WASHINGTON: Declining costs and new market rules are opening opportunities for energy storage, but the technology’s operating characteristics are proving challenging to system operators and market designers, speakers told the Energy Storage Association Policy Summit last week.
Jurisdictional questions also are creating uncertainty, speakers said.
David Kolata, executive director of the Citizens Utility Board in Illinois, captured the optimism at the daylong conference, declaring his consumer group as “bullish” on the technology.
“In our minds, the declining cost curve of batteries and other storage technologies is the single most encouraging trend in the electricity space today,” Kolata said. “We see storage as an essential component of a least-cost future, and we say this because if we get the policy right there are multiple sources of consumer value.”
Kolata cited lower cost for frequency regulation, reduced costs for integrating renewables, increased grid flexibility and reliability and the deferment of transmission and distribution system investments.
“And perhaps most importantly, storage can lower peak demand. From the consumer point of view, nothing is more important than reducing the peak. As you know, a large percentage of overall system costs are driven by 30, 40, 50 hours a year, so if you can reduce that peak, there are benefits for all consumers.”
Kolata said storage — along with time-based rates — will be crucial to ensuring transportation electrification brings benefits.
“At CUB, we see the potential benefits from electrification, but … only if vehicles charge when they should and don’t charge when they shouldn’t,” he said. “If transportation electrification increases peak demand, it’s going to be bad for the environment and bad for consumers.”
No Tx Projects Yet
FERC Chair Neil Chatterjee, who joined the commission in August 2017, while the Notice of Proposed Rulemaking that led to Order 841 was pending, recalled Sens. Sheldon Whitehouse (D-R.I.) and Ed Markey (D-Mass.) telling him during his confirmation process of “the importance of storage as a transformational technology.”
Order 841, which required RTOs and ISOs to remove barriers to entry for storage, was approved in February 2018, two months before Order 845, which revised generator interconnection rules. (See FERC Rules to Boost Storage Role in Marketsand FERC Order Seeks to Reduce Time, Uncertainty on Interconnections.)
Although storage can replace or defer more expensive transmission upgrades by reducing thermal loading, no RTOs or ISOs have selected storage as an option in their regional transmission plans, Chatterjee noted. “In fact, the commission has not received a single request for rate recovery from a storage project that was actually built to provide transmission services,” Chatterjee said. FERC did approve a request in 2011 to recover the cost of storage facility through CAISO’s transmission rates, but the project was never built.
“If storage as transmission were to gain more traction in the regional planning processes, that could really open up big opportunities,” he said.
He said storage’s role on distribution grids will be uncertain until legal questions are answered.
Several protesters have sought rehearing of Order 841, saying FERC overstepped its authority regarding distribution-level storage. Once FERC rules on the rehearing requests, there could be further challenges at the D.C. Circuit Court of Appeals.
“While Orders 841 and 845 did a lot to level the playing field for storage, I don’t think that means our work is done,” Chatterjee said.
RTOs Discuss Order 841 Compliance
Before Chatterjee’s speech, representatives from PJM, NYISO, MISO, ISO-NE and SPP discussed their experiences in changing their rules in response to Order 841. The RTOs made compliance filings in response to the order in December. (See RTOs/ISOs File FERC Order 841 Compliance Plans.)
Andrew Levitt, senior business solution architect for PJM, said the order was a challenge because the RTO strives for a resource-neutral policy. “And then we get Order 841, that says you have to have a resource-specific energy storage resource participation model and here’s how it’s going to have to work,” he said. “Those two perspectives don’t quite mesh.”
Daniel Harless, lead market design engineer for SPP, said stakeholders were sharply divided on the RTO’s pre-Order 841 rules, with some “people believing that some existing market rules were barriers [and] other people who believe that those existing market rules were a safeguard to [protect] reliability.”
Christopher Parent, director of market development for ISO-NE, said “Getting [storage] modeling correct is challenging. It’s challenging for combined cycles; it’s challenging for storage; it’s challenging for wind.”
It is even more challenging, he said, “when you start combining these technologies together,” as in co-locating solar and storage.
