In early August, Tesla Motors Inc., a manufacturer of advanced electric vehicles and battery energy storage systems, announced a deal to buy SolarCity Corporation, a developer of distributed energy resources, particularly solar and storage located behind a customer's meter.  Elon Musk, the CEO of Tesla, has described the merger of Tesla and SolarCity as combining energy storage and solar generation in one company that can create fully integrated residential, commercial and grid-scale products as "part of solving the sustainable energy problem."   Entities with interests in electric storage projects and companies, such as the merged Tesla and SolarCity, are advocating a wider role for storage in US wholesale electricity markets in a pending proceeding before the Federal Energy Regulatory Commission (FERC) involving the ability of energy storage resources to participate in markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs) under existing RTO/ISO tariffs and market rules.1

Historically, electric storage has consisted of hydroelectric pumped storage projects, which pump water to higher-level reservoirs when electricity demand is low, and allow it to flow downhill through electricity-generating turbines when demand increases.  However, over the past 15 years, new electric storage technologies, such as batteries, flywheels (mechanical devices that harness rotational energy to deliver instantaneous electricity), compressed air energy storage and electrochemical capacitors, have provided certain ancillary services to the electricity grid, including frequency regulation (which reconciles momentary differences caused by fluctuations in generation and loads), energy management, backup power, load leveling, voltage support and grid stabilization.

In addition, according to the Energy Storage Association (ESA), energy storage systems currently make up approximately 2% of US electricity generation capacity.

The US Energy Information Administration has reported that, while hydroelectric pumped storage made up 98% of total US electric storage capacity in 2015, between 2010-2015, non-hydroelectric storage doubled in electric power sector capacity from 160 MW to nearly 350 MW.

Large-scale deployment of electric storage resources is seen as a key to increasing the share of intermittent renewable energy resources, such as solar and wind, in the US electricity generation mix.  In 2010, California enacted legislation directing the California Public Utilities Commission (CPUC) to determine appropriate targets, if any, for each load-serving entity (LSE) to procure viable and cost-effective energy storage systems and to adopt an energy storage system procurement target, if determined to be appropriate, to be achieved by each LSE by December 31, 2015, and a second target to be achieved by each LSE by December 31, 2020.  The California legislature passed this law because, among other things, "[e]xpanding the use of energy storage systems can assist electrical corporations, electric service providers, community choice aggregators, and local publicly owned electric utilities in integrating increased amounts of renewable energy resources into the electrical transmission and distribution grid. . . ."  The  legislature also found that "[t]here are significant barriers to obtaining the benefits of energy storage systems, including inadequate evaluation of the use of energy storage to integrate renewable energy resources into the transmission and distribution grid through long-term electricity resource planning, lack of recognition of technological and marketplace advancements, and inadequate statutory and regulatory support."

In response to this legislation, the CPUC adopted an energy storage procurement framework in October 2013, establishing an energy storage target of 1,325 MW by 2020 for the three investor-owned public utilities subject to its jurisdiction –  Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company, with installations required no later than the end of 2024.

In April, FERC's Office of Energy Policy and Innovation sent data requests to the six RTOs and ISOs subject to FERC jurisdiction (NYISO, ISO-NE, PJM, MISO, SPP and CAISO), seeking information about their tariffs and market rules that affect the participation of electric storage resources, which FERC has defined as "a facility that can receive electric energy from the grid and store it for later injection of electricity back to the grid."  According to FERC staff, this definition of electric storage resources includes all types of electric storage technologies, regardless of their size and storage medium, or whether they are interconnected to the transmission system, distribution system or behind a customer meter.

In this proceeding, FERC staff is trying to determine whether barriers exist to the participation of electric storage resources in the capacity, energy and ancillary services markets operated by RTOs and ISOs that could lead to unjust and unreasonable rates for wholesale sales of electricity, which are prohibited by the Federal Power Act, and, if such barriers exist, whether any changes to RTO and ISO tariffs are necessary.  FERC staff initiated the proceeding in light of, among other things, the numerous electric storage assets that have come on line in PJM, California's initiatives related to that state's renewable energy storage procurement mandate, and "key developments in the technology and cost-effectiveness of electric storage resources."

