FERC Order No. 784 boosts energy storage

Wednesday, July 24, 2013

Energy storage - the ability to store electricity and deliver it to the grid as needed - has the potential to create great value for society.  New technologies, ranging from batteries to mechanical flywheels, are expanding options for energy storage.  Now, a federal rule issued last week known as Order No. 784 significantly expands opportunities for energy storage providers to capitalize on these advances.

Traditionally, electricity has been difficult to store.  While society has been able to generate electricity for over a century, technologies to store that electricity once it has been generated have been elusive.  As a result, electric grid operators have needed to balance the supply and demand for electricity in real-time, leading to costly inefficiencies like the continual need to ramp generators up and down.  To keep the grid balanced, grid operators rely on so-called "ancillary services" like regulation and frequency response made possible by fine-tuning generators' output -- or now by energy storage technologies.

Despite recent federal rulings like the Federal Energy Regulatory Commission's Order No. 755 enabling enhanced compensation for energy storage, the market for energy storage has been restricted by regulation.  Until last week, the Federal Energy Regulatory Commission restricted third parties from selling ancillary services at market-based rates to public utility transmission providers under a 1999 ruling known as the Avista order.  Under Avista, transmission customers had two choices for how to procure their share of the grid's ancillary services.  First, customers could purchase ancillary services from their local public utility.  Second, customers could self-supply regulation and frequency response services - but could only do so from resources deemed comparable to those used by their public utility.  This restriction stripped away the benefit of self-supplying ancillary services because customers couldn't tailor their purchase of regulation and frequency response services to their own needs, but rather had to buy services based on their transmission provider's overall resource mix.  For example, customers were powerless to choose resources that could respond more quickly or more accurately than those used by their utility, meaning customers faced the risk of buying too much - or too little - ancillary services.

Order No. 784 significantly reforms the Commission's ancillary service regulations.  By November, public utilities must take into account the speed and accuracy of regulation resources, which opens the door for greater efficiency in transmission customers' purchase of regulation resources.  For example, Order No. 784 allows customers to save money by buying a smaller amount of faster or more accurate energy storage resources.

This flexibility creates a premium value for providers of these fast or accurate energy storage solutions.  Order No. 784 also eases the barriers for third-party entry into ancillary service markets, and revises accounting and reporting requirements to improve market transparency and better account for public utilities' use of energy storage devices.

Order No. 784 creates significant opportunities for utility customers, as it opens the door for lower-cost and more precise ancillary services.  The order also creates opportunities for innovative companies developing and implementing energy storage technologies like batteries, compressed air, and flywheels, as Order No. 784 both increases consumer demand for these technologies and reduces developers' barriers to entry into the markets.

For more information about Order No. 784 and the opportunities it creates, contact Todd Griset at Preti Flaherty at 207-623-5300.

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