In recent posts, we have discussed how Order 841 issued by the Federal Energy Regulatory Commission (“FERC”) on February 15, 2018 is expected to create new opportunities for the expansion of grid-scale (“in front of the meter”) energy storage. Order 841 is intended to encourage deployment of energy storage by addressing participation of energy storage resources in wholesale electricity markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).
Since FERC issued Order 841, it has become apparent that RTOs and ISOs will face challenges in revising their tariffs to develop participation models that better incorporate energy storage into the market. Stakeholders need to participate in this process, as there are many issues left open to future resolution. We have highlighted below some of these issues and their potential importance to stakeholders.
- State v. Federal Jurisdiction. RTOs and ISOs are uncertain about the overlap of federal and state authority posed by Order 841, particularly at the distribution level (as opposed to the wholesale level.) A FERC petition filed by PJM Interconnection LLC on April 9, 2018 to address state clean energy subsidies brought to the forefront the emerging conflict between state energy policies and federal regulation of wholesale electricity markets. State and federal interests do not always align -- states have the authority to give preference to certain types of energy resources (e.g., renewables), while FERC has the obligation to ensure that electricity generated by these resources is sold at just and reasonable rates.
- Resilience. FERC (and many states) are seeking to expand the role of energy storage in furthering the goal of grid resiliency. This issue has taken on increased importance given the lack of enthusiasm for proposals to compensate coal and nuclear facilities that maintain on-site fuel reserves.
- Transmission and Generation Infrastructure. Advocates of energy storage contend that it is a solution to both transmission and generation needs. Questions remain, however, regarding the adequacy of current transmission incentives policies, and whether they are sufficiently inclusive.
- Financial Viability of Energy Storage Projects. Notwithstanding the issuance of Order 841, many investors and lenders are not persuaded yet that energy storage projects will (1) provide sufficiently long-term, concrete and reliable revenue streams; (2) offer technologies that are well-proven and reliable; and (3) achieve adequate participation by creditworthy counterparties or those that have access to financial assurance instruments such as performance insurance.
- Complexity of Participation Models. Because energy storage projects may generate economic benefits through one or more different value streams, the preparation of participation models by RTOs and ISOs will be challenging. Stakeholders will need to find a cost-efficient way to get a “seat at the table” with policy makers and regulators managing this process.
- Federal Tax Policy. Currently, the federal investment tax credit is only available to energy storage projects that are an inherent part of a larger renewable energy project. This is believed to have created an artificial distinction between stand-alone energy storage projects and “paired” projects, and a disincentive to invest in the former.
- Need for Policies that are “Technology Agnostic.” Although FERC Order 841 is “technology agnostic” on its face, subsequent debate on implementation has focused almost exclusively on batteries. States must be encouraged to offer a “level playing field” to historical approaches such as “pumped storage,” as well as the newer generation of energy storage technologies including advanced battery storage.
- Permitting. Policy makers and regulators need to establish flexible requirements that allow energy storage projects to be permitted as either generation or transmission projects. Environmental permitting requirements should be reasonable so as not to deter innovation.
Implementation details of the participation models will be driven at the RTO/ISO level. Compliance filings by RTOs and ISOs originally were due on December 3, 2018, but on April 13, 2018, FERC issued a “Tolling Order” to allow it more time to consider various motions for clarification and requests for rehearing filed in response to Order 841. Nonetheless, system operators are moving forward to comply with the requirements of Order 841. The policies adopted by RTOs, ISOs and states in establishing participation models likely will have a significant impact on the advancement of renewable and energy storage resources. Thus, stakeholder involvement is critical.