FERC also requested comments from the public on the responses submitted by the RTOs and ISOs, including specific examples of RTO/ISO rules that may facilitate or present barriers to electric storage participation in RTO and ISO markets.

Each of the six FERC-jurisdictional RTOs and ISOs filed a response to FERC staff's data requests in May, arguing that as a general matter, their tariffs and rules do not prohibit electric storage resources from participating in their markets.   For example, PJM argues that its market rules are written to allow all resources to participate, regardless of technology, and as long as market participants can demonstrate that electric storage resources are able to meet the eligibility and performance criteria for each wholesale market, there is nothing prohibiting such resources from participating in PJM wholesale markets.  PJM reports that the vast majority of non-hydroelectric pumped storage resources in PJM are batteries, most of which operate in PJM's regulation market.  According to PJM, there is currently a total of 5,814 megawatts ("MW") of electric storage resources participating in PJM wholesale markets.  Of this total, 5,537 MW of hydroelectric pumped storage resources, 245 MW of battery resources and 20 MW of flywheel resources are designated as generation resources, while 12 MW of battery resources are designated as demand-side resources.

However, the RTOs and ISOs also indicate that based on their physical limitations, certain energy storage resources may not be eligible to participate in all RTO/ISO markets, may not qualify as a particular resource type under RTO/ISO tariffs and  may not be eligible to provide particular services in RTO/ISO markets. This is due to the eligibility criteria and performance requirements set out in RTO/ISO tariffs with respect to providing services in the RTO/ISO market.  These eligibility and performance requirements and qualification criteria include the ability to sustain output for a specified period of time, dispatchability, minimum offer size requirements and minimum capacity criteria.  For example, SPP states that under its tariff, resources that cannot sustain output for 60 minutes are ineligible to qualify as sellers and register as a resource and that the minimum offer size for a resource to participate in SPP's Integrated Marketplace is 0.1 MW.

Entities with interests in electric storage submitted comments on the RTO/ISO responses in June.  These entities generally argue that there are impediments to participation of electric storage resources in RTO and ISO markets, because RTO and ISO tariffs and markets were designed primarily for traditional electricity generators, and with respect to market participation and compensation, do not take into account the different operating characteristics of electric storage resources.

In its comments, ESA contends that electric storage technologies are technically capable of providing any wholesale market service, but that the RTO/ISO responses to FERC's data requests demonstrate that "electric storage has limited access to markets," because "when wholesale electricity market designs and grid operations were originally developed, cost-effective electric storage was not contemplated." 

ESA observes that only PJM and CAISO have designated a resource type that explicitly allows electric storage resources to participate in markets and does not limit them to certain services, while MISO, ISO-NE and NYISO tariffs explicitly allow electric storage resources to provide frequency regulation service, and electric storage resources that provide frequency regulation service are explicitly prohibited from providing other services.  ESA also argues that some RTOs and ISOs have ambiguous tariffs with respect to the eligibility of electric storage resources to provide some market services.

In order to remove these barriers, ESA asks FERC to require RTOs and ISOs to establish a resource type that ensures electric storage is eligible to participate in all markets and utilizes appropriate bid parameters and resource modeling for storage resources.  ESA also asks FERC to ensure that qualification criteria and performance requirements enable storage resources to participate fully in markets.

In its comments, Tesla states that its energy storage systems "can be utilized in wholesale energy markets, both as aggregated, distributed resources and as larger, centralized resources," but argues that "market design-related barriers still preclude the full utilization and appropriate valuation of grid-scale energy storage systems in the US electricity grid."  According to Tesla, while the responses submitted by the RTOs and ISOs indicate that their tariffs do not condition participation in their markets based on resource types, "in reality, market product structures and market rules are still biased toward supporting conventional resources." 

