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Seeking to Boost Energy Storage and Distributed Energy Aggregation, FERC Proposes Significant Changes to the Market Rules

December 22, 2016 posted by Eric Christensen

Last month, the Federal Energy Regulatory Commission (“FERC”) issued a Notice of Proposed Rulemaking (“NOPR”) aimed at overcoming market barriers faced by emerging energy storage technologies as well as new technologies that allow aggregation and coordinated dispatch of small distributed energy resources.  While the NOPR is limited to ISO and RTO markets, energy market participants in the Pacific Northwest would nonetheless be well advised to pay attention to the NOPR.  This is true because the Energy Imbalance Market is expanding into the Northwest, which will effectively expand the footprint of the California ISO into this region.  In addition, regulators in this region are likely to look to FERC for guidance on these emerging issues even if not strictly applicable in non-RTO regions.

FERC believes the current market rules in the “organized” ISO/RTO markets create barriers for energy storage.  Those rules generally treat generation and load as distinct markets, while energy storage has characteristics of both.   In addition, energy storage can provide a variety of services to stabilize the grid but which current market rules may not properly encourage.  Accordingly, FERC intends the new rules to:

(1) ensure that electric storage resources are eligible to provide all capacity, energy and ancillary services that they are technically capable of providing in the ISO/RTO markets;

(2) provide market structures that reflect and account for the physical and operational characteristics of electric storage resources;

(3) ensure that electric storage resources can be dispatched and can set the wholesale market clearing price as both a wholesale seller and wholesale buyer, as ordinary generation and load can do under existing rules;

(4) establish a minimum size requirement for participation in the organized wholesale electric markets that does not exceed 100 kW; and

(5) require that energy storage providers who sell stored power into the ISO/RTO markets are paid the same locational marginal price as other wholesale sellers.  

Similarly, FERC is concerned that the organized markets do not allow aggregators of smaller distributed energy resources to compete on the same terms as other wholesale sellers in the ISO/RTO markets.  Accordingly, the draft NOPR proposes to require each ISO/RTO to adopt rules allowing distributed energy resource aggregators to participate directly in the organized wholesale electric markets.  The rules would spell out, for example, how aggregators would bid into wholesale markets, telemetry and other information aggregators would be required to provide, and how aggregators would interact with the ISO/RTO and local distribution systems. 

FERC's definition of distributed energy resources is notably broad, and includes not just behind-the-meter renewable generators, but also energy storage and electric vehicles.  Hence, the NOPR process will lay the regulatory groundwork to allow a number of important technological innovations to be fully exploited in the markets.  For example, using advanced “smart charging” applications, electric vehicle batteries can be aggregated and used both to store energy and to provide grid stabilization services.   Similarly, advanced “transactive energy” computer architecture would allow small renewable generators, energy storage, demand-response resources, and other participants to buy and sell power, demand reductions, and other energy-related products in a largely automated market.  And emerging microgrid technologies, which can provide energy storage, demand response, and ancillary services, as well as more traditional generation products, require the kind of regulatory adaptations proposed by FERC to realize the full economic value of these technologies.

The NOPR therefore represents an important milestone in laying the regulatory groundwork to allow advanced energy technologies like these to obtain full access to the nation’s energy markets.  Comments on the NOPR are due January 30, 2017.