The Future of Energy Storage and the Rise of Big Batteries

When examining the machine that is our electric grid, a compelling fact is that we are relatively unable to store electric energy. We must create as much as we consume, and can only consume as fast as we create. One issue that comes up in the renewable space when meditating on this relentless and necessary cycle is that renewable energy is intermittent. That is, we can generate it when the sun is shining or when the wind is blowing, but it cannot be captured and saved on a large scale.

Innovative storage solutions, however, will be able to capture a late night wind, store it, and deploy that energy during peak times. Storage technology could allow for a more efficient and resilient grid; a grid powered by widespread use of renewables. Storage can also lower the need for consumers to pay for keeping peak generation facilities online. As detailed below, there are a number of regulatory developments currently supporting the development of storage and its varied uses.

At this point, according to a recent report by the National Regulatory Research Institute, over 95 percent of U.S. storage capacity is pumped hydro storage (this is generally when a load of water is pumped up to a higher elevation when electric prices are down, then released to produce hydroelectric power when electric prices go up, which is especially useful for managing peak load events). As you might imagine, there are intense geological limitations on this technology and pumped storage is not available for consumer use (“behind the meter” generation).

According to a recent report, 61.9 MW of non-pumped hydro storage (mostly lithium ion batteries) was installed in the U.S. in 2014, which is 40 percent more than was installed in 2013. Although the vast majority of this new storage is utility scale (“in front of the meter”), home storage is beginning to catch on. In other words, big batteries are getting bigger and are expected by some to increase ten fold over the next few years. (See here for an interactive map of all storage projects maintained by the DOE).

No matter what kind of innovation or grid disruption is being proposed, the delivery of power must always remain instantaneous, reliable, and affordable. To this end, New York’s Reforming the Energy Vision (“REV”) initiative intends to transform the state’s utilities in order to better promote storage, renewables, and other smart grid technology. There have also been changes to compensation rules at the Federal Energy Regulatory Commission (“FERC”) for storage facilities that provide frequency regulation in wholesale markets, along with a number of other state programs like California’s first of its kind storage mandate.

Storage in the Empire State

Perhaps the most convincing argument for storage is the cost savings it could produce for consumers. In New York, just as in any other region, there is a great deal of generation kept online for those just-in-case moments (those especially hot or cold days known as peak load events). As stated in a recent order on New York’s REV initiative, “[t]he introduction of air conditioning and changes in our economic base led to the development of a system in New York and elsewhere that consumes on average 18,600 MW of power during much of the year but can rise to nearly 34,000 MW during hot summer days.”

Due to New York’s inability to store energy in large amounts, the order notes that the state keeps a huge amount of reserves online to meet demand for a few hours per year and that “[t]he utilization rate of New York’s electric system averages under 60 percent, and the trend is negative.”

Storage is currently supported in New York as a vital technology solution under New York’s Renewable Portfolio Standard (“RPS”) program. The New York State Energy Research and Development Authority (“NYSERDA”) drives New York’s RPS program. New York is unique in its approach to renewable energy. Other states with RPS programs generally create mandates for suppliers and utilities to hit certain renewable percentage benchmarks each year or otherwise pay a fine. New York sets RPS benchmarks each year, and then takes the responsibility for hitting those benchmarks onto itself.

Basically, New York utilities collect a surcharge on all customer bills that is passed onto NYSERDA. NYSERDA then runs a slew of programs and funding solicitations to promote renewable energy development. Suppliers and utilities do not have the kind of direct responsibilities to procure renewable energy as they do in other states.

NYSERDA’s work with storage includes establishing a Public-Private Partnership and providing seed funding for an organization called NY-BEST (New York Battery and Energy Storage Technology Consortium). NY-BEST is a coalition of storage professionals and its members have access to all things storage, including funding opportunities, policy updates, technology consulting, conferences and seminars, and other resources. NY-BEST also recently opened up a $24 million battery testing and commercialization center in upstate New York with some state assistance.


NYSERDA additionally provides capital and development support for storage projects through its cleantech programs, and has funded some successful and innovative projects (pdf). NYSERDA is also supporting ConEdison’s Demand Management Program, which provides incentives for storage facilities completed by June 2016 and is meant to anticipate the possible closure of Indian Point (a nuclear facility that, according to Indian Point, currently provides 25% of NYC and Westchester’s eletricity needs).