Tesla asks FERC to direct RTOs and ISOs to design their market products, such as capacity products, based on the needs of the electric system and not on operational parameters that were designed for conventional generators, clarify that electricity stored for resale is not an end-use load and thus should be only subject to pay the wholesale locational marginal price, and  update generator interconnection procedures and agreements to allow and establish a process for interconnecting energy storage customers to accept charging restrictions in lieu of expensive interconnection upgrades where appropriate.

SolarCity, which among other things offers large electricity customers solar plus storage connected to the distribution system, asserts that barriers exist to the eligibility of behind-the-meter energy storage resources to participate in wholesale electricity markets.  According to SolarCity, existing RTO/ISO qualification criteria and performance requirements create barriers to the participation of many electric storage resources by unnecessarily requiring extended resource runtimes and baseline measurement methodologies that are not appropriate for energy storage resources.  SolarCity also observes that behind-the-meter storage resources are largely classified as demand response resources that function by reducing a customer's load, which unnecessarily limits the service provided to the level of the customer's load, rather than the behind-the-meter resource's capability.

SolarCity contends that RTOs and ISOs should clearly define needs for wholesale energy markets, including those for energy, capacity and ancillary services, and allow any resource capable of fulfilling those needs to participate.  In particular, SolarCity asks FERC to implement rules to ensure that behind-the-meter resources can participate to their full capability and are not limited by a specific customer's load, and to ensure that the provision of one service in a wholesale market does not preclude the provision of other services when resources are technically capable of providing multiple services.

Ice Energy installs, behind customer meters, ice batteries that charge by making ice during off-peak hours and discharges by using stored ice to cool buildings during peak air conditioning hours, integrated with a building's cooling system. The company argues that FERC should adopt a technology-neutral policy and encourage ISOs and RTOs to adopt innovative tariff structures that allow for as many new technologies to participate in the markets as possible.  Ice Energy argues that electric storage resources encompass aspects of both transmission and generation, and so should be viewed as a third regulatory category in their own right to compensate market participants for their resources.  Storage resources, the company contends, can provide benefits to the electric grid-like demand response in that they can reduce load at peak times, but can also help by reducing load on demand. 

Viridity Energy, Inc., which develops and provides energy-related software, asks FERC to order the development of new or different market rules or product definitions where necessary to permit RTOs and ISOs to take advantage of the unique attributes of electric storage resources.  For example, Viridity contends that a stand-alone solar resource may have a capacity factor of 30%, but that capacity factor can be significantly enhanced if paired with a properly sized storage device, and market rules should capture and pay for this enhancement.  Viridity also argues that an unnecessarily large minimum registration amount can act as a barrier to entry for electric storage resources, and asks FERC to consider directing RTOs and ISOs to set minimums of 100 kW for those resources to participate in their markets.  In addition, Viridity argues that electric storage resources can perform a transmission function as well as a generation function, and that RTOs and ISOs should permit these resources to be offered as transmission projects and allow the costs of storage as a transmission resource to be recovered through transmission tariffs.  Typical market rules view capacity as a product which is always available and which can generate as much and as often as required by the RTO or ISO, Viridity argues.  Although many electric storage resources cannot satisfy these requirements, they can contribute to the long-term reliability of the grid through the establishment of a more limited capacity product with different obligations and different pricing.

Advanced Microgrid Solutions, Inc. (AMS), which designs, finances, installs and manages behind-the-meter energy storage systems for commercial, industrial and government buildings, argues that the most critical operational barrier to energy storage resources in wholesale markets is inaccurate compensation.  AMS argues that electric storage resources can provide a number of different services traditionally provided by generation or in some cases loads, such as regulation service, reserve services and congestion management.  Electric storage can also provide a number of different services to the host customer, such as load shifting to offset high energy prices and demand charge management. Yet, accounting practices and requirements prohibited developers from obtaining revenue with a resource-providing service under multiple classifications.  As a result, AMS argues that a compensation model should be developed that accurately values the market and reliability services provided by energy storage, most importantly the elimination of any implicit storage penalties when a resource acts as a demand response resource.

