ONTARIO NEWS

By Kristyn Annis, Borden Ladner Gervais, LLP

Storage takes centre stage with FERC Order No. 841

The past two years have seen big advances for storage from a technical and policy perspective. South of the border, the all-powerful Federal Energy Regulatory Commission (FERC) issued its “landmark, unanimous” Order No. 841 and Order 841-A (collectively, “Order 841”)^[1]. The central objective of Order 841 is to “remove barriers to the participation of electric storage resources in the capacity, energy and ancillary services markets.”^[2] Specifically, Order 841 directed regional transmission organizations (RTOs) and independent system operators (ISOs) to revise their tariffs to create a participation model for electric storage.^[3] Creating such a participation model is meant to remove the barriers for electric storage to participate in the wholesale markets, as both buyer and seller, with a corresponding ability to set the wholesale market clearing price.

          The ISO and RTOs (“grid operators”) were required to submit evidence of their compliance with Order 841 by December 3, 2019. All FERC-regulated grid operators have filed their new tariffs/participation models. However, only PJM Interconnection Inc. (PJM) and Southwest Power Pool (SPP) have received approval for their compliance filings from FERC so far. FERC directed both PJM and SPP to file additional compliance.

FERC’s jurisdiction challenged

While the grid operators have been busy developing rules to comply with Order 841, shortly after Order 841 was published, the National Association of Regulatory Utility Commissioners (NARUC), along with several states (collectively, the “Petitioners”), petitioned the United States Court of Appeals (District of Columbia) seeking an order that portions of Order 841 are “arbitrary and capricious” and “not in accordance with the law”.^[4]

          The Petitioners take issue with requirements pertaining to distributed-connected storage resources. Order 841 applies to all storage resources participating in the wholesale market greater than 100 kW, regardless of how such resources participate in the wholesale market. The relatively small minimum size requirement captures storage resources that are connected to distribution systems, including behind-the-meter installations. In issuing Order 841, FERC denied requests from various parties to “disclaim its jurisdiction over wholesale transactions by electric storage resources that use distribution facilities to engage in those transactions.”^[5] The Petitioners assert that Order 841 is beyond FERC’s “jurisdiction, authority or power”.^[6] The Petitioners acknowledge that FERC has exclusive jurisdiction over the market rules for participation in the wholesale markets of distribution connected resources. Notwithstanding this, they argue that States, as regulators of local distribution systems, have final authority over those resources’ wholesale transactions, and so States must be permitted to “opt out” of the federal program. Practically speaking, utilities are worried about the additional costs related to modelling and forecasting of storage resources, which of course have bi-directional power flows.

          FERC filed its respondent brief on January 31, 2020. In its brief, FERC states that regardless of where a storage resource is located on the electric grid, that resource “engages in a sale of electric energy at wholesale in interstate commerce” if it injects energy back into the grid for the purpose of making a wholesale transaction.^[7] FERC also points out that numerous distribution-connected generation resources currently participate in the wholesale market. FERC argues that allowing States to bar distributed storage participation would prevent FERC from fulfilling its statutory duty of ensuring “just and reasonable rates”.^[8] FERC also clarified that “to the extent States had authority before the Rule to set the terms and conditions of access to the distribution system, they retain that authority after the Rule. So before a distributed resource may participate at wholesale, it first must be contractually permitted to do so—meaning it must have the requisite permits, agreements, and other necessary documentation to ensure its ability to inject energy back to the grid.”^[9]

          The legal arguments from each of the Petitioners and FERC get into the weeds regarding standing and jurisdiction, among other issues. Legal argument aside however, the policy and economic rationale behind the support for electric storage by various States is on display at the US Court of Appeals. In particular, the amici curiae brief submitted in support of FERC by Massachusetts, California, the District of Columbia, Rhode Island and others lay out the benefits they expect to gain from integrating storage into their grids:^[10]

          ● Integrating electrical storage resources into the power system is critical to providing increased economic, health, and environmental benefits to the Amici States and their residents, and achieving important state energy policies, including efforts to combat climate change.

