Merging Companies Tesla And Solarcity Among Entities Advocating Wider Role For Electric Storage Resources In RTO And ISO Markets
In early August, Tesla Motors Inc., a manufacturer of advanced electric vehicles and battery energy storage systems, announced a deal to buy SolarCity Corporation, a developer of distributed energy resources, particularly solar and storage located behind a customer’s meter. Elon Musk, the CEO of Tesla, has described the merger of Tesla and SolarCity as combining energy storage and solar generation in one company that can create fully integrated residential, commercial and grid-scale products as “part of solving the sustainable energy problem.” Entities with interests in electric storage projects and companies, such as the merged Tesla and SolarCity, are advocating a wider role for storage in US wholesale electricity markets in a pending proceeding before the Federal Energy Regulatory Commission (FERC) involving the ability of energy storage resources to participate in markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs) under existing RTO/ISO tariffs and market rules.1
Historically, electric storage has consisted of hydroelectric pumped storage projects, which pump water to higher-level reservoirs when electricity demand is low, and allow it to flow downhill through electricity-generating turbines when demand increases. However, over the past 15 years, new electric storage technologies, such as batteries, flywheels (mechanical devices that harness rotational energy to deliver instantaneous electricity), compressed air energy storage and electrochemical capacitors, have provided certain ancillary services to the electricity grid, including frequency regulation (which reconciles momentary differences caused by fluctuations in generation and loads), energy management, backup power, load leveling, voltage support and grid stabilization.
In addition, according to the Energy Storage Association (ESA), energy storage systems currently make up approximately 2% of US electricity generation capacity.
The US Energy Information Administration has reported that, while hydroelectric pumped storage made up 98% of total US electric storage capacity in 2015, between 2010-2015, non-hydroelectric storage doubled in electric power sector capacity from 160 MW to nearly 350 MW.
Large-scale deployment of electric storage resources is seen as a key to increasing the share of intermittent renewable energy resources, such as solar and wind, in the US electricity generation mix. In 2010, California enacted legislation directing the California Public Utilities Commission (CPUC) to determine appropriate targets, if any, for each load-serving entity (LSE) to procure viable and cost-effective energy storage systems and to adopt an energy storage system procurement target, if determined to be appropriate, to be achieved by each LSE by December 31, 2015, and a second target to be achieved by each LSE by December 31, 2020. The California legislature passed this law because, among other things, “[e]xpanding the use of energy storage systems can assist electrical corporations, electric service providers, community choice aggregators, and local publicly owned electric utilities in integrating increased amounts of renewable energy resources into the electrical transmission and distribution grid. . . .” The legislature also found that “[t]here are significant barriers to obtaining the benefits of energy storage systems, including inadequate evaluation of the use of energy storage to integrate renewable energy resources into the transmission and distribution grid through long-term electricity resource planning, lack of recognition of technological and marketplace advancements, and inadequate statutory and regulatory support.”
In response to this legislation, the CPUC adopted an energy storage procurement framework in October 2013, establishing an energy storage target of 1,325 MW by 2020 for the three investor-owned public utilities subject to its jurisdiction – Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company, with installations required no later than the end of 2024.
In April, FERC’s Office of Energy Policy and Innovation sent data requests to the six RTOs and ISOs subject to FERC jurisdiction (NYISO, ISO-NE, PJM, MISO, SPP and CAISO), seeking information about their tariffs and market rules that affect the participation of electric storage resources, which FERC has defined as “a facility that can receive electric energy from the grid and store it for later injection of electricity back to the grid.” According to FERC staff, this definition of electric storage resources includes all types of electric storage technologies, regardless of their size and storage medium, or whether they are interconnected to the transmission system, distribution system or behind a customer meter.
In this proceeding, FERC staff is trying to determine whether barriers exist to the participation of electric storage resources in the capacity, energy and ancillary services markets operated by RTOs and ISOs that could lead to unjust and unreasonable rates for wholesale sales of electricity, which are prohibited by the Federal Power Act, and, if such barriers exist, whether any changes to RTO and ISO tariffs are necessary. FERC staff initiated the proceeding in light of, among other things, the numerous electric storage assets that have come on line in PJM, California’s initiatives related to that state’s renewable energy storage procurement mandate, and “key developments in the technology and cost-effectiveness of electric storage resources.”
