FERC Steps Up Efforts to Support Integration of Energy Storage Technologies Into Wholesale Power Markets

As momentum builds for wide-scale development and deployment of electric energy storage technologies, the Federal Energy Regulatory Commission (FERC) has been taking a fresh look at how it can facilitate the integration of energy storage resources into wholesale electric markets. Advancements in energy storage technology and the ability of these resources to improve grid reliability and efficiency have been the primary drivers of FERC’s initiatives. Until recently, the only technology widely used for energy storage was pumped storage hydro, which can only be economically developed where there is viable geography, topology and a significant discrepancy between on-peak and off-peak power costs. In 2014, pumped hydroelectric resources represented approximately 98 percent of the over 22 gigawatts of installed electric storage capacity in the U.S.[1] However, lithium-ion electric battery resources have recently taken a larger role in ancillary services markets, and the development of other emerging storage technologies continues to advance. The Energy Storage Association reports that the energy storage market is set to develop rapidly, with an expected six gigawatts of storage capacity to be added in 2017 and over 40 gigawatts of installed storage capacity by 2022.[2] While conventional pumped storage hydroelectric projects will continue, on a gigawatt basis, to comprise the lion’s share of U.S. storage capacity for the foreseeable future, lithium-ion batteries and flywheel technologies have steadily increased their respective market shares since 2010, and these technologies are poised for continued expansion.
Based on its long history of licensing pumped storage projects, FERC is familiar with the capabilities of electric energy storage facilities to integrate with the power grid. However, as new technologies with more diverse operating characteristics have been deployed, FERC has grappled with how to treat storage projects – should they be classified as generation, transmission, load or all of the above? Historically, FERC addressed the interconnection and sale of electricity from pumped facilities and other storage technologies, including batteries, flywheels, and compressed air resources just as it would any other generating facility. However, energy storage devices can play many different roles. They can act like a generator, selling energy, capacity and ancillary services in wholesale electricity markets. They also can function as a transmission asset, correcting transmission voltage and frequency by absorbing or releasing electricity as needed. In addition, storage resources function as load centers when they charge from the grid to purchase energy for later discharge or to reduce system load by providing demand response services.
In many ways, advancements in energy storage technologies and their deployment have outpaced the development of wholesale electric market rules that recognize the unique abilities, limitations and needs of storage resources. In the absence of a clear federal policy, transmission-owning utilities and regional transmission organizations (RTOs) have developed disparate rules governing the participation of energy storage resources in wholesale electric markets. As one RTO executive recently put it, “[We’ve] had kind of fits and starts with [storage] … but as far as having a clear policy, well, that’s never happened.”[3]
That may change very soon. The rulemaking and policy proceedings initiated by FERC in late 2016 and early 2017 could result in clear, standardized RTO policies relating to the participation of energy storage projects in wholesale electric power markets. There is, however, some uncertainty. FERC currently lacks a quorum of commissioners necessary to issue orders in the pending rulemaking and policy proceedings described below. In addition, the President has an opportunity to fill four out of the five FERC commissioner seats and to select a new FERC chairman, which he could do by the end of the year. So far, the President has made two nominations, and, despite speculation, it is unknown who the third and fourth candidates will be or who will serve as FERC chairman. All candidates will require confirmation by the Senate, which will take a few months. Once the new commissioners and chairman are in place, FERC could decide to abandon or shelve the rulemakings described below, but doing so would ignore the need for clear rules for a growing industry. Moreover, recent FERC orders have set precedent that, in effect, implements many of the proposals set forth in the pending rulemakings, thereby making it more difficult for FERC’s new leadership to completely change course.
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