● A study by the Commonwealth of Massachusetts estimated that by deploying an optimal amount of storage resources by 2020, Massachusetts would receive up to $3.4 billion in benefits over ten years, including $2.3 billion in reduced system costs.

● Electric storage can be used to instantly to generate electricity on the grid during a peak period where additional supply is needed.

● Dispatching storage resources instead of peaking capacity will reduce use of fossil-fuel fired generation, improve air quality, and assist States in reducing emissions of greenhouse gases and other harmful pollutants.

● Storage resources’ ability to rapidly absorb and discharge electricity also allows them to provide “ancillary services” that increase grid reliability, by relieving grid congestion or balancing electricity supply and demand on transmission lines.

● A Massachusetts study determined that because storage resources can lower electricity prices in the wholesale market, their deployment could provide $250 million in savings to New England ratepayers outside of Massachusetts over a ten-year period.

● The New York Public Service Commission concluded that participation by storage resources in New York’s retail and wholesale electricity markets will create 30,000 jobs, increase grid efficiency and resilience, reduce system peak load, and displace fossil-fuel generation.

● Massachusetts found that deployment of an optimal amount of storage resources to meet retail customer demand could result in total revenue for energy storage projects of approximately $1.1 billion for the ten-year period beginning in 2020. Massachusetts also determined that to attain such revenues, storage resources must be able to participate in the wholesale market.

          California and Massachusetts also released a press release in support of Order 841. Importantly, both States argue that an increase in storage will lower electricity bills for consumers.

“Expanding the use of storage resources, which often store energy generated by renewable sources such as wind and solar, will help reduce emissions at a critical juncture in the climate crisis. Furthermore, increased use of storage resources is expected to lower consumers’ electric bills through more competition while strengthening the flexibility, reliability, and resilience of the electric grid.”^[11]

In Ontario, the quest to reduce electricity rates has been pursued by every political party that has come to power. As Justin Rangooni, Executive Director of Energy Storage Canada sees it, “Integrating storage in a meaningful way to Ontario’s grid could provide valuable cost savings to Ontario consumers, and help to meet important system needs. The key is to reduce barriers now, in order to fully allow energy storage to compete on a level playing field when Market Renewal opens in 2023.”

          Although the Ontario government has yet to conduct any formal studies on the economic, health and environmental benefits of storage, the IESO has long recognized the technical benefits storage may bring to the grid. APPrO members will be well aware of the IESO’s Energy Storage Advisory Group, an engagement process that was started in 2018 shortly after Order 841 was published. In addition, it seems likely that regulators in Canada will be spurred by these developments in the US and will carefully consider them as they move to develop regulatory policy towards storage in each of the provinces. Along with the IESO’s Market Renewal initiative, the Ontario Energy Board is pursuing changes to its policies to advance the connection of distributed energy resources, both generation and storage.^[12]

IESO update

On December 19, 2018 the IESO released its report, “Removing Obstacles for Storage Resources in Ontario.” The report recommended solutions to address the primary barriers preventing the fair competition of Electric Storage Resources (ESRs) in IESO-administered markets (IAM).

          On February 18, 2020 the IESO released Chapter 2 of its Energy Storage Project Design Document (the “Design Document”) and held a webinar to review the concepts in detail. The Design Document, as well as all documents related to the Energy Storage Project, can be accessed on the IESO’s website. The Design Document outlines how ESRs will be able to participate in the IAMs during the interim period prior to the IESO’s larger Market Renewal process taking effect. The objective, as stated by the IESO, is to allow ESRs to quickly begin participating in the wholesale market, which will allow ESRs to revenue stack and increase investment and development. The IESO acknowledged that the solutions being put forward during the interim period were not perfect, due mainly to the technical constraints imposed by its operating systems and tools. Similar to FERC’s Order 841, the scope of the IESO’s Electricity Storage Project extends to distribution-connected resources. However, unlike Order 841, the scope of the project does not include ESRs that are behind-the-meter or hybrid energy projects (e.g. solar plus storage).

