Grid readies for energy storage

New energy storage technologies have the potential to transform the electric grid.  Energy storage generally refers to a variety of approaches to storing energy in a form that can be converted back into usable electricity when needed.  Some of these technologies, such as pumped storage allow power to be produced and stored at a low cost, then released during times of higher price or demand.  Others, such as flywheels or batteries, are able to help balance and regulate supply and demand on the grid by providing a service known as frequency regulation.

Last fall, federal regulators issued an order requiring most US electric grid operators to change the way they compensate frequency regulation.  Historically, the way resources were paid for frequency regulation favored traditional generators able to ramp their production up and down to match demand in real time, even when alternative resources like energy storage could provide frequency regulation more efficiently and at a lower cost.  In Order No. 755, the Federal Energy Regulatory Commission held that the current frequency regulation compensation practices "result in rates that are unjust, unreasonable, and unduly discriminatory or preferential."

To remedy this flaw, the FERC required grid operators to change the way they pay for frequency regulation.  FERC required grid operators to propose new market rules by April 30, 2012, to take effect in late October 2012.

At least one regional grid operator thought it needed more time.  In November 2011, ISO New England Inc., the regional transmission organization for the six New England states, asked the Commission for nearly four months' additional time to develop and submit the revised tariff provisions.  Other stakeholders viewed as beneficiaries of Order 755 opposed the requested delay, including an electricity storage trade association and flywheel developer Beacon Power. However, the Commission denied the grid operator's request.

Grid operators of the nation's organized electric markets have now started to file their proposals on how to compensate energy storage and other frequency regulation resources.  PJM's proposal has been submitted to FERC, and other regions will follow shortly.  Given the Commission's ruling in Order No. 755, the energy storage market may grow significantly, as players figure out how to earn revenues by providing cost-effective frequency regulation.