The process of developing storage projects in the US has similarities to developing generation projects, but regulatory challenges unique to storage have become apparent.
Joe Hall, Kyle Wamstad and Dan Nugent, writing in Power Magazine in February 2020 are comfortable proclaiming that, “The next decade could belong to energy storage.” They see potential for strong growth coming from the combination of three factors: continuing engineering improvements, rising need for flexibility services at all levels of the power grid, and the accumulating experience with non-recourse financing for storage projects.
It appears that some of the greatest uncertainties lie in the regulatory treatment: “(C)current guidance on cost recovery from FERC, state regulatory commissions, and regional transmission organizations arguably prevents storage from serving multiple roles,” they say.
One of the central difficulties for regulators is that payments for transmission and distribution are designed on a cost-of-service basis whereas payments for market services are based on market rates. Regulators can't allow double collection for the same service, or cross subsidies between these two revenue sources. Efforts to structure viable regulatory approvals under which storage assets benefit from the wires-related savings they produce have complicated financing for market based services. To date it appears that a storage asset in the US must choose to priorize reduction of grid congestion if it wants certain regulatory approvals. Alternatively, if it wants market based revenue streams, it may have to choose to forgo all T&D revenue “which could leave congestion unmitigated in the most cost-effective manner.”
In Ontario, in addition to the challenges that storage experiences in the US, there are a number of additional regulatory barriers that have yet to be addressed. The most palpable economic issue is the general obligation for grid and behind the meter storage providers to purchase electricity with all incumbent retail charges, and sell the power at lesser wholesale rates and charges. The difference may be a significant impediment to the financing and development of otherwise viable and valuable storage projects. The Independent Electricity System Operator is aware of the issue and working on potential solutions given the significant, customer, generation, and transmission and distribution benefits that storage can deliver. The IESO 2016 Energy Storage Report affirmed the many benefits of energy storage and the unresolved retail/wholesale problem. In 2018, the IESO established the Energy Storage Advisory Group to focus, in part on regulatory barriers, and in 2019, published an IESO Report specifically on regulatory barriers to storage. The IESO made the following recommendations:
• Review and amend Market Rules
• Review the Ontario Energy Board Codes
• Consider energy storage in Ontario legislation and regulations
• Consider the market-efficiency impact of applying wholesale uplift charges
• Review the application of transmission and distribution charges
• Clarify the use of forecast revenues from distribution and transmission rates as an offset to connection costs
• Provide a clearer framework for including storage assets in rate base
• Address the incentive for distributors to favour capital investments
• Develop guidance for storage resources providing multiple services to different entities
• Review the application of the gross revenue charge
• Review the RRRP program surcharge
• Clarify the resources that transmitters and distributors can own and operate.
Further issues regarding the regulatory and rate treatment of energy storage initiatives that have distribution grid benefits are also apparent in recent rate cases. The Distributed Resource Coalition (DRC) intervened in recent Toronto Hydro and Alectra rate cases, largely in support of electric vehicle energy storage and other energy storage initiatives with distribution grid benefits that were proposed by the utilities (EB-2018-0165 and EB-2019-0018). “These cases are very important, as the Board recognized the impacts that distributed energy storage and battery electric vehicle storage may have as a distribution resource, and highlighted the information gaps in traditional rate filings. The DRC was agnostic on whether the utility or a competitive service provider was best placed to develop specific energy storage projects, and urged the Board to focus on the longer term system benefits when approving storage related issues like Toronto Hydro’s dual control centre,” said Lisa DeMarco, a Toronto-based energy lawyer who represented the DRC. “We are starting to see energy storage considerations move from broader market design challenges to pragmatic implementation issues when the full and stacked benefits of energy storage are considered in a rate regulation context.”
Energy regulators across Canada may anticipate more grid related storage initiatives to come within their review. This is not limited to electricity distribution. The 2018 Decision of the OEB in EB-2017-0335 approved the Anwaatin First Nations energy storage initiative that supports transmission grid reliability in vulnerable North Ontario indigenous communities. These investments are scheduled to be completed in the spring of 2020 and will likely provide further evidence of the multi-faceted values of energy storage.