Increasing the value of energy storage in the wholesale electricity market

The proliferation of renewable energy such as wind and solar power is rapidly changing the United States’ electrical grid. The growth of renewables has created a need for flexible resources capable of responding quickly to variability in electrical generation—a challenging characteristic of solar and wind power, but one that can be addressed with advanced energy storage technologies. While battery storage capacity has increased significantly in recent years, U.S. policy and regulatory improvements are needed to support the large-scale adoption of these technologies.

While a number of prior studies have assessed the policy barriers to advanced storage adoption, few have offered a comprehensive review of the numerous federal and state regulations that govern energy storage technologies in the U.S. wholesale electricity market. Addressing this literature gap, a recent article reviewed the current and emerging regulatory landscape for energy storage at the federal level and across the U.S. Sakti, Botterud, and O’Sullivan identified a diverse array of rules that currently apply to energy storage across the independent system operators/regional transmission operators (ISO/RSOs). While these rules must conform with overarching regulations established by the Federal Energy Regulatory Commission (FERC), each ISO/RSO has developed a unique approach to governing the participation of advanced energy systems in the market. The current disjointed nature of these rules establishes a broader need for more congruent market design policies that support the integration of emerging energy storage technologies.

The article also identified inconsistencies in the way that storage is defined as an issue. Since energy storage assets can both supply and demand electricity, these technologies do not fit neatly into existing categories for grid assets. Defining storage as a generation, demand or transmission asset would provide much needed clarity regarding who is permitted to own and operate these technologies. It would also facilitate the development of new business models that allow operators of storage systems to be compensated for the full spectrum of benefits provided to the grid.

Finally, the article emphasized the key role that market design and policy play in the economics of storage technologies and highlighted several examples of successful regulation in the past. For example, FERC Order 825, issued in 2016, increased potential revenue for energy storage arbitrage twofold within the Midcontinent Independent System Operator (MISO) power market. The latest ruling released by FERC, order 841 represents a promising pathway towards increasing participation and reshaping the value of energy storage in the U.S. wholesale electricity market.

As the U.S. transitions to a lower-carbon energy future with an increased presence of renewables, advanced energy storage technologies will play a key role in maintaining grid flexibility and stability. Large-scale deployment of these technologies will be critical for balancing a rapidly growing portfolio of variable energy resources. With this in mind, policymakers need to think more critically about the policy, regulations and market reforms required to support the development of new business models and pathways to deployment of energy storage technologies.

Article source: Sakti, Apurba, Audun Botterud, & Francis O’Sullivan, “Review of wholesale markets and regulations for advanced energy storage services in the United States: Current status and path forward,” Energy Policy, 120 (2018): 569-579.

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