As mentioned above, New York has a massive initiative called REV underway. Under REV, New York will transform its utilities into Distributed System Platform Providers (“DSPPs” — the energy industry loves acronyms). DSPPs are an invention of the New York Public Service Commission, whereby each New York utility would expand its role into managing and creating new markets for distributed energy generation and demand response resources, which explicitly includes storage, while also balancing load on the distribution grid. These DSPPs would continue to own the distribution grid and also take on a range of new responsibilities, like a distribution level RTO/ISO (Regional Transmission Operator/Independent System Operator).

The new DSPP run markets would open up auctions to procure storage resources in order to meet grid management obligations. DSPPs would additionally serve as an interface between the wholesale and retail markets to ensure that distributed energy resource providers serve retail locations experiencing the greatest infrastructure constraints and highest prices. New York intends to have its utilities file initial plans by December 2015 to formalize the development and creation of DSPPs that will run the new storage markets and auctions.

Frequency Regulation in Wholesale Markets

The relentless and necessary cycle described above needs to be kept in balance and this is where frequency regulation comes in. (Dear reader, this next section is going to get a bit more jargony). Frequency regulation is necessary because the transmission system needs to be kept at 60 Hz. This requires a specific balance of energy entering and leaving the grid. When there is a drop or spike, frequency regulation services are used to bring the system back to 60 Hz. The transmission grid is the network of high voltage power lines that deliver electricity over many miles to local power lines. FERC is responsible for regulating the transmission system.

In 2011, FERC released Order No. 755, which requires RTOs and ISOs to fairly compensate storage facilities that provide frequency regulation. RTO/ISOs are regional organizations that manage wholesale markets and implement FERC’s rules. Although these RTO/ISOs have not been implemented everywhere, they do account for over half of US electric consumption. Order 784 expands on Order 755, and lowers regulatory barriers for storage selling frequency services to transmission system operators outside of RTO/ISOs. According to a recent report, frequency regulation by storage under Order 755 is particularly taking off in PJM. Fair compensation under Order 755 is an integral part of the emergence of big batteries.

ISOs and RTOs generally require utilities to maintain a store of frequency regulation resources in proportion to the electricity they are committed to distribute. When there is a frequency deviation, storage technology can often move faster and more accurately than traditional generating resources (water, steam, and combustion turbines).

FERC determined that prior to Order 755, storage was not being compensated for its ability to move quickly. For example, a number of markets were offering a capacity payment and then netting performance payments. Imagine two facilities being compensated for adding a net of 2 MW of energy to the system. During a 5 minute interval the smaller storage facility will rapidly respond to signals and might look like this: + 5 – 3 + 1 – 10 + 9 = +2, while the larger and slower gas turbine may look like this: + 3 – 1 = +2. Although engineers may cringe at the simplification, under Order 755 FERC found that storage was not being fairly compensated for its speed.

FERC sought to combine best practices and now Order 755 requires RTOs and ISOs to offer a two-part payment for frequency regulation:

  1. Capacity payment: The capacity payment is compensation the facility receives for remaining on call to provide frequency regulation when needed. A resource’s capacity is generally calculated based on the amount it can ramp up or down in 5 to 10 minutes (in MW/min). RTO/ISOs must pay a uniform price for capacity to all resources. This uniform price is based off of the bids of frequency regulation resources when an RTO/ISO is running the frequency regulation market. Under Order 755, RTO/ISOs must include opportunity cost into this uniform capacity payment. As stated by FERC, “some resources have no opportunity costs, resulting in disparate payments to resources…a storage resource that is only allowed to participate in the frequency regulation market has no opportunity costs related to the energy market, unlike a traditional generator [that could also market sustained power]. Therefore, the storage resource’s capacity payment could be lower than the generator’s capacity payment.”
  2. Performance payment: The performance payment is known as a mileage payment and does away with netting. RTOs and ISOs must compensate for the absolute amount of regulation that resources move up and down in response to the system operator’s signals. The performance payment must be a uniform market-based rate. FERC left it up to the RTOs and ISOs to determine this market price by setting up their own bidding process and to thus form their own performance payment methodology. FERC also required RTOs and ISOs to design a uniform method for tying the accuracy of the frequency regulation in with the mileage payments. 

Going Forward

Storage is exciting because, as shown above, it can provide some unique and necessary services to the grid. As we build a more perfect union and a smarter grid, storage technologies will continue to improve and be an integral resource under a constantly evolving regulatory regime. 

Lead image: Open door. Credit: Shutterstock.

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Benjamin Falber is a project manager on the energy storage team at NYSERDA.

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