Federal Court Paves the Way for Distributed Energy to Compete in Wholesale Markets

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A US federal appeals court reaffirmed that energy storage devices connected to the distribution grid must have the opportunity to access competitive markets, when it upheld a watershed federal order last week.

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By Pan Andrii/Shutterstock.com

The court’s decision on Federal Energy Regulatory Commission’s Order 841 marks a significant victory for the burgeoning energy storage industry, and paves the way for distributed energy storage devices, and aggregate systems, to compete alongside traditional generators and others in wholesale marketplaces. 

The court rejected arguments that Order 841 intruded upon state’s authority over local electricity, noting that nothing in the order directly regulates distributed electricity systems, instead creating greater access for certain resources beyond local jurisdiction. 

Similar decisions have been made in the past by federal courts regarding distributed demand response resources accessing markets (Order 741), but this order goes far beyond one type of resource performing one function to allow distributed storage into multiple competitive markets at the regional level.

Specific to energy storage

Order 841 — which FERC put forth unanimously in February of 2018 — specifically applies to energy storage systems, and not other distributed energy resources that are also becoming commonplace. As a result, the decision sets up storage systems to be a valuable interface for integrated microgrid systems and other resources to access competitive markets.

In a statement following the decision, Kelly Speakes-Backman, CEO of the Energy Storage Association, said “this latest affirmation of Order 841 is especially important as it ensures energy storage can contribute all its values to the grid, regardless of its connection point…ESA has long been an advocate for the whole of Order 841, and we celebrate this win for FERC, for the grid, and for consumers.”

Delineating federal powers

Officially known as National Association of Regulatory Utility Commissioners, et al. v. Federal Energy Regulatory Commission, the case was argued in early May with a final ruling handed down on July 10.

In the consolidated ruling, DC Circuit Judge Wilkins noted that they “must once again referee the Federal Power Act’s jurisdictional line separating the FERC’s jurisdiction over the federal wholesale market and States’ jurisdiction over facilities used in local distribution.” 

Order 841 opens up the full assortment of markets for energy, capacity, and grid services to energy storage-enabled resources, meaning systems will have far greater flexibility in system design and more opportunities to generate revenue.

Attorneys general for California and Massachusetts led a coalition of five others and the California Air Resources Board in filing an amicus brief with the court in February in support of FERC’s jurisdiction in the matter. In their brief, they said that energy storage is critical to states’ strategies to reduce greenhouse gas emissions while keeping energy prices in check.

The National Association of Regulatory Utility Commissioners had petitioned the court on behalf of state utility commissioners in July 2019, asserting the Order 841 was beyond FERC’s “jurisdiction, authority or power” and that portions were “arbitrary and capricious.”

Summarized nicely, the Judge Wilkins wrote “We find no foul here, so we deny the petitions.”

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What happens next

The court’s ruling ensures that each regional transmission (RTO) and independent system operator (ISO) must make way for storage to access their markets in the near future. The grid operators will embark on those efforts through their own stakeholder processes and market structures, setting up what will likely be months and months of market rule development, pilots, and, eventually, competitive access.

Some other RTO/ISOs have taken steps to open up markets to energy storage and other distributed energy resources, though the current landscape is inconsistent from one to the next, making a one-size-fits-all project approach all but impossible for developers as well as customers with multiple locations in different regions.

While many decisions remain at the regional level for implementation, certain markets have already been experimenting with distributed energy storage systems. California’s ISO for example already allows for energy storage and solar plus storage systems to compete in certain markets, and has previously piloted innovative virtual power plants where multiple systems at different sites on the grid all bid as one resource in concert.

The ongoing implementation of Order 841 in the coming months and years in the various markets will create new value streams for energy storage over time, and continue to advance opportunities for distributed energy resources and microgrids that incorporate energy storage into their system design.

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Comments

  1. “The ongoing implementation of Order 841 in the coming months and years in the various markets will create new value streams for energy storage over time, and continue to advance opportunities for distributed energy resources and microgrids that incorporate energy storage into their system design.”

    This intent is relatively clear, but I can also see how this may be “masticated” in Courtrooms to push a change in the Federal/State regulation of electricity rates. By forcing this determination in Courtrooms across the U.S., this may remove the old State’s “net metering ” programs and push a “wholesale” rate Federal system into place. The question, is will the “Federal” electric rate program take into account the “worth” of several distributed residential generation systems feeding electricity back onto the grid, without all of those TD&D and “fuel” charges tacked onto every kWh of clean non-fueled electricity. One can certainly make the argument that solar PV excess generation should be “credited” at the wholesale electricity rate and all of those homes and small businesses with solar PV on their roofs can (also) say, my alternative generation system, puts power back on the grid in the right voltage and frequency, it will be used locally and should have NO TD&D or “fuel” charges attached to each clean kWh of excess energy. There is an avoided cost to the utility that should be paid to the local distributed generation resources and “removed” from non-solar PV adopters on their electricity rates when using clean, non-fueled electricity from next door.

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