FERC Allows Electric Storage Participation in Wholesale Markets; Sets Technical Conference for Distributed Energy Resource Aggregation

Electric Storage On February 15, 2018, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued a final rule (Order No. 841, the “Order”) requiring each independent system operator (“ISO”) and regional transmission organization (“RTO”) to adjust their tariffs to better accommodate energy storage resources. Eligible storage facilities include any “resource capable of receiving electric energy from the grid and storing it for later injection of electric energy back to the grid.” FERC acknowledged that emerging electric storage technologies currently face barriers to entry in the energy, capacity and ancillary service markets operated by ISOs/RTOs.

Each ISO/RTO was directed to develop a “participation model” which allows energy storage resources “to participate in the RTO/ISO markets in a way that recognizes the physical and operational characteristics of electric storage resources.” The storage participation models must meet the following broad criteria:

1. Ensure that a resource using the participation model is eligible to provide all capacity, energy, and ancillary services that the resource is technically capable of providing in the ISO/RTO markets;
2. Ensure that a resource using the participation model can be dispatched and can set the wholesale market clearing price as both a wholesale seller and wholesale buyer consistent with existing market rules that govern when a resource can set the wholesale price;
3. Account for the physical and operational characteristics of electric storage resources through bidding parameters or other means; and
4. Establish a minimum size requirement for participation in the ISO/RTO markets that does not exceed 100 kW.

FERC gave ISOs/RTOs “significant latitude” on how to implement these new market rules within different market constructs. Each ISO/RTO must file its proposed tariff changes within 270 days of the rule’s publication in the Federal Register, with an additional 365 days to fully implement the new market rules. Distributed Energy Resource (“DER”) Technical Conference The 2016 Notice of Proposed Rulemaking that led to the Order would also have required ISOs/RTOs to allow aggregation of small distributed energy resources to meet minimum size requirements. However, FERC left this out of the final rule, instead opting to gather more information about DERs from stakeholders. FERC will host a Technical Conference on April 10-11, 2018.  According to the notice, the conference will have seven panels covering the following topics:

• Economic dispatch, pricing, and settlement of DER aggregations;
• Operational implications of DER aggregation with state and local regulators;
• Participation of DERs in RTO/ISO markets;
• Collection and availability of data on DER installations;
• Incorporating DERs in modeling, planning and operations studies;
• Coordination of DER aggregations participating in RTO/ISO markets; and
• Ongoing operational coordination.

FERC also issued a lengthy Staff Report on the “technical considerations” of DERs on the bulk power system. Implications FERC has already addressed electric storage participation in markets on a case-by-case basis. For example, the California Independent System Operator has already implemented modern market participation requirements (approved by FERC) to avail itself of innovative storage technologies. However, FERC’s Order lays a foundation for all ISOs/RTOs to enhance the participation of DERs in various markets, thereby providing more market certainty and spurring growth of these resources (which have already seen significant drops in development costs). The end result should be stronger competition in wholesale markets and more efficient market results. While FERC’s decision not to authorize DER aggregation will certainly disappoint developers of these resources, the Technical Conference and Staff Report mark a significant advance in the Commission’s incorporation of non-traditional resources in wholesale markets.

Without question, DERs will represent an important part of the energy grid of the future and all technical implications should be explored. FERC’s DER decision also gives its staff, state regulators, market operators, local utilities, reliability entities and other stakeholders another opportunity to voice their opinions to facilitate the creation of new market rules and minimize future controversies.