FERC also requested comments from the public on the responses submitted by the RTOs and ISOs, including specific examples of RTO/ISO rules that may facilitate or present barriers to electric storage participation in RTO and ISO markets.
Each of the six FERC-jurisdictional RTOs and ISOs filed a response to FERC staff’s data requests in May, arguing that as a general matter, their tariffs and rules do not prohibit electric storage resources from participating in their markets. For example, PJM argues that its market rules are written to allow all resources to participate, regardless of technology, and as long as market participants can demonstrate that electric storage resources are able to meet the eligibility and performance criteria for each wholesale market, there is nothing prohibiting such resources from participating in PJM wholesale markets. PJM reports that the vast majority of non-hydroelectric pumped storage resources in PJM are batteries, most of which operate in PJM’s regulation market. According to PJM, there is currently a total of 5,814 megawatts (“MW”) of electric storage resources participating in PJM wholesale markets. Of this total, 5,537 MW of hydroelectric pumped storage resources, 245 MW of battery resources and 20 MW of flywheel resources are designated as generation resources, while 12 MW of battery resources are designated as demand-side resources.
However, the RTOs and ISOs also indicate that based on their physical limitations, certain energy storage resources may not be eligible to participate in all RTO/ISO markets, may not qualify as a particular resource type under RTO/ISO tariffs and may not be eligible to provide particular services in RTO/ISO markets. This is due to the eligibility criteria and performance requirements set out in RTO/ISO tariffs with respect to providing services in the RTO/ISO market. These eligibility and performance requirements and qualification criteria include the ability to sustain output for a specified period of time, dispatchability, minimum offer size requirements and minimum capacity criteria. For example, SPP states that under its tariff, resources that cannot sustain output for 60 minutes are ineligible to qualify as sellers and register as a resource and that the minimum offer size for a resource to participate in SPP’s Integrated Marketplace is 0.1 MW.
Entities with interests in electric storage submitted comments on the RTO/ISO responses in June. These entities generally argue that there are impediments to participation of electric storage resources in RTO and ISO markets, because RTO and ISO tariffs and markets were designed primarily for traditional electricity generators, and with respect to market participation and compensation, do not take into account the different operating characteristics of electric storage resources.
In its comments, ESA contends that electric storage technologies are technically capable of providing any wholesale market service, but that the RTO/ISO responses to FERC’s data requests demonstrate that “electric storage has limited access to markets,” because “when wholesale electricity market designs and grid operations were originally developed, cost-effective electric storage was not contemplated.”
ESA observes that only PJM and CAISO have designated a resource type that explicitly allows electric storage resources to participate in markets and does not limit them to certain services, while MISO, ISO-NE and NYISO tariffs explicitly allow electric storage resources to provide frequency regulation service, and electric storage resources that provide frequency regulation service are explicitly prohibited from providing other services. ESA also argues that some RTOs and ISOs have ambiguous tariffs with respect to the eligibility of electric storage resources to provide some market services.
In order to remove these barriers, ESA asks FERC to require RTOs and ISOs to establish a resource type that ensures electric storage is eligible to participate in all markets and utilizes appropriate bid parameters and resource modeling for storage resources. ESA also asks FERC to ensure that qualification criteria and performance requirements enable storage resources to participate fully in markets.
In its comments, Tesla states that its energy storage systems “can be utilized in wholesale energy markets, both as aggregated, distributed resources and as larger, centralized resources,” but argues that “market design-related barriers still preclude the full utilization and appropriate valuation of grid-scale energy storage systems in the US electricity grid.” According to Tesla, while the responses submitted by the RTOs and ISOs indicate that their tariffs do not condition participation in their markets based on resource types, “in reality, market product structures and market rules are still biased toward supporting conventional resources.”
Tesla asks FERC to direct RTOs and ISOs to design their market products, such as capacity products, based on the needs of the electric system and not on operational parameters that were designed for conventional generators, clarify that electricity stored for resale is not an end-use load and thus should be only subject to pay the wholesale locational marginal price, and update generator interconnection procedures and agreements to allow and establish a process for interconnecting energy storage customers to accept charging restrictions in lieu of expensive interconnection upgrades where appropriate.