Frequency Regulation and Energy Storage

Frequency regulation is a major economic driver for grid-scale storage.
Published: Thu 03 Apr 2014

Providing fast-reacting power resources to manage grid stability is a natural fit for energy storage, particularly under new federally mandated changes to energy markets that reward resources that can react at a moment’s notice.

The Federal Energy Regulatory Commission (FERC)’s Order 755 provides this incentive which has led to a major increase in storage projects, providing frequency regulation in territories served by mid-Atlantic grid operator PJM.

Energy storage projects from large power companies like AES Energy Storage and NextEra Energy Resources, startups like Viridity Energy and Enbala Networks, and some battery vendors including East Penn and Ecoult and Xtreme Power and Invenergy are all providing frequency regulation in PJM today.

While PJM is the first Independent System Operator (ISO) or Regional Transmission Operator (RTO) to implement the changes ordered by FERC Order 755, others are preparing to follow suit.

Texas grid operator ERCOT is also about to create a new ancillary services program- Fast Responding Regulation Service- which would enable energy storage to play a key role.

Frequency regulation and battery technology

Because frequency regulation is called upon in four-second intervals, it is ideal for battery technologies that are unable to provide hours of continuous energy at rates that are competitive with gas-fired power plants or pumped hydro storage systems.

Of course, frequency regulation services account for a small portion in energy markets. This leads to some natural development limitations in these markets.

The way in which energy storage, demand response and other non-traditional resources work in today’s frequency regulation markets could limit their growth. Unlike natural-gas-fired power plants that have to include fuel prices and lost opportunity costs in their bids, energy storage and demand response are allowed to bid services at a clearing price of zero, and then get paid the highest-priced bid for that particular time period.

However, Sandia Labs’ September report points out that if there is sufficient energy storage to completely supply the specific ancillary service required, the market price collapses to zero. With no energy market income to cover capital costs, the storage device is not economically viable even if their total costs are less than the traditional generators’ marginal opportunity costs.

While today’s frequency regulation markets have yet to reach this point, it is a consideration that should be addressed before it comes about.


Energy Storage for flexible capacity

There is no doubt that energy storage needs to gain access to broader energy markets in order to develop further.

Today’s energy markets don’t take storage’s unique characteristics into account. However, this is changing, especially when it comes to the concept of flexible generation resources meeting future grid needs.

Flexibility, or the ability for a generation resource to quickly ramp up and down, has never been a concern for grid operators and utilities. However, with the growth of intermittent wind and solar power, that is changing. This is of course where energy storage can play a significant role since it can absorb power from, as well as return it back to the grid. Storage can effectively double their flexible capacity, compared to a gas-fired turbine that can only produce electricity, not absorb it. Gas-fired turbines have to run at a midpoint output to be able to ramp down with minutes of advance warning. Storage technology can go up or down much quicker.

Capacity markets undergoing change

Capacity markets, which offer payments to projects that promise to deliver generation resources in the future, are undergoing changes in order to see the value of energy storage harnessed. A good example of this is utility Southern California Edison which aims to secure 1,400MW to 1,800MW of capacity by 2022 in order to meet consumption needs in the Los Angeles area. Of this, 50MW must come from energy storage resources. This is by order of the California Public Utilities Commission.

Meanwhile, energy storage advocates have recently proposed a model for the inclusion of energy storage in PJM’s own capacity market, known as Reliability Pricing Model (RPM). This is the same market that demand response providers have been bidding into for over 10 years. While PJM’s capacity mechanism requires participants to contribute hours of energy at a time, and pay far less per megawatt, it’s roughly 150 times the size of its frequency regulation market.

Finding a way to value flexibility-critical for energy storage projects to compete in markets

The vast majority of developers are not willing to take the risk of deploying new technology without financing from the marketplace. This financing is difficult to attain for resources participating in the Independent System Operator and Regional Transmission Organization marketplace because revenue is not predictable. Also, rate base approval from regulators is unlikely due to the uncertainty regulators see with a relatively new technology unnecessarily increasing ratepayer prices.

It is for this reason that vertically integrated utilities want markets to establish pricing models for them to follow. If they’re going to ask regulators to approve rate increases for storage, they want someone to set the rules.

It is going to be difficult to attach a value on the benefits of energy storage. Mostly, this will be an educational process for regulators. The process is going to call for forward-thinking commissions to push the adoption of energy storage.