U.S. Federal and State Regulations

Transcription

1 U.S. Federal and State Regulations Opportunities and Challenges for Electricity Storage PRESENTED TO BIT s 7 th World Congress of Smart Energy PRESENTED BY Dr. Romkaew P. Broehm November 2, 2017 Copyright 2017 The Brattle Group, Inc.

2 Disclaimer The analysis and projections that we provide in this document are necessarily based on assumptions with respect to conditions which may exist or events which may occur in the future. No one can give you any assurance that the assumptions used will prove to be correct or that the forecasts will match actual results of operations. Our analysis, and the assumptions used, are also dependent upon future events that are not within our control or the control of any other person, and do not account for certain regulatory uncertainties. Actual future results may differ, perhaps materially, from those presented here. All results and any errors are the responsibility of the author and do not represent the opinion of The Brattle Group, Inc. or its clients. 1 brattle.com

3 Electricity Storage Projects Are All Over the World As of September 2017, there are 998 advanced electricity storage (ES) projects operating across the world, totaling approximately 6,823 MW. Source: DOE Global Energy Database 2 brattle.com

4 Where Is the Fast Growing ES Area? Number of Advanced Electricity Storages (without Hydro Pumped Storage Projects) United States Korea, South China Germany Japan Spain Australia Italy United Kingdom Netherlands Canada France India Switzerland Ireland Chile South Africa Portugal Denmark Israel Operational Under Construction Contracted Announced No. of Projects Source: DOE Global Energy Database and The Brattle Group 3 brattle.com

5 How Has ES Flourished When ES Capital Cost is Still Too High? Installed project costs of behind the meter projects are even higher than the cost of CT, according to California s 2017 SGIP 4 Hour Battery Cost ($/kwh) 1, Lithium Ion Peaker Replacement $949/kWh Zinc Peaker Replacement $648/kWh Lithium Ion Peaker Replacement $417/kWh Zinc Peaker Replacement $258/kWh To break even with advanced CT, ES capital cost needs to be around $922/kW (or $230/kWh) or $1,408/kW (or $310/kWh) for CT. 4,000 3,500 3,000 2,500 CT $1,092/kW 2,000 Adv. CT $672/kW Battery Lifetime (Years) 1,500 1, Hour Battery Cost ($/kw) Sources: EIA AEO (2017). NREL (2015). Peaker Replacement Values from Lazard December 2016 Report (Page 14). Brattle Assumptions. 4 brattle.com

6 Agenda 1. Federal Initiatives 2. State Initiatives 3. Opportunities and Challenges: Lessons Learned 4. Conclusions 5 brattle.com

7 Key Regulators Oversee U.S. Electricity Markets Federal Energy Regulatory Commission (FERC) regulates wholesale electricity markets while state regulatory commissions oversee their retail electricity markets 50 State Regulatory Commissions, examples include: New York Public Service Commission California Public Utility Commission Public Utility Commission of Texas 6 brattle.com

8 Federal Initiatives FERC Question: Do the policymakers initiatives lead ES into a heathy and sustainable investment? 7 brattle.com

9 Series of Policies to Remove ES Market Barriers Order 755 Frequency Regulation Compensation in Organized Wholesale Power Markets Order 764 Integrating Variable Energy Resources through Intrahour transmission Scheduling Reform Order 784 Third Party Provision of Ancillary Services; Reporting for New Electric Storage Technologies Order 792 Small Generator Interconnection Agreements and Procedures NOPR RM16 23 Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators RM17 8 Reform of Generator Interconnection Procedures and Agreements NOPR PL17 2 Utilization of Electric Storage Resources for Multiple Services When Receiving Cost Based Rate Recovery Note: The orders can be downloaded at ord reg.asp 8 brattle.com

10 Order 755 (2011) Increases Revenues for ES Generators in a wholesale organized market (ISO/RTO) who provided their regulation (or load following) services received: Before Capacity Payment Energy Payment Some ISO/RTOs did not compensate regulation up or regulation down services To recognize quality of response, generators in ISO/RTOs receive compensation for their regulation services: After Capacity for Reg. Up Capacity for Reg. Down Mileage Payment Performance Payment 9 brattle.com

