By Rich Heidorn Jr.
Renewable generators will have more sources of balancing services and electric storage providers will be more competitive in the regulation market under a final rule approved by the Federal Energy Regulatory Commission Thursday.
The commission said the new rule (Order 784, Docket Nos. RM11-24, AD10-13) will improve competition and transparency in ancillary services markets at a time when the growth of wind power and other intermittent sources is increasing the need for imbalance services. The commission said the new rule “enhances the overall opportunities for third-parties to compete to make sales of ancillary services while continuing to limit the exercise of market power.”
The rule requires PJM and other transmission providers to consider speed and accuracy in acquiring regulation resources, removes obstacles to selling such services at market-based rates and creates new accounting categories for tracking investments in electric storage.
The ruling, which takes effect 120 days after publication in the Federal Register, will make it easier for batteries, flywheels and other emerging technologies to compete against slower-responding gas- and coal-fired generators to provide regulation and other services.
In addition, “Because most generation-based ancillary services can be provided by many of the generators connected to the transmission system, some customers may be able to provide or procure such services more economically than the transmission provider can,” the commission said.
The Electricity Storage Association hailed the rule as a “major victory.”
“The effects of this rule are simple – there will be more deployment of technology, stronger investments in projects, and a broader demonstration of the benefits of energy storage to the grid,” Judith Judson, chair of the trade group’s Advocacy Council and director of emerging technologies at Customized Energy Solutions, said in a statement.
FERC Chairman Jon Wellinghoff told reporters in a press briefing the rule is designed to increase “efficiency and opportunity” and is “extremely important” to wind generators, which need imbalance services to compensate for their fluctuations in output.
“Our job isn’t to incent any particular technologies,” Wellinghoff said. “Our job is to ensure that markets are open and transparent and fair to all technologies.”
Impact on Frequency Regulation
FERC’s pro forma OATT requires transmission customers to purchase regulation and frequency response service at cost-based rates from the public utility transmission provider or to “make alternative comparable arrangements” to self-supply the service, either through their own resources or purchases from third-parties.
The new ruling builds on FERC’s 2011 Order 755, which increased the pay for fast responding frequency regulation sources such as batteries and flywheels in PJM and other regions with independent system operators.
The rule requires transmission providers, including those outside of ISO regions, to share with customers their reasoning and any related data used to determine whether the customer has made “alternative comparable arrangements.” To ensure “apples-to-apples” comparison of regulation resources, the rule also requires transmission providers to post on OASIS historical one-minute and ten-minute Area Control Error data for the most recent calendar year, and update this posting annually.
The commission said the changes were needed to prevent transmission providers from requiring customers to purchase more regulation reserves than necessary.
The changes are good news to companies such as Beacon Power, LLC, which says its storage flywheels can respond nearly instantaneously to operator control signals — up to 100 times faster than traditional generators. Beacon cited a recent study for the California Energy Commission which found that a 30-50 MW fast-response storage device could provide as much or more regulation capability than a 100 MW combustion turbine.
Beacon last month announced the beginning of construction on a 20-megawatt flywheel energy storage plant in Hazle Township, Pennsylvania that will compete in PJM’s regulation market. The company expects to put 4 MW into commercial operation in September, with the full 20 MW plant operational in the second quarter of 2014. The company’s 20 MW plant in in Stephentown, New York, competes in NYISO’s regulation market.
Avista Policy Revised
In addition to attempting to level the playing field in the regulation market, the order eliminates barriers to competition for several other ancillary services by revising the commission’s Avista policy.
The Avista policy allowed third-party ancillary service providers to sell regulation and frequency response, energy imbalance service and operating reserves at market-based rates without performing a market power study. The policy was based on preventing market power through the “backstop” of cost-based ancillary services from transmission providers; thus market-based sales to PJM and other regional transmission organizations and independent system operators which have no ability to self-supply were prohibited.
The commission said it now concludes that the Avista rule created unreasonable barriers to entry by potential suppliers. The new order allows resources with market-based rate authority for sales of energy and capacity to sell the following ancillary services at market-based rates:
Energy imbalance service: Can sell at market-based rates to transmission providers with intra-hour scheduling (Paragraph 31 of the order). Transmission providers are required by Order 764 to offer intra-hour scheduling by Nov. 12, 2013.
Operating Reserve – Spinning Reserve and Supplemental Reserve services: Can sell at market-based rates to transmission providers with intra-hour scheduling that supports delivery of operating reserves from one Balancing Authority to another. (P 54)
Reactive supply and voltage control: The commission said it could not allow such market-based sales of regulation and frequency response service and reactive supply and voltage control, however, because the resources capable of providing those services are more limited than those supplying energy and capacity, leaving those markets more at risk to market power. The commission said it will continue to study ways to further open these markets to competition in a new proceeding. (P 55)
Competitive solicitations
In the meantime, the commission said sales of such services can be made at or below the transmission provider’s OATT rate, or at market-based rates resulting from a competitive solicitation. (P 13)
Such solicitations must be transparent (“open and fair”) and competitive (“adequate seller interest”), with precise definitions of the products sought. (P 95) The solicitation will be subject to an independent third-party review if the buyer solicits offers from one or more of its affiliates. (P 100)
Accounting Rules for Energy Storage
The third major component of the new rule was FERC’s addition of new electric plant and operation and maintenance expense accounts for energy storage devices.
The commission said the new accounts will help state and federal regulators ensure that utilities don’t obtain excessive rate recovery by seeking reimbursements under both cost-based and market-based rates for a single energy storage asset.
