Supreme Court Upholds FERC Action on Demand Response

Author: Todd Olinsky-Paul | Projects: Resilient Power Project, Clean Energy Innovation

the entrance to the supreme court

In a long-awaited decision, the U.S. Supreme Court has ruled in favor of the Federal Energy Regulatory Commission (FERC) and against the Electric Power Supply Association (EPSA), overturning a lower court’s ruling and asserting that in requiring ISOs to establish a level playing field for distributed resources with its Order 745, FERC was doing exactly what it is supposed to do: enhancing grid reliability and keeping ratepayer costs down by encouraging competition.

In this case, the distributed resource at issue was demand response, an innocuous-seeming idea that has been around for well over a decade. Demand response is just what it sounds like: utility customers agreeing to reduce their demand for electricity in response to signals from the grid operator. Since reducing demand is equivalent to increasing supply in the wholesale market, demand response is an effective way to keep electricity costs down when they would otherwise spike—for example, on a hot summer day when everyone turns on their air conditioners. Buying more power during such peak demand times means paying a higher marginal price for expensive peaker plants to enter the market to provide the needed electricity, whereas reducing demand keeps prices lower and, as an added benefit, eases congestion on transmission lines.

Demand response is becoming an important market for new technologies like behind-the-meter energy storage, which can enable customers to draw on stored electricity from onsite batteries while curtailing their purchases of grid power, all the while continuing to operate their facilities as usual. For example, in California’s recent Demand Response Auction Mechanism, winning bids included aggregated behind-the-meter batteries from Green Charge Networks and Stem, alongside traditional commercial-industrial load control resources. This demonstrates the ability of battery storage companies and aggregators to compete in this market—assuming they are provided an equal opportunity to do so.

Recognizing the benefits of demand response, FERC has issued several orders supporting the ability of demand response providers to sell their services into wholesale electricity markets. Notably, FERC Order 719 required wholesale electricity market operators to receive demand response bids from aggregators, such as Enernoc; and FERC Order 745 required that wholesale market operators pay demand response providers the same rate for reducing demand as a generator would be paid for increasing supply, so long as doing so provided a net benefit to consumers. It was this last order that was at issue when EPSA, a consortium of power supply companies, sought to exclude demand response providers from the market that generators had traditionally dominated. EPSA won in the U.S. Court of Appeals but lost in the Supreme Court.

In overturning the lower court ruling, the Supreme Court upheld FERC’s ability to regulate wholesale electricity markets, even if doing so effects the retail markets (as it invariably does) that FERC is not empowered to regulate. Further, the Supreme Court’s firm opinion, delivered by Justice Kagan, demonstrated a thorough understanding of complex energy markets and the legal underpinnings of FERC’s actions.

This outcome is a boon for demand response providers, including energy storage and its aggregators; but just as importantly, it is expected to forestall a series of attacks on FERC’s authority that would likely have followed had the EPSA victory been allowed to stand.

A whole series of FERC orders in recent years has resulted in the opening of additional electricity markets to new, distributed energy technologies such as energy storage; and it was these newly opened markets for services such as capacity, frequency regulation and response, reactive power, and other so-called “ancillary services” that were ultimately at risk. Furthermore, while one can’t predict future court rulings, the broad deference the Supreme Court gave to FERC in this decision should support similar policy and market development in the future. This decision will be good news to those within FERC and the ISOs who want to go further in developing markets where new, distributed resources like energy storage can compete, simultaneously supporting the nascent energy storage industry and providing greater benefits to the grid and its customers.

EPSA may “advocate the power of competition,” as its motto states, but its attack on FERC was in essence an attempt to bar smaller, faster, and more agile providers from competing on the same terms as the dinosaurs of the power industry—the nuclear, coal, and gas giants EPSA represents. With this legal challenge now permanently put to rest, the electricity sector can recommence its slow, recalcitrant evolution toward modernity—with occasional prodding from FERC.

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Clean Energy Group will host a free webinar on rules and regulations for distributed energy storage in PJM on Tuesday, February 23 from 1-2 pm ET. For more information and to register, click here.

This blog post was also published in Renewable Energy World.

New Jersey Takes Another Swing at Resilient Solar+Storage

Author: Todd Olinsky-Paul, Clean Energy Group | Project: Resilient Power Project

blogphoto-bigstock-TRENTON-NJ-APRIL-T-88488923On the face of it, the New Jersey BPU’s first round of resilient energy storage funding, in 2015, was a great success: with a budget of only $3 million, the BPU was able to fund 13 projects that would combine energy storage with renewable generation behind the meter, with the goal of providing resilient power to critical facilities. Not all of those round-one projects succeeded – in fact, most did not – but the BPU is back with an improved program and a larger budget, ready to try again.

In 2015, the BPU was able to achieve so much with so little in part because all 13 projects planned to sell frequency regulation services into the then-surging PJM market, which offers a premium for fast-response resources like battery storage. Unfortunately, of the original 13 projects, 9 have dropped out. There are several reasons for this, but the most significant one seems to have been widespread misunderstanding of PJM market regulations, which limit the amount of power a demand response resource can export from behind the meter.

