Markets and regulation
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In addition to ensuring a fair, technology neutral market, energy storage may require explicit policy support as a new technology. In jurisdictions around the world, policymakers have set energy storage goals and mandates. Existing mechanisms for encouraging renewable energy deployment, such as renewable energy standards, can be adapted to spur energy storage deployment as well. Such adaptations include providing carve-outs or credit multipliers for renewable generation paired with energy storage.
Additional considerations for behind-the-meter systems
As behind-the-meter energy storage systems may not be owned or operated by utilities, ensuring their safe and reliable operation may require additional consideration from regulators. Interconnection processes can be a good way to ensure that energy storage is properly installed, has the appropriate equipment, and is operated to avoid negatively impacting the broader power system. For example, many interconnection processes are currently written explicitly for solar PV systems and there may be considerable uncertainty around whether, or how, energy storage is considered in the process. Explicitly outlining a process that includes energy storage, either as standalone or coupled with power plants, and indicating which charging and discharging regimes are allowed can improve investor and offtaker certainty, driving deployments.
Finally, regulators can incentivize ‘grid friendly’ operation of behind-the-meter energy storage systems through appropriate retail tariff design and compensation mechanisms. More cost-reflective retail tariffs (e.g. those featuring time-of-use energy charges or demand charges), unlike time-invariant volumetric energy charges, can help align customer incentives with the needs of the broader power system. The benefits derived from more cost-reflective retail tariffs, however, must be weighed against the additional complexity incurred for both utilities charged with billing customers and the customers themselves, who may not have the means to reasonably adjust their demand or interpret more complex rates.
Example Interventions:
- Streamline implementation of new energy storage regulations to reduce administrative delays that limit storage deployment.
- Address revenue compensation mechanisms and market shortcomings for the services offered by energy storage resources. These can include:
- Explicitly allow storage systems to provide system services
- Ensure that the unique technical characteristics of storage (e.g., fast response time, ability to act as both a load and supply source) are properly compensated
- Remove barriers to value-stacking.
- Incorporate energy storage into interconnection processes, reducing uncertainty around their deployment behind the meter and dictating how energy storage can charge and discharge.
- Establish (or modify existing) renewable energy mandates, goals, tax rebates and other direct interventions to explicitly include energy storage.
- Develop pilot projects to increase utility awareness of/experience with using energy storage to provide services to multiple customers.
- Design retail tariffs specific to customers with energy storage that incentivize more ‘grid-friendly’ behavior from the storage systems. Alternatively, expand existing rates for customers with DPV to include DPV-plus-storage customers.
Reading List and Case Studies
An Overview of Behind-the-Meter Solar-Plus-Storage Regulatory Design
National Renewable Energy Laboratory, 2020
This report discusses designing a regulatory framework that aligns DPV-plus-storage deployment with larger policy objectives of the electric grid. The report covers the interconnection process, market interventions, and compensation mechanism design.
Battery Storage in the United States: an Update on Market Trends
U.S. Energy Information Administration, 2020
This report explores trends in battery storage capacity additions in the United States and describes the state of the market as of 2018, including information on applications, cost, ongoing trends, and market and policy drivers. These observations consider both power capacity and energy capacity (the total amount of energy that can be stored by a battery system).
Market and Policy Barriers to Energy Storage Deployment
Sandia National Laboratory, September 2013
This report details the barriers that restrict the deployment of energy storage technologies in the United States. The findings are based on interviews with stakeholders and review of regulatory filings in four regions that are roughly representative of the country. The report suggests that while high capital costs remain a barrier to energy storage, deployment is also impacted by regulatory, market, and business model barriers. The report also presents a discussion of possible solutions to address these barriers and a review of initiatives around the country at the federal, regional, and state levels.
Managing the Future of Energy Storage: Implications for Greenhouse Gas Emissions
Institute for Policy Integrity, 2018
This report seeks to be a resource to policymakers interested in maximizing the benefits of energy storage. It highlights the underappreciated benefits of energy storage and discusses the ways in which current policies are failing to encourage socially optimal deployment of storage technology.
