions from a variety of stakeholders, including energy storage developers, consumer groups, utilities, and owners of traditional generation assets. FERC will further consider distributed energy resources at a public technical forum in April.
In summary, as China’s pilot provinces rapidly progress with spot market design, we believe it is important to introduce how the United States and other countries are reviewing and updating their existing market models to address the challenges of integrating variable renewable energy and to provide a level playing field for all resources. Emerging energy storage technologies can provide flexibility services, which will bring valuable resources to the market. But the market should be designed to recognize, reflect and encourage the value of these capabilities and services. The spot market that China is building has the opportunity to directly leapfrog the outdated models of the United States and other regions and directly introduce and implement these new design elements that keep pace with the times from the initial stage.
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