The FERC Looks to Bring Down Barriers to Storage and DER

Lauren Callaway coauthored this post.

This November, the US Federal Energy Regulatory Commission (FERC) released a notice of proposed rulemaking (NOPR) that could elicit a fundamental step forward for storage and distributed energy resources (DER). The NOPR includes two proposals—one establishing a participation model and market rules for storage resources in wholesale markets, and the other defining DER aggregators as participants in wholesale markets.

Developing a Pathway for Storage

For the first proposal, regional transmission operators (RTOs) would be required to develop participation models for grid-tied storage, which take into account storage’s unique physical and operational qualities. The NOPR requires that participation models include the following five criteria:

• Storage resources are eligible to provide all capacity, energy, and ancillary services that they are technically able to perform
• Bidding parameters that account for the above services are established
• Storage resources are allowed to act as both buyers and sellers, included in establishing the clearing price for electricity
• RTOs must establish a minimum size requirement for storage that cannot exceed 100 kW
• Services sold from storage resources to the wholesale market be sold at the wholesale locational marginal price

These criteria are driven by a need to properly recognize the unique operational characteristics of storage systems, enabling storage to act as either load or generation depending on system needs. Essentially, the NOPR proposes to develop a more level playing field within the wholesale markets that will better reflect the cost-effectiveness of storage. Additionally, grid operators will be able to capitalize on storage’s unique abilities to provide black-start service, spinning reserves, renewable ramp control, and output smoothing.

The FERC has previously made efforts to allow for the integration of storage by recognizing its unique value, but those have had limited impact so far. Under FERC Order 755 (2011), RTOs are required to create a fast-regulation service in wholesale power markets, compensating resources for speed and accuracy using a mileage payment—storage is uniquely capable of providing these services. Yet to date, only the PJM region has a well-developed market with fast-regulation prices high enough to make a solid business case for storage. Despite the fact that over 250 MW of storage has been deployed and PJM has decreased the total need for regulation due to the greater accuracy and responsiveness of storage systems, other RTOs have remained slow to adopt the rule. The current NOPR takes into account lessons learned by PJM’s enablement of storage participation.

DER Aggregator Participation

The FERC also proposed to require each RTO/independent system operator (ISO) to revise its tariffs to allow DER aggregators to participate directly in markets by permitting such aggregators to register under the participation model in the RTO/ISO tariff that best accommodates the physical and operational characteristics of their resources. While the specific details and timeline for implementing these proposals are still unclear, this could have a major impact on the national DER market.

To date, only California has allowed aggregated DER (aside from traditional demand response and load control) to bid into an organized statewide capacity market. Furthermore, outside of pilot programs, there have been no aggregated DER allowed to provide ancillary services such as frequency regulation. DER can be a much more effective source of frequency and voltage regulation compared to centralized assets, as the systems are dispersed throughout distribution networks where issues may originate, particularly areas with high penetrations of solar PV generation.

DER providers have been pushing RTOs and the FERC to implement these rules, which can provide new sources of revenue for aggregated storage systems, thereby greatly reducing costs to customers and increasing the value of these systems to grid operators. Additionally, allowing DER to provide these types of services can be part of a post-net metering solution that fairly compensates DER owners based on specific grid needs in a given location at any time. The upholding of FERC Order 745 earlier this year has also set a powerful precedent in terms of allowing participation of behind-the-meter resources into wholesale markets.