11 January 2016 to June 2017 Regulation Prices Price ($/MWh) Price ($/MWh) $70 $60 $50 $40 $30 $20 $10 $0 $70 $60 $50 $40 $30 $20 $10 $0 1/4/16 RTH Regulation Performance RTH Regulation Capability RTH Mileage Ratio 2/4/16 3/4/16 4/4/16 5/4/16 6/4/16 7/4/16 8/4/16 9/4/16 10/4/16 11/4/16 12/4/16 1/4/17 2/4/17 3/4/17 4/4/17 5/4/17 6/4/17 1/2/16 2/2/16 3/2/16 4/2/16 5/2/16 6/2/16 7/2/16 8/2/16 9/2/16 PJM RT15AVG Down Regulation RT15AVG Regulation Mileage Down RT15AVG Regulation Mileage Up RT15AVG Up Regulation California ISO 10/2 11/2 12/2 1/2/17 2/2/17 3/2/17 4/2/17 5/2/17 6/2/17 Up Down An Illustration of Regulation Mileage and Accuracy Rate 1 AGC Set point No change Instructed Regulation Mileage (IRM) is the absolute sum of When there is no change in the instructed movement, there is no mileage. Up Down AGC Set point Actual Response 1A 1A + 1B = Total Deviation A resource that can reach, say, 20 MW of its certified capacity in 1 minute will have ten times more mileage than a resource that can only reach the same 20 MW in 10 minutes. Examples of Regulation prices in PJM and CAISO wholesale power markets 1B 10 brattle.com

12 An Example of Battery Performance ES RT Energy CAISO instructed energy Source: PG&E Blue areas represent DA energy payment to CAISO for charging and revenues from discharging Orange areas represent RT revenues or payments due to uninstructed deviation from DA award schedule due to the battery curtailing charge as a result of SOC near 100% and parasitic electric loads in the ES system 11 brattle.com

13 RM16-23 (2016) Reduces Market Barriers To improve the ISOs ES integration, FERC proposed to require ISOs to revise their market rules and tariffs to provide clarity and recognition of ES s physical capabilities and benefits. Current Some treat ES like demand response resources, i.e., with limited energy resources per day Can only participate in Ancillary Services markets* Focuses on bidding parameters of traditional generators, such as pumped storage * PJM and CAISO allow ES to participate in all wholesale markets Establish ES participation model: NOPR ES can provide capacity, energy, and AS services (P.48 50) Bidding parameters must reflect ES op. constraints, e.g., state of charge. Min size must not exceed 100 kw ES s charging cost is a locational marginal price Optimize ES dispatch according to its physical capabilities 12 brattle.com

14 Energy Storage Can Perform Many Applications A user s ES choice therefore depends on his/her application need. Grid Support Capacity Energy Environment Grid Support Regulation and frequency responses Spinning Reserves Voltage Support Capacity/Reliability Renewable Capacity Firming Transmission Upgrade Deferral Distribution Upgrade Deferral Resilience Emergency preparation Improve customer outage recovery Energy Energy Time Shifting Environment Reduction in CO 2 and air pollutants 13 brattle.com

15 PL17-2 Allows ES to Serve Multiple Services FERC understood that ES is capable of providing multiple services, and thereby should earn multiple revenue streams, even though some services may be offered via markets and others via a system operator s control. ES Regulation Service 40,000 Load (MW) 30,000 20,000 10, Source: The Brattle Group ES Energy Shifting Hour 80 Source: PG&E 2500 Discharge during peak prices 70 ES Voltage Control (Charge) Discharge (MW) Charge during low prices Market Price ($/MWh) Discharge Charge Market Prices Source: SDGE 14 brattle.com

16 RM16-23 (2016) Allows DER/Aggregators To reach higher market efficiency from growing excess energy of Distributed Energy Resources (DERs), FERC proposed to allow DERs and Aggregators of DERs to bid into ISOs directly. Reduce uncertainties in load forecasts by allowing them to participate in a day ahead market. Send price signals to where investment is needed. ISO must remove any unnecessary limitations on how DERs must be operated, such as minimum size and performance requirements. 15 brattle.com

17 Proposed DER/Aggregators Participation in Wholesale Market Proposed Participation Requirement: Size requirement but no limit on DER technologies Location requirement to be as broad as technically feasible Bidding requirement submit bidding parameters that cover distribution factors and operational constraints Importantly, DERs cannot participate in the wholesale market if they already receive a net metering compensation or participate in another wholesale power market program. 16 brattle.com

