In February, FERC issued Order 841, Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators (the “Order”), requiring RTOs and ISOs to establish new market participation rules for energy storage that recognize the physical and operational characteristics of these resources. While the Order set forth some minimal requirements that each RTO/ISO must meet when proposing market rules, the Commission also left considerable flexibility for each RTO/ISO in implementation.
A number of ISOs/RTOs submitted motions for clarification and requests for rehearing in March, and last Friday, April 13 FERC issued a tolling order to allow for more time to consider these motions and requests. As we await FERC’s response, here are our five key takeaways from the Order as it currently stands:
- New Revenue Opportunities for Storage. With the Order, there is now a pathway for energy storage to be able to participate in wholesale markets on something like a level playing field with other resources. Market rules, for example, will now need to include storage-specific bidding parameters such as state of charge and allow for market participation of storage assets as both supply and demand resources. For the storage industry, this can open up new opportunities for multiple revenue streams in the Capacity, Energy, and Ancillary Services markets. At the same time, storage resources will not be precluded from participating in existing programs, such as demand response. The end result is that, in markets with existing programs, storage resources will now have more options for participation.
- Market Access Does Not Always Lead to More Storage Projects. Opening the door for storage participation is not the same as saying more storage will be built. Like any energy project, it can be hard to finance storage in the absence of fixed revenue contracts. Today, state procurement mandates are largely driving the storage market and how much more storage will be built on the basis of wholesale market access is hard to predict. This will depend in part on how energy storage companies choose to compete in wholesale markets, and whether accessing multiple revenue streams is possible. This will especially be true if wholesale energy prices alone do not make a project cost-effective.
- The ISOs/RTOs Are Generally Supportive of the Order, But Have Sought Further Guidance. A number of the ISOs/RTOs submitted motions for clarification on certain implementation issues. These were generally supportive of the overall direction of the Order, and asked for clarifications related to applicability in their specific markets and their role in implementation when there could be overlap with state authority. Reading the tea leaves suggests that while the ISOs/RTOs have already begun to consider these issues in the context of their unique regions, the interaction with state jurisdiction at the distribution level and the opportunity to participate at both wholesale and distribution level will be key to driving more storage procurement. Following the Order, we can also expect new voices in ISO/RTO stakeholder proceedings that will address the technical capabilities of new technologies.
- Compliance Filings Are Due in December, But Expect Some Delays. Compliance filings are due December 3rd of this year. While FERC stated that the Order’s allowance for as much regional flexibility as possible is intended to assist in meeting the compliance and implementation deadlines, it is unclear whether RTO/ISOs will have enough time to initiate robust stakeholder initiatives. Especially in markets with no existing programs, unforeseen stakeholder issues could slow down the process. MISO has already requested a 6 month extension in consideration of this time crunch as it relates to the distributed energy resource technical conference held last week.
- Individual ISO/RTO Stakeholder Processes Will Be More Important to Track. Once FERC responds to the motions for clarification, the ISOs/RTOs will be working on implementation details. It will be important to follow each one to see how unique details play out in each ISO/RTO region. For example, in light of MISO’s motion, we anticipate new storage market participation rules that go beyond FERC’s Order to address issues specific to distributed energy resources. The CAISO will be another one to watch, though their filings have stated that they already largely comply with the requirements of the Order, because of their recently identified operational issues associated with high levels of renewable integration and the opportunities storage can provide to solve them.
Check back here for updates as implementation of the Order progresses over the rest of the year.