FERC Issues New Rule to Promote Electric Storage Resources, like Battery Technology

March 4, 2018
  1. Final Rule to Eliminate Barriers to Electric Storage Resources

On February 15th, the Federal Energy Regulatory Commission (FERC) issued a final rule to support electric storage resources (like lithium-ion batteries or pumped-storage hydroelectricity) and their continued growth in regional electricity markets. This new rule directs all regional grid operators (RTOs/ISOs) to create a new “participation model” for electric storage resources. To do so, RTOs/ISOs must revise tariffs to ensure that participating electric storage resources may provide all energy, capacity, and ancillary services the resource is capable of providing, may be dispatched, and may set the market-clearing price as both a seller and a buyer. The new participation model must also account for physical and operational characteristics of electric storage resources, must set a minimum size requirement for participants not exceeding 100 kW, and mandates that purchases on the wholesale electricity market for the purposes of storage and resell into that same market must be at the wholesale locational marginal price (LMP).
The new final rule eliminates these existing market barriers for electric storage resources, which exist in the first place because such technology is just recently becoming important. RTOs/ISOs write general rules for market participation and otherwise write more granular market participation rules when operational characteristics of a particular technology call for it. This final rule calls for such distinct tariff provisions, which will ultimately lead to the final product of a new participation model these resources.

Overall, the heart of FERC’s new final rule is to direct the RTO/ISOs to allow electric storage resources to provide any and all services they are technically able to provide to the grid.

This includes promoting electric storage resources’ technical abilities to provide capacity, energy and ancillary services concurrently, provide blackstart, primary frequency response, and reactive power services, or even the ability to de-rate total electric capacity in order to increase run-time requirements to meet capacity market standards. The RTO/ISO, Midcontinent Independent System Operator (MISO), pointed to an example where their general market rules have failed to accommodate electric storage resources’ operational characteristics properly: bid parameters to sell electricity into the market (for services other than frequency regulation) and rules for purchasing energy from MISO are unclear and confusing.
2. FERC Authority to Promulgate this Rule
FERC promulgated this electric storage participation rule pursuant to its authority under section 206 of the Federal Power Act (FPA). FERC is required to ensure just and reasonable rates and otherwise prohibit unduly discriminatory or preferential treatment. Because FERC determined the RTO/ISOs’ current market barriers to electric storage resources are unjust and unreasonable, FERC’s passage of this rule represented a legal obligation.
FERC typically ensures just and reasonable rates through competitive market remedies. Here, the market barriers to electric storage resources restricted competition, which in turn led to inefficiency. Consequently, purchases within the RTO/ISO markets were distorted, and resources were dispatched in a more non-optimal, expensive manner. Once the RTO/ISOs implement the final rule to better value electric storage resources, resources will be dispatched more efficiently and rates will be considered just and reasonable on this issue.
3. FERC Schedules Technical Conference to Address DER Aggregations
In the original Notice of Proposed Rulemaking (NOPR), FERC proposed addressing aggregated Distributed Energy Resources (DERs). DER includes rooftop solar, storage, diesel generators, or even Nest thermostats. They are just what they sound like: energy resources that are distributed across the nation, providing services at the point of consumption, as opposed to a centralized nuclear plant owned by a big utility company, for example. Aggregated DERs are the same thing; but either a third party or a utility bundles a multitude of DERs together into one single resource. For a simplified example, imagine within a neighborhood, five-hundred households each have rooftop solar. A third party can come in and aggregate all those resources, take all excess and unused energy, and bid into wholesale markets to sell that power as if a single giant solar farm produced it. Of course, aggregating Nest thermostat services or batteries would provide different values (e.g., a utility has control of all residential batteries and then, when the grid is using peak electricity, the utility turns on all residential batteries so those households no longer add extra stress on the high-demand grid).
Instead of addressing the issue of DER aggregations in this particular rule, FERC ordered a Technical Conference to be scheduled for April 10-11 in order to explore the issues more broadly. Topics to be discussed include how to integrate DER aggregations economically, state and local regulators’ perspectives, avoiding double payments for DER aggregators, the availability of data for DER installations, how to model DER’s planning and operation effects properly, and coordination among DER aggregators, the RTO/ISOs, and the relevant utility. FERC Staff issued a report, DER: Technical Consideration for the Bulk Power System, the same day as the final rule. The Staff Report discusses what DERs are, how they affect grid reliability, and a multitude of studies and models that assess DERs various benefits and impacts.