“Energy Storage in the New York Electricity Markets”

Michael Giberson

The New York Independent System Operator has release a report, “Energy Storage in the New York Electricity Markets” (March 2010). The report offers an overview of existing grid-connected energy storage in New York, recent developments, and potential for further changes in the next several years. It is a good basic discussion of energy storage issues as seen from the point of view of the transmission system operator.

What I found most interesting was their discussion of the power market design changes needed to accommodate flywheel and battery-based energy storage systems:

The original NYISO wholesale market was designed when traditional resources, such as pumped storage and fossil fuel generation units, submitted bids for both energy and ancillary services including regulation. In the past few years, new technologies have become available that make energy storage more efficient and economical. This class of devices has an energy capacity limitation that precludes them from taking part in the energy market and thus would not fit into NYISO market model without market design modifications. Consistent with its mission to evolve the markets, the NYISO in collaboration with stakeholders participating in its shared governance process, crafted a market enhancement that will allow Limited Energy Storage Resources to participate in the NYISO Regulation markets.

To provide them access to the market, a new type of Regulation Service provider was defined: a Limited Energy Storage Resource (“LESR”). A LESR is characterized by its ability to provide continuous six-second changes in output coupled with its inability to sustain continuous operation at maximum energy withdrawal or maximum energy injection for an hour. LESRs are limited to providing Regulation Service in the NYISO markets.

Sometimes accommodations made to let new technologies work in the market is pejoratively cast as special treatment or favoritism. The NYISO gets the tone just right: the existing market design was constructed around the then existing set of technologies; new technologies don’t always fit into the existing way of doing things and it is appropriate to change. For example, when the NYISO market was designed all providers of regulation service also were energy market participants and no one worried too much about the way rules for regulation service payments were tied up with energy supply requirements and energy supply payment systems.

While market design changes are an inherent and expected part the system, that doesn’t make them simple or non-controversial. An examination of the development of LESR rules in NYISO might provide an instructive case study of the market design process.