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Market Briefs Shed Light on the Benefits of DERs and Energy Storage in Wholesale Markets

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Last August, thunderstorms in the United Kingdom triggered a loss of power generation that left 1.1 million consumers fumbling for a flashlight. As trains halted and traffic slowed, 475 MW of energy storage began discharging. A combination of batteries and other generators worked together to take 1 GW of demand off the system. In less than four minutes, grid frequency was returned to normal and power returned to customers. Blackouts are not particular to the UK. According to the U.S. Energy Information Administration, Americans lose approximately $150 billion to power outages each year. What’s less common is the use of advanced energy technologies like energy storage and distributed energy resources to increase reliability and keep the lights on. But that could change, if these technologies were allowed to compete in wholesale electricity markets on the basis of price and performance. Two new market briefs from AEE demonstrate why they should.

Distributed energy resources (DERs) and energy storage can help grid operators improve reliability, often at lower costs than traditional resources. In the past decade, these technologies have matured while costs have plummeted. Customers, corporations, and utilities across the United States have started to adopt DERs and energy storage to ensure affordable and reliable power. 

In two new market briefs, AEE highlights the ways that energy storage and DERs are already providing numerous benefits to adopters. Walmart, one of the world’s largest retailers, uses energy storage systems in over two dozen stores in California. These resources allow them to shave peak load, balance onsite solar, and help the local utility, Southern California Edison, reduce peak demand on the grid. Another example is Arizona Public Service Co., Arizona’s largest electricity company. The utility has invested millions of dollars in 850 MW of batteries that will displace natural gas peaking plants. 

The value of DERs and energy storage need not be limited to individual adopters. In the briefs, AEE shows how adopting these technologies is in the interest of all stakeholders and the U.S. power grid as a whole. Many advanced energy technologies such as batteries have the technical ability to respond quickly to market signals and provide a wide range of valuable grid services. Integrating these resources into the power market would save all consumers money by optimizing asset utilization, increasing competition, and limiting the need for costly infrastructure upgrades.

How do we know this to be true? Because across the country, several RTOs/ISOs have allowed DERs – specifically energy storage – to compete in their markets. AEE’s market brief points to a successful bid by Sunrun in ISO New England. In 2019, the New England grid operator conducted its annual capacity auction for power system resources where the residential solar installer won a bid to deliver 20 MW of capacity from distributed solar-plus-storage systems. The auction closed at $3.80/kW-month, the lowest clearing price in six years. 

Despite such benefits, opportunities for DERs and energy storage are rare and confined to a specific market, in a specific place. The Federal Energy Regulatory Commission has recognized the need for new market rules to allow for advanced energy technologies to compete in truly technology-neutral markets. In Order No. 841, FERC removed barriers for energy storage, but elected to obtain more information before finalizing a rule on aggregated DER. This proceeding has been pending for over three years, and FERC has yet to finalize a rule that would allow DERs to compete. 

For all customers to realize these benefits, DERs must be given the chance to compete in the nation’s wholesale power markets. While wholesale markets were originally developed to incentivize innovation and facilitate robust competition, current regulatory barriers prevent DERs from competing fairly. Inaction by FERC prevents DER developers from coming up with innovative solutions that would increase reliability and benefit the grid. It also reduces competition in the market, which increases consumer costs. If FERC acts to put fair rules in place, the full promise of DERs can be captured. If inaction continues, customers and the future of the U.S. grid will be left in the dark.

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