The Federal Energy Regulatory Commission’s (FERC) recent Order No. 841 has the potential to create major new opportunities for electric storage participation in markets operated by Regional Transmission Organization (RTO) and Independent System Operator (ISO) markets in the US. The order was designed to remove the barriers to participation for electrical storage resources (ESRs) by opening up capacity, energy, and ancillary service markets. With this order in place, it should reshape the way entrepreneurs enter the energy sector. This marks continued progress in the energy transition I discuss in my energy investment thesis, but it’s not that simple.
4 Facts About FERC’s Order No. 841 That Entrepreneurs Should Know
1. There Are New Revenue Opportunities For Storage.
This order has made it possible for entrepreneurs in energy storage to participate on a level playing field. Along the way, this has created a legal pathway for entrepreneurs in energy storage to participate in wholesale markets. Far from just participating in existing programs like demand response, entrepreneurs can now compete in multiple revenue streams.
2. Compliance Filings Were Due by December 2019 (Delays Are Expected).
FERC stated that Order No. 841’s allowance for as much regional flexibility as possible is intended to assist in meeting regulatory compliance and implementation deadlines. However, RTOs and ISOs are unsure if they will have enough time to initiate stakeholder initiatives. There are expected to be new voices in RTO/ISO stakeholder proceedings that will address the technical capabilities in new technologies. In the market of no existing orders, stakeholder issues are expected to slow the process. The Midcontinent ISO has already requested a six-month extension of the December 3rd, 2019 deadline.
3. Tracking Stakeholder Processes Will Be Important.
The ISOs and RTOs will work on the implementation details while the FERC responds to the motion for clarification. For instance, the MISO’s motion has anticipated new storage market participation rules that go beyond FERC’s Order No. 841 to address unique distributed energy resources.
The California ISO will be another implementation to watch. Their filings have stated that it largely complies with Order No. 841. (This has been in retrospect of high levels of renewable integration and the opportunities storage can provide to solve them.)
There have already been compliance filings at the end of 2019 with the implementation being due 365 days after that. However, storage companies and policymakers will continue to digest the new order and plan accordingly.
4. There Needs to Be Further Guidance.
A number of ISOs/RTOs submitted motions for clarification on certain implementation issues. They’re asking for clarification related to specific markets and their implementation rules. The goal is to avoid an overlap in the industry.
What’s the Bottom Line?
As the door opens for new storage participation, it’s not the same as saying, “More storage will be built.” Like with any energy project, it can be hard to finance storage without fixed revenue contracts. The basis of the wholesale market access is hard to predict. In fact, this opacity will continue to be a problem if wholesale energy prices alone do not make a project cost-effective —then the project will need access to multiple revenue streams.
What Does the New Order Mean for Entrepreneurs?
The new order is focused on standardizing electric storage resource (ESR) participation in wholesale energy. Storage generation will be treated as a resource. Finally, energy storage is getting its due at the wholesale grid level.
But it’s more than just that. Grid operators within the FERC jurisdiction must comply with the FERC order to allow electric storage resources to participate in their market. This presents a big opportunity for entrepreneurs and investors.
Storage increases the capacity value of renewables and decreases variability as the grid makes way for more renewables such as energy and wind resources. Storage could withhold its capacity in early morning ramp hours for evening peak ramp hours. Or it could participate in ancillary services regulation market without bidding into the energy market. It could also be a transmission asset, which adds an additional level of complexity.
That complexity is why Order No. 841 was needed.
However, the FERC order has its own challenges that entrepreneurs should be aware of. Here is what you face:
- Storage will be treated as a generation asset.
- Agencies like the National Association for Utility Regulators can step on your toes.
- It does not address all of the value stack benefits.
- Aggregation of distribution connected storage is sidestepped.
Entrepreneurs should be watching for clear direction from their Federal regulator on this important order, which is finally getting its due. It’s now possible to offer electric storage resource participation in compliance with FERC Order No. 841.
Entrepreneurs can expect for it to take about a year before Order No. 841 takes hold for ISOs/RTOs. However, the storage floodgates are opening — they’re just not opening quickly. When the order was put into place, it was held as a landmark decision.
There are some pieces that are being left for ISOs. Ironically, there is an overarching category with the new order for grid operators. California is one of the few states that are in complete compliance and only had a few adjustments to make.
The bill will also flag issues for energy storage stakeholders. For example, under the order, New England was flagged as “not in compliance” on the basis of two criteria. Many investors are viewing storage charging and discharging modes as either negative or positive bids. This has been able to level the playing field between resource types.
There is a new designation for energy resources popping up in several states, but the proposals still have multiple issues and areas that are potentially out of compliance. For instance, NYISO’s model does not work for non-continuous resources. These are resources that cannot seamlessly transition from grid injection to withdrawal, such as pumped hydro storage resources.
Even more perplexingly, NYISO-proposed energy storage tariffs still only apply to wholesale resources. The limitations in NYISO’s 841 filing could present a problem as New York rolls out their new storage energy resources outlined in the state’s Energy Storage Roadmap. Their goal is to draw revenue from both the retail market and the wholesale power market.
As it stands, their compliance filing for distributed energy sources and storage targets is not supported. The ISO is expected to be a source of revenue, but there will have to be a plan on the rules to get many new entrepreneurs under compliance.
What Happens Next?
When Order No. 841 was issued, it split off issues involving aggregation of Distributed Energy Resources into separate proceedings. The order was met with cheers by storage advocates because it continues to open the door for new streams of revenue. Developers are now looking into tapping into the wholesale market for behind-the-meter and distribution connected storage implementation.
But FERC only has jurisdiction in wholesale power markets, and it has limited ability to bridge the gap. The gap lies between the wholesale and distribution resources. The complicated matter has been split into two proceedings, which is expected to cause further delays.
Federal Energy Regulatory Commission Order No. 841 Summary
The FERC Order No. 841 is a step towards continuing the dialogue with stakeholders and providing feedback as part of the process. Through these efforts, its members are eager to ensure that storage can undertake the expected market operations that fully realize the value of storage resources. Storage will be defined as an electric energy resource capable of receiving electric energy from the grid and storing it for later injection of electric energy back to the grid.
The model for electric storage resources must ensure that a resource using the participation model for electric storage resources is eligible to provide all capacity, energy, and ancillary services that it’s technically capable of providing in the RTO/ISO markets.
In fact, they want to ensure that a resource using the participation model for electric storage resources can be dispatched under the compliance that is set forth for the wholesale seller and wholesale buyer consistent with existing market rules. Furthermore, Order No. 841 has directed each RTO/ISO to specify that the sale of electric energy from their market to an electric storage resource then resells back to those markets at the marginal price.
Order No. 841 includes all energy storage technologies. The energy storage resources that inject electric energy back to the grid for purposes of participating in the RSO/ISO market should be able to continue to do so. Many entrepreneurs have already connected with the commission. They’re asserting that the definition of an “electric storage revenue resource” should be limited to those electric storage resources that are connected to the transmission system. But this limitation would be inconsistent with the participation of other types of resources. Why? Various types of traditional generation and demand-side resources that aren’t connected directly to the transmission system currently participate in the RSO/ISO markets.
Ultimately, FERC’s Order No. 841 gives entrepreneurs more room to compete. All of the rules and details aren’t set in stone, but that also means we have an opportunity to change how those details fall into place. Do you have a different opinion about how the order will impact energy storage investment? Or have you already seen changes in the industry? If so, be sure to let me know about it so we can all stay on top of the changing markets.