18 ES Can Earn Higher Revenues When Usages Are Co-optimized Energy Arbitrage Market based Gen. Capacity Cost based Regulation Spin Dist. Capacity Trans. Capacity Hledik, et. al, The Brattle Group, Stacked Benefits: Comprehensively Valuing Battery Storage in California, Prepared for Eos Energy Storage, August, There is significantly more system benefit if the battery can be utilized to capture multiple value streams rather than just individual use cases. Note: Results shown for San Diego location. 17 brattle.com

19 PL17-2 Allows ES to Capture Its Full Value But FERC required the following conditions: Avoid double recovery of costs borne by ratepayers Credit market revenue to cost based ratepayers according to its cost ofservice allocation. E.g., 50% market revenue credit if 50% of the ES cost is assigned under cost of service. FERC Order 784 et.al. on reporting requirements will allow FERC to have effective oversight of just and reasonable rates. Technical feasibility and predictability of the cost based service needs. Otherwise, ES will be strictly served as a regulatory asset only. Priority is given to cost based services. This would therefore depend upon the ES s state of charge requirement. 18 brattle.com

20 State Initiatives Question: Do the policymakers initiatives lead ES into a heathy and sustainable investment? 19 brattle.com

21 States ES Policy Initiatives We can separate state policy initiatives into three main groups: Set ES targets that distribution companies must meet Establish ES Deployment Program Explicitly include ES as a utility s resource option in Integrated Resource Plan (IRP) Some states are now assessing which policy initiatives are best suited for them. 20 brattle.com

22 Setting ES Targets California (CPUC D , October 2013) By 2020, distribution companies are required to procure 1,325 MW of energy storage devices. Storage projects must address at least one of the policy objectives: Goals: In support of statewide strategy of reducing carbon emissions (1) Drive market transformation (2) Eliminate barriers (3) Gain development and operational exp. Grid optimization (peak reduction, reliability needs, or T&D deferrals) Integration of renewable energy sources; and Reduction of GHG emissions Above the targets, they can have ES installed at T, D, or Behind the Meter (Customer) levels Distribution Company Pacific Gas & Electric Southern California Electric San Diego Gas & Electric Other Non Utilities Target 580 MW 580 MW 165 MW 1% of Peak Load In addition, CPUC provides funding for R&D and pilot programs, including Self Generation Incentive Program (SGIP), which provides incentive payments to behindthe meter storage. 21 brattle.com

23 Other Examples of Setting ES Targets Oregon: Oregon House Bill 2193 It requires Oregon utilities to have a minimum of 5 MWh of energy storage in service by January 1, Oregon utilities must install a minimum of 5 MWh of ES by January Oregon Public Utility Commission (OPUC) issued guidelines to encourage utilities to procure ES via Request for Proposals (RFPs). ES continues to be subject to cost effectiveness tests. The OPUC encourages maximizing the value of ES by having it serve multiple applications so that its value can be stacked. Massachusetts: Utilities must achieve 200 megawatt hours of ES by January 1, brattle.com

24 Establish ES Deployment Program New York: In June 2017, the New York legislature directed the NY PSC (SB 5190 and AB 6571) to develop an Energy Storage Deployment Program by December In a separate proceeding, through New York s Reforming the Energy Vision (REV), NYPSC allows ES to pair with DER and be compensated based on the Value Stack tariff. ES can receive revenue streams from energy, capacity, and environmental values for 25 years. The values are not fixed, but will vary based on New York s wholesale energy (NYISO s LMPs), capacity, and environmental markets. The capacity values will be based on their performance to meet the system peak load, taking into account location. New York City set energy goals, including a goal of installing 100 MWh of storage by 2020, aiming to reduce GHG emissions by 80% by brattle.com

25 Inclusion of ES in IRP New Mexico: New Mexico Public Regulation Commission included ES among resources that must be considered in NM utilities IRPs. 24 brattle.com

26 Assessing ES Initiatives Nevada (S.B. 204) By October 2018, Nevada PSC must: Determine whether Nevada utilities must procure ES for the following purposes: Renewable integration into T&D system; Improvement in the reliability of the electric grid; Reduction in the emission of greenhouse gases; Reduction in the need for building generation to serve peak demand; Avoid T&D expansion Quantify costs and benefits of procuring ES If ES has net benefits, the PSC shall establish: Annual procurement requirement Business model (e.g., who should own ES?) 25 brattle.com