Utilities that participate in RTO and ISO markets also submitted comments on the RTO and ISO responses to FERC staff's data requests.  Many of these comments agreed with the view that electric storage resources should have a greater role in wholesale electricity markets.

The Edison Electric Institute (EEI), the association of US shareholder-owned electric companies, suggests that RTO and ISO market rules be clarified or modified so that all resources capable of providing a service in a market be able to participate in that market.  EEI also suggests that FERC should encourage multiple uses of electric storage resources, rather than limiting them to providing only regulation service.  EEI also suggests that FERC require each RTO and ISO to provide additional explanation as to how different types of electric storage resources would actually register for and participate in each of the markets – capacity, energy and ancillary services – operated by the RTO or ISO.

Duke Energy Corporation, which has a number of battery storage projects in the US that participate in RTO/ISO wholesale markets, argues that batteries should participate to the fullest extent possible in wholesale electricity markets, but that reliability should not be compromised in any way.  According to Duke Energy, electric storage resources may not be cost-effective when they compete with generation resources in RTO/ISO markets, because RTOs and ISOs segregate various RTO/ISO products and services and do not consider the benefits of electric storage resources as a whole.  Duke Energy contends that RTOs and ISO interconnection rules and requirements should hold batteries that are functioning like generation to the same standards for interconnection as generation resources. 

American Electric Power Service Corp (AEP) argues, among other things, that current electricity services product designs vary among RTOs and ISOs and were established for specific operational needs, providing an incentive to resources to respond to pricing signals in a particular way to ensure grid reliability.  AEP also argues that markets are only fair and nondiscriminatory if all service providers are required to fulfill the same requirements for the service they seek to provide.  According to AEP, if an electric storage resource cannot qualify to provide an existing service, then service definitions and qualifications should not be changed for the sole purpose of incorporating more electric storage resources; rather, if there are characteristics of electric storage resources that are beneficial to operations or efficient markets that are not being recognized, then a new service could be developed.  AEP further argues that electric storage resources should only be compensated for the services for which they qualify.

Among other things, SCE asks FERC to provide clarity on the jurisdictional issue of wholesale and retail treatment and interconnection requirements for storage that participates in wholesale markets, noting that under current rules and tariffs, all energy used to charge a behind-the-meter-storage resource is state jurisdictional retail energy consumption and that currently there is no method in place to distinguish it if the energy used for changing a behind-the-meter storage device is then used for wholesale or retail service.  SCE also asks FERC to confirm that any individual storage resource connecting to the distribution system that requires an interconnection agreement will continue to interconnect through a wholesale interconnection rather than through a state jurisdictional interconnection agreement.  SCE also advocates several key principles in exploring the ability and opportunities of electric storage resources in wholesale markets, including that an electric storage resource connected to the distribution grid must accept the primacy of the safety and reliability function and be subject to operating instructions should its wholesale award from an ISO/RTO create reliability issues on the distribution grid.  SCE further advocates that when participating in wholesale markets, an electric storage resource should be settled at the locational marginal price during the time and at the location of performance, and that an electric storage resource should not be allowed to charge at wholesale and then discharge to serve on-site retail load.  Finally, SCE advocates that an electric storage resource may be compensated for multiple, distinct services provided simultaneously, but that these services must each have a distinct system need associated with it, and the electric storage resource may not be paid twice for the same service.

FERC staff will review the information and comments submitted in the proceeding and determine whether additional action, such as a policy statement or notice of proposed rulemaking, is necessary.


1. Electric Storage Participation in Regions with Organized Wholesale Electric Markets, Docket No. AD16-20-000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.