New technologies have the promise to help electric grid operators perform the challenging task of balancing supply and demand at all times. This means making sure there the exact amount of electricity is being generated across the region as is demanded by consumers at that very moment. Line losses and the constraints of each local transmission and distribution system add complication. If the grid gets out of balance, problems arise with the electricity's frequency and power quality. In the worst case, failure can lead to cascading blackout, and safety can be at issue.
Historically, the balancing act has involved sending coordinated dispatch instructions to generators and demand response resources. Rules typically guide the grid operator in telling individual generating units to operate at specific levels. For example, flows through hydroelectric turbines can be varied, or fuel can be added to boilers or combustion turbines at a faster or slower rate. Through careful management, these conventional generation resources have been used to balance supply and demand, providing services known as frequency response and frequency regulation.
Though it is partly automated and well-practiced, this conventional resource dispatch process does take some time to take effect. Energy storage technologies such as flywheels, and batteries can not only provide frequency regulation, but can engage and ramp up much faster than conventional resources can. These faster-ramping resources could provide the grid relief in real time, as opposed to ramping up more slowly like conventional generation.
In most US markets, providers of efficient fast-ramping frequency regulation have been compensated the same as when conventional units provide regulation service, even when using fast-ramping resources is more efficient. At times this has meant that conventional resources have been dispatched when fast-ramping ones would have been lower-cost (and less polluting). For these reasons, this October the Federal Energy Regulatory Commission found that the current frequency regulation compensation practices "result in rates that are unjust, unreasonable, and unduly discriminatory or preferential."
In Order No. 755, FERC issued a final rule requiring the grid operators in organized markets to compensate frequency regulation resources based on the actual service they provide. Under Order 755 (123 page PDF), this must include separate payments for capacity (the marginal unit’s opportunity costs of being available) and for your actual performance.
Winners under Order 755 include providers of fast-ramping frequency response. These could include developers and operators of flywheel energy storage companies like Beacon Power, battery storage facilities, and compressed air energy storage, and other resources still in the conceptual phase. Winners also include energy consumers in the markets affected by Order 755, who should benefit from lower costs through improved operational and economic efficiency.