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Three reasons why dual participation market model at NYISO is best for energy storage

New York Independent System Operator (NYISO) received FERC approval for its dual participation model. Dual participation refers to resources that participate in both wholesale and retail markets. This model has positive benefits for distributed energy resources, including aggregated energy storage.

NYISO’s model leverages existing bid rules within energy, capacity and ancillary services market structures. Grid operators with states that have clean energy goals can learn from the emphasis NYISO places on aggregation. Utilities in states within organized markets that do not allow third-party aggregation can learn from NYISO’s weight on interaction with N.Y. Transmission Owners.

Background

New York’s Green New Deal has ambitious renewable energy goals (70% by 2030) and a proposed target of 100% carbon-free electricity by 2040. To achieve these goals and objectives, N.Y. plans to deploy 1,500 MW of energy storage by 2025 and 3,000 MW by 2030. This storage target is a smart move because one of the value drivers for energy storage is increasing the capacity value of solar: the Climate Leadership and Community Protection Act (CLCPA) of N.Y. State explicitly targets 6,000 MW distributed solar by 2025. Additionally, CLCPA lays out a target of 9,000 MW for offshore wind by 2035. Clarifying dual participation model rules encourages renewable project developers about both wholesale and retail market opportunities.

Aggregations, measurement and verification, performance obligations, and dual participation are the four focus areas in NYISO’s Distributed Energy Resources (DERs) proposal at FERC. Energy Storage, Distributed Solar, Combined Heat and Power (CHP), Anaerobic Digestors and Fuel Cells are all DERs in New York. There are many key takeaways from NYISO’s dual participation model for aggregated DERs.

First Reason

First, a resource’s obligation outside NYISO was a significant point of contention among commenters on NYISO’s proposal at FERC. An obligation example is N.Y. Transmission Owner (TO) or distribution system operator instruction to resource owners for a need on the distribution system, who are an Installed CAPacity (ICAP) supplier at NYISO. ICAP suppliers have obligations under the NYISO capacity market rules. FERC accepted NYISO’s explanation regarding the obligation of the resource outside NYISO, which will correspond to a product or service that is part of the ICAP obligations or ancillary services. An example would be frequency response. Resource obligations outside NYISO are different than the resource providing a service outside NYISO.

Second Reason

Second, if a resource provides service outside NYISO, how does it comply with NYISO’s must-offer requirement? In this situation, with a resource who is an ICAP supplier, the dual participating resource should submit a day-ahead self-schedule offer consistent with its obligations. Or by sending a price-sensitive bid that reflects the resource’s retail commitments. This situation arises in the Day-Ahead Market (DAM) because most grid operators have a “Must-Offer” requirement. All qualified capacity resources must offer their capacity in the day-ahead energy market. Self-scheduling is dispatching your generation or curtailing your demand, without any grid operator action.

Third Reason

Third, in a situation when a Demand Side Resource is reducing peak demand for a retail customer to avoid retail utility’s peak demand charge, the resource is required to submit self-scheduling bids to NYISO. These bids, including price-taking bids (e.g., most renewables are price takers), ensure the NYISO operator appropriately dispatches the resource.

Transmission and distribution coordination is a challenge when a resource participates in both wholesale and retail markets. Consider a hypothetical scenario of storage resource asked to charge (act as a load) due to system reliability reasons. In that scenario, storage should not be assessed as transmission charges because of providing reliability function. But, if the same storage resource decided to charge due to a price signal, the storage would be evaluated as a transmission charge.

Others Can Learn

N.Y.’s DER market experience has implications for other U.S. grid operators, where there is an increase in both registered and unregistered DERs. Grid operators such as MISO should note NYISO’s emphasis on aggregation to make dual participation model work. MISO should take notice, in retail choice states like Illinois, NYISO’s model offers explicit dispatch used cases. NYISO’s reliance on N.Y. T.O.s should be reassuring to MISO T.O.s and Organization of MISO States (OMS). In vertically integrated states that do not allow third-party aggregation, distribution utilities in MISO can learn from NYISO’s dual participation model.

FERC Order 841 Status

There are concerns about distribution connected storage charging from the retail end (e.g., solar farm) and discharging in the wholesale market. There is litigation at D.C. Circuit of Appeals surrounding FERC’s Order 841. Solar Energy Industries Association (SEIA) and Advanced Energy Economy (AEE) are on FERC’s side. Concerns around distribution connected electric storage resources are the reason behind the National Association of Utility Regulatory Commissions (NARUC) and Edison Electric Institute on the opposite side. Wholesale versus retail issue is complicated, but with NYISO’s dual participation model, there is hope for market participants.

What makes NYISO’s dual participation model unique is, NYISO will retain all wholesale dispatch functions but coordinate with N.Y. T.O.s on local reliability needs. NYISO found a way to tackle both DER and Electric Storage Resource (ESR) market reforms at the same time. Unlike FERC, who has released an order on ESR (Order 841) but not on DER Aggregation yet.