Energy Storage: Applications and Developing Regulation

Posted on July 11th, 2011 by

The following article is part 5 of a multi-part series.

III.            Enacting Energy Storage Regulation

The absence of appropriate energy storage regulation is the foremost barrier preventing the development and interconnection of new energy storage systems into the electric grid. Current regulation fails to accurately characterize the value of energy storage and financially compensate providers based on a storage system’s unique operational characteristics (i.e., performance benefits and costs). The absence of appropriate regulation creates uncertainty (for both energy storage providers and utilities) regarding appropriate business models and commercial applications for energy storage systems.

Regulators must enact regulation that clarifies lingering uncertainty over the treatment of energy storage and define energy storage based on its unique operational characteristics for each application it performs. To accomplish this, regulators must first increase their awareness of energy storage by investigating the operational characteristics of energy storage applications within the dynamics of the relevant jurisdictional market (.i.e., federal or state). As regulators obtain data on energy storage applications, they can properly prioritize it in the generation, transmission and distribution planning processes.  As a result, regulation will provide the necessary incentives for energy storage providers and utilities to continue investing in the development and interconnection of energy storage systems.

A.            Awareness of Energy Storage Benefits:

The operational characteristics of energy storage systems differ from traditional resources used to perform the same service application. Therefore, the current valuation system of traditional resources may not always be applicable when determining the value of energy storage systems. Thus, regulators must first investigate the operational characteristics of energy storage to fully understand and define its value.

1.            Federal Proceedings on Energy Storage:

The Federal Energy Regulatory Commission (“Commission”) and state public utility commissions regulate the electric industry. The Commission oversees the interstate transmission of electricity including the operation of wholesale electric markets and interstate transmission lines. The Commission also oversees Independent System Operators (“ISOs”) and Regional Transmission Operators (“RTOs”). ISOs and RTOs are independent organizations that operate regional electric markets and monitor regional reliability. The Commission approves the market rules and practices of each ISO, RTO and other jurisdictional entities performing similar functions. The Commission often conducts proceedings on new developments in the electric industry to facilitate the development of its own regulation and to provide some reference and guidance for state public utility commissions.

In 2007, the Commission reemphasized the need for unbiased transmission access for all resources.[1] The Commission allowed storage providers to participate in wholesale electric markets (including ancillary markets) and offer transmission services. The decision also marked the beginning of the Commission’s investigation into the operational characteristics of energy storage. From 2008 through the present, the Commission gathered data on energy storage systems through numerous proceedings involving the creation of a few energy storage pilot programs and small-scale commercial applications offered by ISOs. However, antiquated market rules still prevent energy storage providers from fully participating in wholesale electric markets. The Commission recently initiated proceedings to remove barriers in market rules that prevent energy storage systems from providing frequency regulation.[2] The Commission also includes discussion on energy storage as subtopics in proceedings on the integration of renewable resources[3] and demand response[4].

2.            State Proceedings on Energy Storage:

The lack of state public utility commission awareness of the operational characteristics and applications of energy storage remains the largest barrier to entry for storage in electric distribution markets. State public utility commissions oversee the retail distribution of electricity within each state. Public utility commissions regulate retail electric rate tariffs, distributed generation, aggregation of retail load, competitive electric suppliers, demand management, net metering and generation and transmission facility siting. Public utility commissions also influence development in state energy policy such as renewable energy portfolios and regional carbon reduction programs.

The collective benefits of end-user, electric utility and potential third party storage applications underscore the importance for states to take a collective approach on energy storage rather than by piecemeal regulation. In September 2010, California became the first state to enact legislation for the purpose of fully investigating potential energy storage applications, economic value and procurement standards in an effort to develop appropriate energy storage regulation.[5] State policymakers should follow California’s precedent and enact legislation requiring public utility commissions to further investigate the unique characteristics of energy storage in their respective electric distribution markets and develop regulation that properly prioritizes energy storage in state energy policy.


[1]             Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890, FERC Stats. & Regs. ¶ 31,241, order on reh’g, Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 (2007), order on reh’g, Order No. 890-B, 123 FERC ¶ 61,299 (2008), order on reh’g, Order No. 890-C, 126 FERC ¶ 61,228 (2009); and Wholesale Competition in Regions with Organized Electric Markets, 125 FERC ¶ 61,071(2008) Order on Rehearing, 128 FERC ¶ 61,059 (2009).

[2]              Frequency Regulation Compensation in Organized Wholesale Power Markets, Docket No. AD10-11.

[3]             Integration of Variable Energy Resources, Docket No. RM10-11-000; Frequency Response Metrics to Assess  Requirements for Reliable Integration of Variable Renewable Generation, Docket No. AD11-8.

[4]             Demand Response Compensation in Organized Markets, Docket No. RM10-17.

[5]             Assembly Bill (AB) 2514 – Skinner, Stats. 2010 – ch. 469.


Written by Robert Clifford. Robert is a Boston-based attorney who represents clients before the Federal Energy Regulatory Commission and state public utility commissions.

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