Editor’s Note: “ISO Trio: The future of storage with three dynamic grid operators” was a panel discussion held at POWERGEN International in New Orleans this last January. The discussion was moderated by Jay Dauenhauer, host of the Energy Cast podcast. The panel discussion is included in the latest episode of Energy Cast and is linked below.

For my second year chairing the energy storage committee at POWERGEN International, I really wanted us to focus on practical topics to help developers get projects on the ground. A big component of that was getting the policymakers who help design the markets that make storage projects worth pursuing.

The U.S. is divided into several Electric Power Markets. You have “traditional” wholesale electric markets (Southeast, Southwest and Northwest), are typically vertically-integrated, where the utilities manage the generation/transmission/distribution and energy sales. The Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) are more decoupled (“deregulated”) and were designed by FERC with the intent of 1) bringing more independent generators into markets and increasing price competition, and 2) ensuring reliability across large geographic areas.

Today, there are seven RTO/ISOs in the U.S. For my panel on markets for energy storage, I was privileged to have current and (1) former “market design managers” from the three largest ISOs:

Mike DeSocio, Founder and CEO, Luminary Energy, LLC (formerly Director of Market Design, NYISO)

Danny Johnson, Market Design Sector Manager, CAISO

Sai Moorty, Principal, Market Design, ERCOT

While all three have made great strides to foster strong markets for energy storage, it’s still early days. My guests’ presentations indicate that energy storage projects did not come online in a big way until 2021.

Listen to the podcast:

My guests discuss a wide range of tools to get storage developers paid. For simplicity stake, let’s focus on these three:

1. Energy Markets: Participation on the wholesale market as a generator. Charging at a lower price and discharging at higher wholesale energy prices is commonly called “arbitrage.” Examples of these energy markets are “day-ahead” and “real-time” markets.

2. Capacity Markets: Paying for pay a resource to be available in the future (not to be confused with Day-ahead Markets). This tool has been used for years to maintain “resource adequacy” on a wholesale market for traditional forms of energy generation. Currently only NYISO offers a version of this for energy storage.

3. Ancillary Services: A wide-ranging basket of functions that essentially help maintain the reliability of the grid, especially as more renewable energy comes online. Examples include voltage regulation, frequency response, contingency reserves, and spinning reserves. All 3 ISOs ask storage operators to participate in these services (CAISOERCOTNYISO).

California, New York, and Texas have diverse climates and political landscapes, and the same goes for the priorities of these three ISOs.

“If anyone puts a battery on the ERCOT grid…they’re out there to make money,” says Sai. He points to the ease of getting projects built in Texas and the spreads in prices for arbitrage, but says this open market has led to a shortage of storage that might be needed in the future (i.e. most storage is only 1-hour duration).

NYISO, despite its sophisticated market designs and generous incentives, is still waiting for the market to develop, in a sense. “There are more megawatts of energy storage in the queue than load to serve,” says Mike. He also says New York’s grid, predominantly natural gas, leads to price spreads too small for arbitrage most of the time.

CAISO boasts the largest storage buildout in the country, over 8GW to date more than all other states combined. But with so much dependence on renewable energy, making sure the batteries can deliver what they promised is key. “For us right now it’s really working with our market participants to figure out how we accurately capture that state-of charge [SOC] in the day-ahead dispatch,” he says.

That’s important because most energy storage developers want to maximize their “value stack,” As Sai puts it, ancillary services in Texas are the bread and butter, “and energy arbitrage is just gravy on top of it.”

But what happens if a storage developer has over-discharged and can’t deliver ancillary services the ISO thought they procured? Alternatively, what if a developer held back on ancillary services (a safer bet), and prices didn’t increase based on the day-ahead forecasts?

The ISOs are rightly afraid to go too far with these constraints,” says Mike. “It becomes how much of the asset are [the ISOs] controlling versus letting the market just decide how they want the asset used.”

I was curious if these market experts had any advice for energy storage policy, regardless of the political/physical climate.

Danny and Sai – Texas and California – both agree that policy should be technology-agnostic. If you think you can make money, go on in.” says Sai. We just have to make sure that the rules are nondiscriminatory.”

Mike believes incentives like credits should only be used for so long. He believes the best way to incentivize behavior – and not pick winners, is to put a price on carbon.

“I have the view that we can’t subsidize this forever, that cash will go away at some point,” says Mike, “and these markets will be the only thing left to keep these assets around.”

Useful Links:

“ISO Trio” – PPT Slides

CAISO – Official Site

ERCOT – Official Site

NYISO – Official Site

About the Author: Jay Dauenhauer, CSM, PMP is a project manager based in Houston, TX. He currently serves as a PM developing next-generation energy storage projects. He created and hosts Energy Cast, a regular podcast featuring some of the top experts across all links in the industry chain. In addition to Energy Cast, Dauenhauer has served on planning committees for RE+POWERGEN International, and T&D World.

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