FERC 841 Opens Markets to Energy Storage

Author: Todd Olinsky-Paul, Clean Energy Group | Project: Clean Energy States Alliance

Photo by Ryan McKnight via Flickr. Last month’s FERC order 841 was hailed by some as a watershed moment in energy storage history. But the devil’s in the implementation, according to Mike Berlinski of Customized Energy Solutions. Berlinski and his colleagues at CES will present details of FERC’s order and address implementation in a Clean Energy States Alliance webinar on April 4.

Taken at its most basic level, what the FERC did was simple: its order 841 states that operators of regulated wholesale electricity markets – otherwise known as Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) – must make sure those markets are open to the provision of services by energy storage resources.

That doesn’t sound particularly earth-shattering – more like common sense. What’s surprising, or should be, is that such an order was needed in the first place.

The fact is, in many cases, energy storage resources that are technically capable of providing important grid services at competitive rates are not currently allowed to do so, simply because the rules governing such markets exclude them. In other words, the existing rules employed by independent grid operators serve to protect incumbent resources, like gas peaker plants, from competition in the form of energy storage resources, which are often faster to deploy, may ultimately be cheaper to operate, and provide a faster and more accurate response to market signals.

If this sounds obscure, it is. Most people don’t even realize these energy markets exist. But that doesn’t mean they are unimportant. They are critical for maintaining a balanced electric grid; furthermore, they are big business. In ISO-New England alone, some 500 market participants bought and sold energy services worth $6.1 billion in 2012. For this reason, the importance of opening these markets to the energy storage industry can hardly be overstated.

Order 841 signals FERC’s recognition that technology has outstripped regulation in these markets. In it, FERC observes that “barriers to the participation of new technologies, such as many types of electric storage resources, in the RTO/ISO markets can emerge when the rules governing participation in those markets are designed for traditional resources and in effect limit the services that emerging technologies can provide.” FERC also asserts that “existing RTO/ISO market rules are unjust and unreasonable in light of barriers that they present to the participation of electric storage resources,” and finds that such market barriers “reduce competition and market efficiency…. Where such conditions exist, resources that are technically capable of providing services are precluded from competing with resources that are already participating in the RTO/ISO markets.”

It’s a classic case of markets, policy and regulation not keeping up with advances in technology. This is a pervasive problem; it’s what the Massachusetts State of Charge report identified as the major barrier to bringing energy storage deployment to scale, and it’s what FERC 841 aims to fix in the markets FERC oversees.

The fix comes in the form of a blanket order to make markets accessible to storage, plus some specific requirements. Grid operators are given nine months to create a “participation model” for storage – a set of rules that ensures storage is allowed to provide any and all services it is technically capable of, even if the service is one the grid operator doesn’t purchase through an organized market.

FERC 841 also requires that storage resources be allowed de-rate their capacity to meet minimum run-time thresholds. This is particularly important in that it recognizes the inherent flexibility of energy storage. A 1-MW, 1-hour battery, for example, would not be able to meet a minimum 2-hour run time threshold if it bids in as a 1 MW resource, but the order recognizes that the same battery can discharge over two hours, at a rate of 0.5 MW/hour. So, by derating its capacity 50%, the resource is now able to meet the threshold requirement, and bid into the market. FERC has also stipulated that the minimum resource size to enter these markets must not exceed 100 kW (grid operators serving the Midwest, New York and New England all currently limit resource sizes to a minimum of 1 MW, effectively excluding most distributed resources).

Once the ISOs and RTOs have obtained FERC approval of their proposed participation models, they will have one year to implement them. Implementation, of course, is where the rubber meets the road, and in this case, there is some latitude for interpretation that could mean 841 has greater impacts in some markets than in others.

We’ve been through this before; after FERC’s order 755, which required equitable pay for performance in the frequency regulation markets, PJM, the ISO serving the mid-Atlantic states, swiftly and aggressively created a two-tiered system with premium payments for faster, more accurate resources. The result was a temporary boom in energy storage deployment in PJM. Some other grid operators implemented 755 less aggressively, and did not create similarly dynamic markets.

What is already clear is that some grid operators and utilities intend to fight FERC’s new requirements.  The Midcontinent Independent System Operator (MISO), along with several utilities and utility groups, has already filed for a rehearing on the FERC order.

Join the Clean Energy States Alliance on April 4 for a webinar on FERC Order 841. Guest speakers from Customized Energy Solutions will discuss what the order means for energy storage markets, legal challenges to the order, and what advocates and industry should do to make sure it is implemented effectively. The webinar is free, but you need to register here.