February 7, 2019 by Miles Farmer, Clean Energy Attorney
The market for energy storage is poised for rapid growth in New York, but progress could be stymied. A flawed plan from NYISO, the state’s electricity grid operator, threatens to slow the integration of these promising new technologies into the market. The Sustainable FERC Project, Natural Resources Defense Council, Earthjustice, and other groups are filing a protest to NYISO’s plan with the Federal Energy Regulatory Commission (FERC) today, urging the nation’s grid regulator to order NYISO to revise its proposal to ensure energy storage resources can participate on even footing in its markets.
With the costs of energy storage technologies like large batteries rapidly falling and their vast potential becoming clear, FERC has made it a top priority for grid operators to update their market rules to eliminate barriers that prevent storage companies from selling their many valuable grid services to utilities and other large energy users. These barriers can slow technological innovation, reduce competition, and increase prices. Markets run by the nation’s regional grid operators were originally set up with power plants and not energy storage resources in mind. Due to operational differences between the technologies, it can be hard for energy storage resources to efficiently participate in those markets.
In February 2018, FERC issued a landmark order (known in the industry as “Order 841”, discussed here) requiring the country’s several regional grid operators to eliminate their market barriers for energy storage resources. Meanwhile, states like New York have taken complementary action to jumpstart the energy storage industry. For example, the New York Public Service Commission (PSC) recently announced a target of 3000 Megawatts of energy storage by 2030, issuing an order that established the regulatory groundwork for a suite of policies designed to galvanize the market. But NYISO’s failure to adequately implement Order 841 now threatens to hinder the state’s plan.
Our coalition is challenging NYISO’s faulty proposal, urging FERC to order NYISO to improve it in three critical areas:
1. NYISO proposes to bar storage resources from selling services to both the transmission and distribution systems
One of the advantages of energy storage is that it can provide benefits both to the bulk transmission system (large power lines akin to highways that send energy from power plants to local substations) and the distribution system (local poles and wires sending power to customers like homes and businesses). As discussed here, states regulate the distribution system and retail service (sales to end-use customers), while FERC regulates the transmission system. FERC also regulates wholesale sales (sales from large energy suppliers to utilities). In New York, wholesale and transmission service is controlled by NYISO. Because some energy storage resources have a business model that is reliant on selling both types of services (wholesale/transmission and retail/distribution), it is important for NYISO’s rules to facilitate that dual role.
Unfortunately, NYISO’s plan bars storage resources that sell state-regulated services from also selling services in NYISO’s markets. NYISO suggests that it may establish rules to allow a single storage resource to sell both types of services at some undefined time in the future, but doesn’t say when that might happen, if ever. As we explain in our filing, NYISO’s prohibition violates FERC’s Order 841 and must be remedied. We also point out that NYISO’s proposal is illegal because it unfairly discriminates against energy storage resources. In contrast, demand response resources, which help the grid by reducing power demand at times like hot summer days when the system is most stressed, are able to sell into both FERC- and New York State-regulated markets (as discussed here).
2. NYISO proposes burdensome and unnecessary market monitoring rules
FERC’s Order 841 specifically directed grid operators to remove market barriers to energy storage resources, but NYISO tucked rule changes into its plan that do the opposite. NYISO has proposed to review sales offers from small energy storage resources under two megawatts to ensure that they are economically competitive. (NYISO’s current rules already apply such review to bigger energy storage resources.) This review procedure, known in the region as “buyer-side mitigation,” was originally intended to prevent market manipulation. While applying such a review process to energy storage resources may seem reasonable at first glance, there are significant red flags.
First, we don’t know how NYISO will apply the rules. Applying buyer-side mitigation to energy storage resources in New York could inhibit the state’s efforts to jumpstart the energy storage market through state incentives by potentially blocking resources supported by state programs from selling in NYISO’s markets. Additionally, the review process itself is very burdensome, introducing costs and delays that could harm small resource owners. NYISO’s proposal also runs contrary to a previous FERC order that exempted demand response resources from the review process, because there is no risk that small resources will manipulate market prices. (Two megawatts is a very small amount of power as compared to most power plants, which are generally hundreds of megawatts or larger.) NYISO’s proposal to apply review to energy storage resources under two megawatts must be rejected as outside the scope of and contrary to FERC’s directions in Order 841.
3. NYISO proposes to bar energy storage owners from choosing when to charge and discharge energy into the system
NYISO’s proposal also fails to follow FERC’s instructions to allow energy storage resources to self-manage their state of charge. FERC specified that the owners of energy storage resources must be able to decide when to charge them up or inject power into the grid, rather than forcing them to give up control to the grid operator. NYISO ignored this directive, proposing to require many storage resources to be dispatched according to NYISO’s software algorithm. As FERC explained in Order 841, energy storage resource owners must be able to self-manage their resources’ energy levels “because it allows these resources to optimize their operations.” For example, if a storage resource provides state-regulated services in addition to selling in NYISO’s markets, the resource owner is the only entity able to determine when charging and discharging would be most beneficial.
Further, while a NYISO dispatch algorithm could in theory be a good option for resource owners if it were not required, NYISO’s specific proposal falls short. While NYISO allows fossil generators to specify conditions upon which they can commit to operate (accounting for factors such as start up and shut down costs), it does not allow energy storage resources to include a similar “commitment” parameter in their market offers that would provide instructions to NYISO regarding when to turn them on and off. This restriction exposes energy storage resource owners to operational and financial risk. If NYISO’s dispatch controls caused a resource to frequently charge and discharge in a manner harmful to a battery, for example, the owner could be forced to choose between letting the equipment corrode or paying a financial penalty for failing to follow NYISO’s instructions.
Thus, while we support allowing NYISO-controlled dispatch as an option, we urge FERC to require NYISO to develop dispatch software solution that can adequately handle a “commitment” parameter for energy storage resources that allows them to specify operational constraints.
FERC should require NYISO to improve its proposal
Overall, we are disappointed with NYISO’s proposed plan to facilitate market participation by energy storage resources. NYISO should be a committed partner to New York State in advancing the state’s policies to create a cleaner energy system that fully harnesses the power of promising technologies like energy storage. To further that goal, NYISO should devote more resources to expeditiously develop rules that truly eliminate the barriers for energy storage resources. Fortunately, FERC’s Order 841 requires NYISO to do better. FERC should order NYISO to improve its plan.