But he said prior experience with renewables has helped analysts develop answers.
“Inverter-based resources — energy storage, wind, solar — because they don’t have unit commitments, because they don’t really have ramp limits — all those resources are completely dispatchable, down to zero in the case of wind and solar, and down to negative whatever in the case of batteries,” he said. “We actually found that our wind, solar implementation in the markets in the industrial optimization side of the market, was very easily portable over into energy storage.”
But Michael DeSocio, senior market design manager for NYISO, said storage’s physical capabilities have outstripped the ISO’s optimization software.
“I’m [not] worried about 10 or 20 MW of storage resources and managing the system with that. … [I’m worried about] [Year 2030] storage goals for 3,000 MW of these resources. That’s 10% of our load. If we get schedules wrong, we’re going to have problems on the grid. We’re going to create situations where we’re either going to be more conservative, and therefore we’re going to overcommit just so we have backup resources available, which I don’t think helps the clean energy side of the equation. Or we’re going to under-commit and then we’re going to have issues with trying to keep the lights on.
“So, we need to figure this out. We’re going slow mostly because when we presented some information to our stakeholders, we were unable to get eight storage assets to solve simultaneously in the market simulation app. We’re looking at way more than eight” storage assets, he said.
Peter Fuller, of Autumn Lane Energy Consulting, said market rules need to be changed so that “low-marginal-cost resources can still set prices … rather than defaulting to sort of an average cost, all-in, cost-of-service methodology. That’s a gap we need to work on. But I don’t think it’s a suggestion that we don’t continue to push forward with markets.
“It’s been close to 20 years now that I’ve been thinking about trying to design and build these wholesale markets. Where we run into trouble is where we try to make exceptions and do things just for this or just for that. … I think the more we get back to first principles and simplify overall, we’ll be better off. … We have 20th century markets. We need 21st century markets. We have a long way to go,” he said.
“Twenty years ago, … combined cycle developers were all saying, ‘I need a long-term contract.’ We built markets that actually accommodated them very, very well and no longer do we see that kind of requirement coming from that community.
“Now we’re seeing it from the renewable and storage community. … In a fairly short time, in my opinion, I think with well-structured markets we’re going to see the need for long-term contracts kind of fade away.”
Investment Tax Credit?
U.S. Sen. Martin Heinrich (D-N.M.) told the conference he has won Sen. Cory Gardner (R-Colo.) as a co-sponsor of legislation they will introduce for an energy storage investment tax credit. Heinrich has been unsuccessfully pushing for the credit since at least 2016.
The 2017 version of the bill would have given commercial storage applications the same tax incentive that solar energy receives under Section 48 of the Internal Revenue Code, including the phase-out over five years.
All energy storage technologies with a capacity of at least 5 kWh, including batteries, flywheels, pumped hydro, thermal energy and compressed air, would qualify. The IRS currently allows an ITC for an energy storage resource only when it’s combined with a solar energy system.
The bill also would provide homeowners the same credit as currently available for solar energy in Section 25D of the code. Currently, only battery storage with a capacity of 3 kWh or more is eligible for the residential ITC.
Both the residential and commercial ITCs are worth 30% for projects begun by the end of 2019. The ITC drops to 26% for projects begun in 2020 and 22% for projects started in 2021. After 2021, the residential credit is eliminated, and the commercial and utility credit will drop to a permanent 10%.
At a Senate Energy and Natural Resources Committee hearing on cybersecurity at which Chatterjee appeared the day after the ESA forum, Heinrich asked the chairman about the status of Order 841. “What kind of a timeline are we looking at?”
“We’ve heard from a number of stakeholders that they’re waiting for our action on rehearing,” Chatterjee said. “These are very, very complex issues. We understand that people want that clarity going forward. My colleagues and I are committed to doing it right, and we understand the agita and the desire to get it done. Better to do it right than rushed.”
“We do need to get this right, but it is also a pretty urgent matter,” Heinrich replied. “It certainly opens up an enormous amount of economic activity and a resiliency that we need to be supportive of. I would just once again emphasize what an urgently important order that is.”