How Market Rules Are Holding Back Energy Storage
Wholesale market rules are organized around legacy assets, which is restricting storage from selling all of its potential services.
Energy storage is surging. The U.S. Energy Storage Monitor Q4 2018 estimates that installations totaled 338 megawatts in 2018, and will grow to 3.9 gigawatts by 2023, much of it front-of-the-meter utility-scale projects.
This exponential growth has been driven by state mandates and regulatory actions (especially in California) and limited to vertically integrated utilities outside of the organized power markets serving two-thirds of all U.S. electricity consumers. Despite storage’s value to the grid, it has not found success in wholesale markets.
This mismatch is best explained in two words: rules and revenue. Wholesale market rules are organized around legacy assets, restricting storage from selling all potential services, which in turn limit storage’s wholesale revenue streams.
Recognizing these barriers, the Federal Energy Regulatory Commission issued Order 841 to stimulate access to wholesale markets. At the end of 2018, FERC-regulated independent system operators (ISOs) responded with their implementation plans.
The Energy Storage Association’s overview of these proposals, with filtered comments by effects upon possible revenue streams, provides helpful insight.
Storage can generate revenue in organized power markets in three ways: platforms, products and paydays. Because different projects tap these potential revenue streams in different ways, implementation plans for Order 841 will affect them quite differently.
Platforms: The best-laid plans
ISOs conduct planning processes identifying opportunities for new transmission to improve reliability or market efficiency, and storage is increasingly being considered as a lower-cost, non-transmission alternative to boost reliability.
Here’s an example: A relatively isolated area on the grid must plan for losing a transmission line or local generator during peak demand. Rather than adding transmission or local generation, building storage can carry the local grid through an emergency. If the economics add up, the project can be built and paid on a cost-of-service basis, financed through regulator-approved transmission charges.
Storage here plays the same role as “reliability transmission expansion,” but it can also play the role of “economic transmission” — transmission built to move surplus energy to constrained areas and thereby reduce prices. This was part of FERC Order 1000’s vision, which required regional transmission operators to consider “non-transmission alternatives” in planning processes. But only one economic storage-as-transmission project exists within any ISO territory today, located near Baltimore on the PJM grid.