Energy Storage: Applications and Developing Regulation

Posted on July 11th, 2011 by

The following article is the final part of a multi-part series.

B.            Enacting Energy Storage Regulation

After investigating the operational characteristic of energy storage, regulators can begin the process of enacting energy storage regulation. Valuation and recovery mechanisms for traditional generation, transmission and distribution assets do not fully encompass the operational characteristics of energy storage systems. Therefore, regulators need to determine how to best define and treat energy storage. Specifically, regulators must decide on whether to integrate energy storage on an intended use (application) basis under current classification and recovery mechanisms or treat it as a separate asset class and enact recovery mechanisms based upon its own operational characteristics.

1.            Enacting Federal Energy Storage Regulation:

In 2010, the Commission initiated a proceeding with the purpose of obtaining further comments from stakeholders on how to define and treat energy storage.[1] The Commission utilized the data it collected in previous proceedings and determined three jurisdictional applications for energy storage: 1) providing transmission support to unbundled transmission lines; 2) enhancing the value of generation (time-shifting generation from off-peak to peak time periods); and 3) providing ancillary services.[2]  The Commission received comments in favor of both integrating energy storage under existing market and cost-of-service based recovery mechanisms, as well as defining and treating energy storage as its own unique asset class.

Generation and in some areas, ancillary service applications receive market compensation while transmission service applications receive compensation through transmission charges based on cost-of-service. Proponents for integration under the current system argue that energy storage should only grow as the technology matures and becomes a more efficient choice over traditional resources as measured by current standards. Proponents for the creation of a separate class argue that classifying energy storage in a separate class will more accurately compensate energy storage systems based on the operational efficiencies it provides when performing individual service applications. Furthermore, they argue that energy storage requires this treatment to encourage its growth in energy markets and transmission services.

The Federal Power Act requires the Commission to promote reliable and efficient transmission and generation of electricity by encouraging the deployment of technologies to increase the capacity and efficiency of existing transmission facilities.[3] Energy storage promotes both improved reliability and efficiency in the generation and transmission of electricity. Therefore, the Commission should enact regulation that further promotes the deployment of energy storage systems.

2.            Enacting State Energy Storage Regulation:

Effective state energy storage policy must clearly prioritize energy storage based on its potential value in each state’s distribution markets. Public utility commissions should define energy storage as a separate asset class based upon its value in local distribution markets. As public utility commissions better understand the value of energy storage, they can begin establishing energy storage targets and procurement standards.  Establishing procurement standards will increase utility investment in energy storage systems. Public utility commissions can promote further growth in energy storage by:  1) including energy storage standards and requirements in renewable portfolios and generation projects; 2) integrating energy storage in demand response, net metering, distributed generation and electric aggregation regulation; and 3) removing barriers for utilities to recover costs on eligible energy storage systems through retail electric rates.

a)            Promoting Energy Storage through Renewable Portfolios and Generation Projects

Energy storage adds value to renewable generation projects and mitigates the added stress it places on transmission and distribution systems. Incorporating energy storage policy within policy on renewable energy embraces the complementary relationship of energy storage to renewable generation. Including policy on energy storage within renewable portfolio standards and renewable generation regulation will promote investment in both renewable energy and storage systems.

Public utility commissions should streamline applicable generation and transmission siting regulations for energy storage facilities. Energy storage facilities have lower costs and fewer adverse environmental impacts than traditional generation and transmission resources. Therefore, public utility commissions should not apply the same regulatory oversight and review towards energy storage facilities as used for traditional generation or transmission resources. Streamlining siting regulation will reduce regulatory delay and increase speed in deployment for storage systems.

b)            Promoting Storage Growth through Inclusion in Demand Response, Net Metering, Distributed Generation

                and Aggregation Regulation

Incorporating energy storage in demand response, net metering, distributed generation and aggregation regulation will promote increased use of consumer based energy storage systems. The versatility of energy storage systems allows some consumer based systems to provide some distribution support applications. Therefore, state public utility commissions should distinguish energy storage from other resources in these categories and value it based upon its operational characteristics for both consumer and distribution support applications. Furthermore, including energy storage into these categories will better prepare both public utility commissions and utilities for potential regulatory issues as automobile batteries develop into viable storage options.

Public utilities should also remove barriers preventing the aggregation of end-user storage by third parties for the use of distribution system support. Removing potential barriers will allow energy storage providers and aggregators to experiment with possible business models that would increase deployment of consumer based systems by increasing the value of a consumer’s storage system. Increased aggregation of consumer storage for distribution support services will improve distribution system reliability and efficiency.

c)            Promoting Storage Growth through Retail Rate Recovery

Removing restrictions on utilities from owning and recovering costs of energy storage systems will promote utility investment in energy storage. Public utility commissions should utilize federal proceedings as guidance on developing appropriate standards of accounting for storage systems. Increased deployment of energy storage systems throughout the distribution system will improve reliability, reduce the size of unexpected blackouts and lower distribution costs.  Distributed storage will also allow utilities to better adapt to the increasing consumer utilization of intermittent renewable resources (i.e., solar panels and wind turbines). Public utility commissions may also create further incentives for utility investment by allowing accelerated deprecation of energy storage equipment in retail electric rates.

[1]             Rate, Accounting, and Financial Reporting for New Electric Storage Technologies, Docket No. AD10-13.

[2]             The commission also sought comments on the potential for contract storage service.

[3]             16 U.S.C. § 824s.


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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