Regulatory and Policy Examples
Federal Energy Regulatory Commission, 2020
This rule instructs independent system operators in the United States to revise their tariffs to create participation models that will allow aggregations of various DERs (including distributed storage) to participate alongside traditional resources in the regional organized wholesale markets. These new tariffs created by the independent system operators must address several technical issues such as metering and data requirements as well as coordinating the DER dispatch across the regional grid operator, DER aggregator, distribution utility and local retail regulatory authority. The rule will allow DER to participant in both retail programs as well as wholesale markets, with relevant constraints to prevent double counting of DER services. This rule allows several sources of distributed electricity to aggregate to satisfy the minimum size and performance requirements for wholesale markets. Allowing DER to participate in both wholesale and retail programs will allow greater grid flexibility, efficiency and resilience, and provide better outcomes for many power system stakeholders through enhanced competition.
Federal Energy Regulatory Commission, February 2018
FERC Order 841 is a final rule from the United States Department of Energy’s Federal Energy Regulatory Commission (FERC) that directs RTOs and ISOs to develop tariffs to integrate electric storage into all electric (capacity, energy, and ancillary service) markets. This rule is expected to usher in the wider use of electric storage and, in turn, result in greater integration of intermittent and variable renewable energy onto the grid. The rule applies to all storage capable of both charging from and discharging to the grid, regardless of whether it was a behind-the-meter, distribution, or transmission level system. In May 2019, citing their jurisdictional authority, FERC commissioners declined to allow states to opt out of this rule.
Frequency Regulation Compensation in the Organized Wholesale Power Markets Vol. Order No. 755
Federal Energy Regulatory Commission, 2011
In this regulation, the U.S. Federal Energy Regulatory Commission (FERC), ensures that all providers of frequency regulation receive just, reasonable, and indiscriminatory rates and procurement treatment, in effect leveling the playing field for renewable energy sources and energy storage to participate in wholesale electricity markets for key services. Furthermore, the regulation directs market operators to adjust compensation for a given service based on the quality of the service (pay for performance). This provides additional incentives for the deployment of energy storage, which can provide high quality services by responding rapidly and accurately to market signals.
Decision on Multiple-Use Application Issues. Rulemaking 15-03-011
California Public Utilities Commission, 2018
This decision provides direction to utilities on how to promote the ability of storage resources to realize their full economic value while providing multiple benefits and services to the electricity system. The eleven rules adopted by the California Public Utilities Commission to govern evaluation of these multiple-use energy storage applications are included, along with definitions of service domains, reliability services, and non-reliability services. These rules place significant emphasis on ensuring that energy-limited resources like energy storage are capable of providing critical reliability services in response to emergencies, regardless of any additional non-reliability services they may be contracted to provide.
California Public Utilities Commission, 2017
Policymakers in California have long made the acceleration of distributed generation a priority in their state for an evolving set of reasons. In 2000, the Self-Generation Incentive Program (SGIP) was developed to reduce peak demand during the California electricity crisis by providing financial incentives for customers to invest in distributed generation. In 2009, the program was updated with the explicit goal of reducing greenhouse gas emissions as a part of California’s evolving environmental ambitions. Originally designed to help subsidize the costs of distributed generation, the program was again updated in 2017 to pivot more towards encouraging the deployment of energy storage. This decision was accompanied by significant increases in the budget for SGIP, split between the major investor owned utilities in the state. Of the additional funding for the program, 85% went towards storage, with split 90% of that reserved for projects greater than 10 kW and 10% versus projects smaller than 10kW. The other 15% of the additional SGIP funding went towards renewable energy generation.
California Public Utilities Commission , 2013
This decision establishes the policies and mechanisms for the mandatory procurement of electric energy storage in the three investor owned utility territories in California. This decision establishes a target of 1,325 megawatts (MW) of energy storage to be procured by Pacific Gas and Electric Company, Southern California Edison Company and San Diego Gas & Electric Company by 2020, with installations required no later than the end of 2024, and sets a schedule for procurement of energy storage.
The bill breaks down the procurement targets for each utility based on its interconnection point (either at the transmission, distribution or customer level) and year. The bill; allows for some shifting across years and interconnection “buckets,” but does not allow utilities to reduce targets from the customer interconnection bucket. The bill also allows for some utility-owned assets to meet these targets, but these cannot exceed 50% of the installed capacity counting towards utility compliance with the targets.