Fostering fundamental changes in the way Americans produce, distribute and use electrical power, federal and state electricity market regulators have been assembling the institutional framework required to fairly and more comprehensively value the contributions energy storage systems offer in terms of electric grid performance, reliability and resilience.
Responding to the need to modernize electrical power infrastructure and build in the flexibility to incorporate and manage the fast growing amount of variable solar and wind power generation capacity coming online, federal and state electricity regulators are employing a mix of market-based mechanisms driven by regulatory-push – e.g. legislative mandates – as well as market-pull – i.e. payment-for-services agreements.
Market Pull and Regulatory Push
In October 2011, the Federal Energy Regulatory Commission (FERC) issued FERC Order 755. FERC Order 755 requires that regional transmission operators (RTOs) and independent service operators (ISOs) offer “just and reasonable rates” to providers of grid frequency regulation resources based on the actual service provided, Proceedings of the IEEE invited report author and Senior Member Michael Kintner-Meyer highlights in “Regulatory Policy and Markets for Energy Storage in North America.”
FERC Order 755 stipulates that transmission operators develop pay-for-performance tariffs for ancillary services. That includes “a capacity payment for the marginal unit’s opportunity costs and a payment for the performance that reflects the quantity of frequency regulation services provided by the resource when the resource is following the dispatch signal, also referred to as ‘mileage’ payment,” Kintner-Meyer points out in his Proceedings of the IEEE report, one of a series of articles on energy storage published in recent IEEE Proceedings’ special issues devoted to the topic.
Though it is technology-agnostic and does not make any mention of energy storage systems specifically, FERC Order 755 opened up the door for energy storage systems in U.S. electricity markets. “While this order is technology neutral, it clearly plays into the fast-responding capability of energy storage technologies,” Kintner-Meyer writes. To date, PJM, CAISO, MISO, NYISO and NE-ISO have followed through on FERC Order 755 and are now offering “new tariff-for-regulation services based on pay-for-performance principles.”
FERC followed Order 755 up in July 2013 with the issuance of FERC Order 784, which requires transmission providers to factor in speed and accuracy when determining requirements for ancillary services. Then, in November last year came FERC Order 972, which revised the small generation interconnection agreement to include energy storage as a power source, putting “energy storage on par with existing generators,” Kintner-Meyer continues.
Energy Storage at the State level
At the state regulatory level, California was the first to enact legislation – AB2514 – that requires the three largest investor-owned utilities (IOUs) to acquire and increase energy storage capacity to a total of 1.325 gigawatts (GW) over four specific time periods: 2014, 2016, 2018 and 2020). The California Public Utilities Commission (CPUC) instituted energy storage capacity targets spanning three facets of the electricity grid: transmission, distribution and “behind-the-meter” customer energy storage.
New York State is moving in the same direction, having announced preliminary information regarding an energy storage incentive program for non-generation grid resources.
North of the border, Ontario’s Long-Term Energy Plan stipulates that the provincial government will acquire an initial 50 MW of energy storage capacity this year and assess additional procurement on an ongoing basis. The incorporation of energy storage capacity will also be considered in evaluating proposals for renewable energy projects of more than 500 kW.
Energy-storage market prospects
As Kintner-Meyer writes, “The last five years have been one of the most exciting times for the energy storage industry. We have seen significant advancements in the regulatory process to make accommodations for valuing and monetizing energy storage for what it provides to the grid.
“The next five to ten years will offer significant opportunity for energy storage and other flexible grid services for a growing market in North America and worldwide.”
Capitalizing on FERC and California’s regulatory changes, we’re building up a market-leading position in the emerging U.S. energy storage market, more specifically among commercial and industrial companies, as well as municipalities and other organizations, looking to enhance energy efficiency and reduce energy bills by installing “behind-the-meter” energy storage systems.
Just this month, we joined with K Road DG in raising $56 million in capital, money that we intend on putting to good use by investing it in our company and the GreenStationTM intelligent energy storage management solution. We’re excited by business prospects for energy storage as regulators continue to make headway in restructuring the institutional framework that governs electricity markets across the nation and end users realize the many benefits intelligent energy storage affords.