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Policy Review

FERC's New Rule: To boost electric storage and DER participation in wholesale markets [free access]

January 12, 2017

Federal-level policy and regulatory support to energy storage and distributed energy resources (DER) is greater than ever before in the US. The Federal Energy Regulatory Commission (FERC) has been making efforts to provide a level playing field for emerging technologies. These include its recent rulemakings addressing the participation of energy storage, wind and other non-synchronous generation resources in the markets.


Most recently, in November 2016, FERC issued a notice of proposed rulemaking (NOPR), ‘Electric Storage Participation in Markets Operated by Regional Transmission Organisations (RTOs) and Independent System Operators (ISOs)’. Through this NOPR, FERC proposes to amend its regulations to remove barriers to the participation of electric storage systems and DER aggregations in the organised wholesale electricity markets. The latter includes the capacity, energy and ancillary service markets operated by RTOs and ISOs.


This NOPR follows an extensive review of the existing rules as well as analysis of information obtained from ISOs and RTOs regarding energy storage systems by FERC during the earlier part of 2016. Through this exercise, FERC wished to gauge if the current market structure was distorting competition and find methods to compensate such resources for the multiple values (including operational flexibility) they provide in wholesale markets. FERC hosted an open meeting on the matter on November 17, 2016, and notified the NOPR subsequently. Although FERC launched an inquiry only on energy storage, it seeks to address issues relating to DERs as well in its latest NOPR. There are specific challenges associated with DERs, which can sometimes be too small to participate in the markets individually. The current market rules impose certain limits due to which energy storage and DERs connected at the distribution level are able to provide only demand response services rather than all the wholesale services they are technically capable of providing.


The proposed rules will help accelerate the efforts to integrate energy storage and DERs into wholesale electricity markets. This will be done through amendments to the market rules, which have been mainly designed for traditional generation or demand response resources, to remove the barriers to entry for emerging technologies.


Specifically for energy storage, FERC proposes to mandate each RTO and ISO to develop a new participation model that acknowledges the physical and operational characteristics of such systems while accommodating them into the electricity markets. Such a model must satisfy five detailed requirements. Firstly, the market rules must ensure that energy storage is eligible to provide any service it is technically capable of providing. Secondly, certain mandatory bidding parameters specific to energy storage must be included in the model. These include state of charge, upper charge limit, lower charge limit, maximum energy charge rate and maximum energy discharge rate. Certain optional bidding parameters may also be included, which energy storage can use to optimise its operation and preserve its useful life. This recognises the ability of such systems to absorb and provide electricity at varying speeds and duration. Thirdly, the model should include market rules that allow storage systems to set the wholesale prices, particularly when it is both a buyer and a seller. Fourthly, the models may set minimum size requirements not exceeding 100 kW. Finally, pricing of electricity sale to energy storage must be at the wholesale locational marginal price (LMP).


To integrate DERs into the wholesale markets, FERC has proposed a different method. Instead of creating a new participation model as suggested for energy storage, it requires the RTOs/ISOs to accommodate DER aggregations as a new type of market participant. It asserts that this would allow smaller resources to satisfy the minimum size and performance requirements and also addresses the commercial and transaction barriers to participation including the costs of metering, telemetry and communications equipment.

In this regard, FERC identifies several market rules that RTOs/ISOs must consider establishing or modifying. Firstly, FERC proposes the modification of the eligibility requirements in the existing models to accommodate participation by DER aggregators. Here, the commission clarifies that DERs participating in retail compensation programmes like net metering or other wholesale programmes like demand response will not be eligible to receive compensation for providing the same services in an aggregation. Secondly, it suggests that the locational requirements must be as geographically broad as technically feasible. Thirdly, the RTOs/ISOs would be required to revise their tariffs and bidding parameters mandating the DERs to provide default distribution factors while registering their aggregation and to update the same while participating in the market. This will allow the RTO/ISO to have visibility of all the resources in the aggregation, which is important to reliably operate their systems.


Fourthly, RTOs/ISOs need sufficient information about each DER and their aggregation to effectively model, dispatch and settle the aggregations. This could include the total capacity, minimum and maximum operating limits, ramp rate, minimum run time and default distribution factors. Fifthly, the rules must allow modifications to the list of resources in the aggregation without reregistering all resources. Sixthly, metering and telemetry system requirements (hardware and software) should be set such that they provide the RTOs/ISOs with the necessary information without imposing undue burdens on DERs.


Seventhly, RTOs/ISOs are required to coordinate with DER aggregators and distribution utilities to ensure that DER participation in the market does not pose any reliability concerns for the transmission or distribution system. Specifically, this implies that when a DER aggregator registers its DER list for the first time or modifies that list, the RTOs/ISOs must provide the distribution utilities with an opportunity to review the same to ensure that the DERs are not participating in a retail compensation programme and their participation in the wholesale market itself will not pose any risk to the distribution system.


Finally, to ensure compliance with all provisions of RTO/ISO tariffs, DER aggregators must execute an agreement with an RTO/ISO defining its roles and responsibilities. This must include compliance with tariffs and procedures of distribution utilities and rules and regulations of other relevant regulatory authorities.


In terms of the next steps, the NOPR is open for stakeholder comments until January 30, 2017. The implementation of these reforms will open up new opportunities for energy storage and DERs to participate in the organised wholesale markets. This is critical from the point of view of maintaining grid reliability, as faster and more flexible resources are required given the rapidly changing energy mix. Therefore, non-discriminatory opportunities for the integration of energy storage and DERs into the wholesale electric grid will be of paramount importance.