Originally published by William M. Friedman.
On February 15, the Federal Energy Regulatory Commission (FERC) issued a much-anticipated order designed to remove barriers to electric storage resource participation in organized wholesale electricity markets. The order—dubbed Order No. 841—creates new rules that require each regional transmission operator (RTO) and independent system operator (ISO) to revise its tariff to establish a “participation model” consisting of market rules that facilitate the participation of electric storage resources in the RTO/ISO markets. Order No. 841 will make it easier for electric storage resources to participate in wholesale power markets and access the accompanying revenue streams.
Each RTO/ISO must file its tariff changes to implement Order No. 841 within 270 days (i.e., by November 12, 2018). FERC will review the filings and must approve all tariff changes. Each RTO/ISO will have an additional one year from the filing date to implement its new tariff provisions.
FERC defined an electric storage resource as “a resource capable of receiving electric energy from the grid and storing it for later injection of the electric energy back to the grid.” This definition encompasses a variety of technologies including batteries, flywheels, compressed air and pumped hydro. It also explicitly includes resources located on a distribution system or behind the meter, as well as resources located on the interstate transmission grid, and opens the door to participation in RTO/ISO markets for smaller storage resources.
A participation model is a set of tariff provisions that accommodate the participation of resources with particular physical and operational characteristics that warrant distinctive treatment from other market participants. Order No. 841 requires each RTO/ISO to create a participation model for electric storage resources that must:
- ensure that an electric storage resource is eligible to provide all capacity, energy and ancillary services that it is technically capable of providing in the RTO/ISO markets;
- ensure that an electric storage resource can be dispatched and can set the whole market clearing price as both a seller and buyer, consistent with existing market rules;
- account for the physical and operational characteristics of electric storage resources through bidding parameters or other means; and
- establish a minimum size requirement for participation in the RTO/ISO markets that does not exceed 100kW
Additionally, each RTO/ISO must specify that the sale of power from the market to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price (LMP). Order No. 841 sets minimum requirements that each RTO/ISO must meet; FERC will allow each RTO/ISO to design its own participation model for electric storage resources in a manner that suits its individual market design.
FERC’s new rules are the culmination of a process that began in 2015. For years, FERC had been concerned that market rules designed with traditional resources in mind created barriers to entry for emerging technologies. While energy storage resources already provide energy and ancillary services in some RTO/ISO markets, they were forced to use participation models that did not recognize their unique physical and operational characteristics. Market rules often prevented electric storage resources from offering all of the services they were technically capable of providing. Effective integration of electric storage resources into the wholesale power markets will enhance competition, aid reliability, and encourage development of storage by enabling access to additional revenue streams.
In the notice of proposed rulemaking that led to Order No. 841, FERC also proposed reforms related to removing barriers to participation in wholesale electricity markets for distributed energy resource aggregations. FERC determined that it needs more information and did not take final action on distributed energy resource aggregations in Order No. 841. Concurrent with issuance of its order, FERC issued a Notice of Technical Conference with questions related to the participation of distributed energy resource aggregations to gather additional information.
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