Energy Storage on the Grid: Transmission Equipment or Market Participant?

Michael Giberson

In the wholesale power markets world, commercial energy storage concepts are commonly somewhat of an afterthought. None of the large regional wholesale power markets integrated into transmission operations put too much effort into thinking about energy storage as they developed their market rules.

A part of the problem is that the transmission system and the rules that surround it is set up to move power from generation sources to electrical loads. Grid-connected energy storage devices are something of a hybrid: sometimes act like generators – supplying power – and sometimes act like loads – consuming power. They don’t always fit neatly into traditional categories. Further mixing things up, energy storage can contribute greatly to system reliability, usually treated as a matter for transmission-system based coordination rather than market transaction.

But as commercial-scale energy storage begins to arrive on the scene it has become more important to sort through these issues.

Last year Beacon Power, a flywheel maker aiming to participate in several regional markets, complained to FERC that proposed Midwest ISO ancillary market rules failed to accommodate energy storage devices. (The Midwest ISO answered that it had conducted numerous meetings with market participants, Beacon Power had not participated in these meetings, and it didn’t notify the ISO of any concerns until after the rules had been proposed at FERC. FERC told Beacon Power and Midwest ISO to work together to work out the necessary changes. The process is ongoing, occasionally spilling over into FERC Docket No. ER07-1372.) Beacon Power is also involved in other markets, for example, supporting rule changes in New England to permit non-generation devices to supply “regulation service” (also known as “automatic generation control”). They have a deal going with the California ISO, too.

Beacon Power represents one approach to bringing energy storage to the grid, but an alternative approach has been suggested by a transmission owner in ERCOT. In July of this year, American Electric Power requested rule changes necessary to allow it to treat a planned addition of a battery storage system as “substation equipment,” i.e., making it part of the transmission and distribution system. As such, the associated costs would be recovered under a regulated, rather than market, rate.

Other ERCOT stakeholders objected that the proposal appeared contrary to the ERCOT market design and may violate existing state laws. Luminant, an owner of significant generation resources in Texas, said it “believes that the intent of the Legislature when it enacted SB 7 and established retail competition in ERCOT was to distinctly separate generation, transmission and retail functions. This Protocol Revision Request seems to significantly blur that separation of functions.” PSEG TX, an another owner of generation, noted that a device that could both be a resource and a load raised questions about “energy ownership, Settlement, and concomitant impacts on market prices.”

The PUC of Texas has implemented a review of legal and regulatory issues raised, and ERCOT has decided to wait for a PUC ruling before proceeding.

But whatever the current laws and regulations, in Texas and elsewhere, wholesale power market will be increasingly asked to ensure that their rules accommodate energy storage-based market participants.

NOTES: Limited background information on the ERCOT process, including the brief filings, are available from ERCOT’s website.

Hmmm. Affiliates of PSEG TX operating in the New England market filed to intervene in the ISO New England rule change noted above. Is PSEG especially interested in energy storage? Yes, as we noted here a few weeks ago.

Tags: energy storage, electricity, market design


8 thoughts on “Energy Storage on the Grid: Transmission Equipment or Market Participant?

  1. Very topical!

    I recently did an article looking at the fundamental economics of electric storage on the grid. The technology used to store electricity is immaterial since all forms share two characteristics.. First, they are never 100% efficient per the 2nd Law of Thermodynamics. Second, they are never free and the costs have to be amortized over production units. I offered ERCOT prices as an example.

    http://www.energypulse.net/centers/article/article_display.cfm?a_id=1808

    My approach was to debunk some of the claims by wind and solar power advocates that dedicated storage on the grid would ameliorate their problems of intermittency. The article, showed, I hoped, that investors in grid storage would insist on low input costs and reliable recharge production. Hence, nuclear and coal would be the preferred storage partners. Existing pumped storage installations are, as far as I know, coupled with large coal or nuclear generators.

    This initiative would put the storage at the substation level. The grid would be the reliable source of input power and the payoff would be the peak/off-peak differentials and maybe locational pricing and freedom from transmission congestion charges.

    For the grid as a whole, widespread substation storage should lower peak costs and increase baseload prices. That would be bad for natural gas generators and good for nuclear generators. Wind and solar would still not benefit unless the sun started shining at night and the winds preferentially blow when we’re asleep.

  2. Interesting point, perhaps what storage would do for intermittent renewables it would do better for cheap baseload generated off peak — hold it for delivery during a higher-value period. Of course some wind sites have the characteristic you mention (“preferentially blow when we’re asleep”), but I can see your point that even so wind isn’t the steady partner that cheap baseload would be.

    Perhaps what explains PSEG’s interest in energy storage systems isn’t so much the prospect of a wind farm off the New Jersey shore, but the PSEG nuclear fleet on the land.

  3. Interesting point, perhaps what storage would do for intermittent renewables it would do better for cheap baseload generated off peak — hold it for delivery during a higher-value period. Of course some wind sites have the characteristic you mention (“preferentially blow when we’re asleep”), but I can see your point that even so wind isn’t the steady partner that cheap baseload would be.

    Perhaps what explains PSEG’s interest in energy storage systems isn’t so much the prospect of a wind farm off the New Jersey shore, but the PSEG nuclear fleet on the land.

  4. If one postulates that the “grid” is the recharge source, then the renewables advocates have to show that they won’t degrade the grid by putting too much intermittent, non-dispatchable capacity (as a percentage) on it.

    Windmills overall have a capacity factor of 25% to 30% or so according to the EIA. One way to state that is to say they run one day in four or maybe one day in three. A specific wind resource that preferentially blew at night would miss out on peak rates so would still be at a disadvantage economically.

    PSE&G might be thinking that the regulators would bend over backwards to help wind and so would allow the storage charges to be passed on to ratepayer even if the nukes did the real work.

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