          During the interim period it is anticipated that:

● “Dispatchable energy storage facilities will be admitted into the Capacity Auction;

● Energy storage facilities may participate in the real-time energy market as dispatchable facilities;

● Energy storage facilities may participate in the real-time energy market as self-scheduling facilities if they are between 1 MW and 10 MW in size;

● Energy storage facilities may participate in the real-time operating reserve market as dispatchable facilities;

● Energy storage facilities [as large as 50 MW] may participate in the regulation service market as self-scheduling facilities.”^[13]

          When questioned by stakeholders about the 10 MW limit on self-scheduling ESRs, the IESO stated that the 10 MW limit is applied to other resources participating in IAMs. The IESO sees ESRs as inherently controllable and anticipates that they will be dispatchable if greater than 10 MW, as a load and generator. Furthermore, until the materiality threshold is looked at more broadly as part of the Market Renewal process, the IESO stated it would be out of place to address it in the ESR project. FERC regulates any resource greater than 100 kW participating in the wholesale market. It will be interesting to see whether the IESO lowers its 1 MW threshold for registered wholesale market participants in the broader context of Market Renewal given the proliferation of distributed energy resources and the long term plan for ESRs. A white paper released by the IESO in 2019 certainly suggests a lower threshold is a possibility. See the Distributed Energy Resources: Models for Expanded Participation in Wholesale Markets. 

          The IESO clarified that all ESRs must participate in the day ahead commitment process (DACP), since this is a basic requirement in order to be allowed to participate in the real-time energy markets and system reliability. Importantly, for dispatchable ESRs, no bid price can exceed any offer price from that facility for a given dispatch hour, which the IESO termed the “no overlap rule”. This is due to the IESO’s limited ability to see ESRs as a single facility. The IESO’s tools are currently only capable of “seeing” ESRs as a generator and a load with no “discernable relationship with each other”. As a result, there is a potential for conflicting dispatch between the two facility resources that are modeled. However, while the IESO will not model “state of charge” during the interim period it will still allow ESRs to signal state of charge limitations to the IESO prior to each dispatch hour. This is an effort to reduce instances where an ESR would have to refuse a dispatch instruction. The method for informing the IESO of state of charge is still under review by the IESO. All ESRs will be required to provide a state of charge telemetry feed to the IESO.

          Chapter 2 of the Draft Document also covers prudential requirements, facility registration requirements, operating reserve constraints for ESRs during the interim period.

          The IESO had planned to introduce long-term (i.e. post market renewal) ESR concepts on March 23, 2020 as Chapter 3 of the Design Document. However, this was delayed due to the COVID-19 pandemic. The IESO nonetheless held a webinar where it confirmed that it intends to clarify how ESRs will participate in the long term in May/June 2019. As a sign of progress, the IESO confirmed it has contracted with ABB as their vendor for dispatch scheduling optimization tools (DSO), which vendor supplies the NYISO with DSO software.

          Some storage and renewable energy market participants have advocated for hybrid projects and behind-the-meter resources to be included in subsequent stages of the Energy Storage Project. The IESO deferred the question in its March 23^rd webinar, but intends to make a presentation in May to clarify how various IESO design initiatives hang together, directly addressing participation of hybrid and behind-the-meter resources in IAMs. Given the abundance of renewable energy facilities and behind-the-meter resources in Ontario, how the IESO addresses these questions will fundamentally shape the future market. 

Looking Ahead

                As the COVID-19 pandemic subsides, the provincial and federal government will be looking for ways to kick start the economy. The depth of expertise in Ontario’s energy sector runs deep. With some of the brightest minds and homegrown energy storage companies, the province is well placed to take the lead to further modernize its grid. Utilizing storage to its full potential, along with the integration of distributed energy resources, could dramatically increase reliability, reduce emissions and, most importantly, lower costs for consumers.