Client Alerts
February 23, 2018

Federal Energy Regulatory Commission Opens the Door for Energy Storage Development

Stites & Harbison Client Alert, February 23, 2018

On February 15, 2018, the Federal Energy Regulatory Commission (FERC) unanimously issued Order No. 841¹ which has the potential to dramatically alter the electricity grid and wholesale energy market in large parts of the United States. In Order 841, FERC directed the country’s regional transmission organizations and independent system operators (RTO/ISO), the entities that manage the wholesale electric markets in large parts of the country, to establish participation rules that remove barriers to full participation in the market by energy storage resources. By recognizing the unique characteristics of energy storage resources, Order 841 has the potential to spur development of energy storage technologies and modernize the grid.

Order 841 does not specifically identify the energy storage technologies that will be subject to the participation rules, beyond the requirement that a covered energy storage resource must be capable of receiving energy from the grid for storage and later reinjecting that energy back into the grid. However, it identifies batteries, flywheels, compressed air, and pumped-hydro as examples of technologies that meet the definition. The energy storage resources that will be subject to the RTO/ISO participation rules can provide energy, capacity, and ancillary services (i.e. frequency control, operating reserves, etc.) for the grid. Order 841 makes no distinction regarding the location of the resources on the grid. Resources attached to the transmission system, attached to distribution systems, and those located behind the grid would qualify

Through Order 841, FERC directed the RTOs/ISOs to develop participation rules that:

(1) ensure that an energy storage resource is able to provide the market with all of the capacity, energy, and ancillary services it is technically capable of providing;

(2) ensure that an energy storage resource can be dispatched and can set market prices for buyers and sellers consistent with existing rules;

(3) account for the physical and operational characteristics of the energy storage resource; and

(4) establish a minimal size requirement for participating energy storage resources that does not exceed 100kW.

FERC also required that each RTO/ISO specify that sales to and from energy storage resources must be priced at locational marginal price which reflects the value of the energy at a particular place and time. The RTOs/ISOs must submit their participation rules within six months of the date of the order.

Removing the existing barriers in RTO/ISO participation rules will not only spur the development of energy storage resources, but has the potential to boost renewable resources as well. One of the key struggles facing renewable resource developers as well as entities that wish to take advantage of renewable resources is that many renewable resources are intermittent in nature. Solar energy production is limited when the sun is not shining. Similarly, wind turbine generators cannot produce energy when the wind is not blowing. Opening up the RTO/ISO markets to energy storage resources may allow renewable energy developers to partner with energy storage resources to enhance the effectiveness of their projects and making them more competitive. Regardless of the ultimate impact, Order 841 is a significant step from FERC towards modernizing the grid.

¹ 162 FECR ¶ 61,127

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