The good news is that the grant dollars for those 9 defunct projects will flow back into the BPU’s coffers for future funding. In the meantime, the BPU has doubled its storage program for a second round of funding, allocating $6 million in two separate programs, including a groundbreaking rebate program.

The rebate program, which opens for applications on March 1, will offer $3 million in an open enrollment format. This is good news for developers, because an open enrollment rebate is much more reliable, and bankable, than a competitive solicitation, which may or may not result in a grant; this also happens to be the first dedicated energy storage rebate program in the country, which means the results should be of great interest to energy agencies in other states. The rebate incentive is set at $300 per kWh of energy capacity, with a per-project ceiling of $300,000 or 30% of total project cost, whichever is less. A single developer, owner or site may qualify for multiple projects, up to a per-entity incentive cap of $500,000.

The second $3 million in funding will be offered later in 2016 as a competitive solicitation, but with some changes from last year’s program. Program design details will be informed by research being conducted by the Rutgers Laboratory for Energy Smart Systems (LESS).

To qualify for funding under the BPU programs, energy storage must be integrated behind the meter with new or existing Class 1 renewable resources, and must have a minimum capacity of 100 kWh. Systems may provide no more than 100% of the site host’s historic electrical usage, and the storage system must be charged solely from the onsite renewable system, except for short term charging and discharging for the purpose of providing ancillary services.

For more information or to apply, visit the BPU’s Electric Storage page at http://www.njcleanenergy.com/renewable-energy/programs/energy-storage. Applications will be accepted beginning March 1, and grants will be awarded on an ongoing basis until funding commitments have reached the $3 million budget cap.

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This blog post was also published on Renewable Energy World.

State Energy Storage Legislation: A Look Back at 2015

Author: Seth Mullendore, Clean Energy Group | Projects: Resilient Power Project, Energy Storage and Climate

blogphoto-Vermont-State-House2015 was quite a year for energy storage, from Elon Musk’s Powerwall announcement to the recent gigawatt storage procurement commitment AES Energy made with LG Chem. GTM Research Senior Energy Storage Analyst Ravi Manghani called 2015 “a breakout year for the U.S. energy storage market.” According to GTM more energy storage was been deployed in the U.S. last year than in any previous year, a trend that’s expected to continue.

In addition to utilities and the energy industry, state legislatures also started paying more attention to energy storage last year. And it wasn’t just California passing energy storage legislation in 2015. Along with energy storage projects popping up across the country in as varied locations as Vermont, Kentucky, Washington, and Arizona, eight states passed significant storage-related bills last year.

Arizona

  • SB 1465 provides clarity for agreements governing financing, sale, or lease of distributed energy generation systems, including energy storage.

California

  • SB 350, California’s Clean Energy and Pollution Reduction Act of 2015, explicitly points to storage as a means to help the state achieve its ambitious emissions goals.

Connecticut

  • SB 1078 puts in place the regulatory tools to procure affordable and reliable electricity, which mandates that the commissioner may seek proposals and order utilities to procure energy storage when it is deemed to be cost-effective.
  • SB 1502 outlines a state budget including a section which states that each electric distribution company shall submit a proposal to the Connecticut Department of Energy and Environmental Protection for a pilot program to build, own, or operate grid-side system enhancements, including energy storage systems.

Minnesota

  • HF 3, the state’s omnibus employment, economic development, jobs, and energy bill, includes a provision that utilities shall identify grid modernization investments, such as energy storage and microgrids, to improve security and conservation.

New Jersey

  • S 2016 includes $20 million in American Recovery and Reinvestment Act (ARRA) appropriations to be allocated by the New Jersey Board of Public Utilities for grants to state departments, agencies, authorities, and public colleges and universities for renewable and energy efficiency projects, which specifically includes energy storage as one of the eligible technologies.

Oregon

  • HB 2193 directs the state’s electric companies to procure one or more energy storage systems capable of storing a specified energy capacity.

Vermont

  • HB 40 establishes an energy transformation requirement that utilities must meet through distributed renewable generation or projects that reduce the state’s fossil fuel consumption, including storage of renewable energy.

Washington

  • HB 115 sets aside $44 million in grants to be directed towards renewables advancement and technologies, specifically including energy storage.

Another four states, Massachusetts, Michigan, New York, and Pennsylvania, have pending energy storage legislation on the books.

2015 also saw energy storage bills proposed at the federal level, including S 1434, which would establish a national energy storage portfolio standard. The 30 percent federal Investment Tax Credit, which can be applied to storage when paired with solar, was also unexpectedly extended at the end of the year.

These legislative steps will help lay the foundation for big advancements in energy storage throughout the coming years. If 2015 was any indication, we can expect to see many more momentous energy storage announcements in 2016.

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This blog post was also published on Renewable Energy World.