27 Opportunities and Challenges 26 brattle.com

28 Opportunities There are 418 advanced ES projects totaling approximately 1,675 MW Most are located in states with policy initiatives like California and New York. Many projects are also in PJM due to market pricing signals. The numbers of ES projects are likely to grow due to a projected higher level of renewables. Source: Energy Information Administration, Annual Energy Outlook, Source: DOE Global Energy Storage Database 27 brattle.com

29 ES Applications in All Parts of the Grid In the US, ES has applications across the entire electricity system, both in front and behind the meter. Credit: MA State of Charge Report Source: SCE 2016 Energy Storage Procurement Plan Approximately 45% of advanced ES were installed by customer Customer Owned 45% Third Party Owned 24% Utility Owned 31% Source: DOE Global Energy Storage Database & The Brattle Group 28 brattle.com

30 Hours of Energy Seconds 15 Mins 1 Hour 8 Hours Which Functions Does ES Perform? Applications Total MW Count Renewables Capacity Firming Frequency Regulation On Site Power Electric Energy Time Shift Renewables Energy Time Shift Electric Supply Capacity Electric Bill Management Black Start Onsite Renewable Generation Shifting Electric Supply Reserve Capacity Spinning Power Quality Ancillary Services Regulation, Frequency Response, Operating Sec 10 Reserves, Voltage ond Support Minut s es Capacity Reserve/Backup 30 Minut es 1 Ho ur Time Shifting 1 <Hour <24 > 1 Da y Response Time > 1 Year Discharge Time (hour) Microgrid Lithium Discharge Time (hour) Thermal Peak Shaving Flywheel Frequency Responses Capacity (kw) Capacity (kw) Source: DOE Global Energy Storage Database Energy Bill Management Frequency Responses 29 brattle.com

31 Frequency Regulation and Ramping Services Growth of renewables creates a need for new grid support services that allow the system to be much more flexible in order to maintain system reliability. Ramp Need 30 brattle.com

32 Peak Shifting/Renewable Capacity Firming The pattern of Solar PV generation may not necessarily coincide with load. PV owners install ES to maximize unused energy solar. They can store excess solar energy for use during their peak load hours. Load peak between hours Solar peak between hours Source: The Brattle Group 31 brattle.com

33 ES Participation in Wholesale PG&E s ES pilot project bid into the CAISO regulation market. Revenues received are primarily from the day ahead regulation capacity market. Sample Month Source: PG&E s EPIC brattle.com

34 Multiple Use Applications of Behind-the-Meter ES PowerTree serves residential customers in apartment buildings in Northern California. Its applications include: Integrating batteries to firm up energy generated from solar PV; Directing electric vehicles to charge and discharge to serve load and sell in the CAISO markets; and Participating in a wholesale market by selling regulation services to the CAISO Source: PowerTree 33 brattle.com

35 Trend: WSJ Headline on October 15, brattle.com

36 Latest Buzz Lithium-ion Battery Cost Decline Lithium ion battery prices have been dropping sharply, and projected to decrease from $273/kWh in 2016 to $109/kWh by 2025 $73/kWh by 2030 approximately 75% drop from the 2016 price Big driver is the economies of scale from Electric Vehicles The question is whether lithium prices will increase, given this growing demand. Source: WSJ, October 14, brattle.com

37 Technical Challenges Remain ES has limited energy and cannot participate in all hours. ES participating in the AS markets must minimize risks of having to charge during high prices. When providing the AS capacity, ES is subjected to ISO s dispatch instructions. In some circumstances, the ISO can call ES to provide regulation down in the real time energy market, i.e., charging energy, but the LMP can be very high, e.g., $1,000/MWh. Illustrative Example 1 MW Battery with 5 MWh Energy Day ahead Reg Up Capacity Payment $ 4,446 Day ahead Reg Down Capacity Paymen $ 42 Reg Mileage Up $ Reg Mileage Down $ 141 RT Energy Charging Cost $ (5,005) Net Revenue $ (376) 36 brattle.com

38 Interconnection Costs Experience from pilot programs raised issues of high interconnection costs as a barrier: Telemetry is required for AS added costs. Interconnection process is complicated, time consuming, and costly. Some ES that participates in both wholesale and retail markets needs dual meters. 37 brattle.com

39 Retail Rate Design for ES Unlike traditional generation, behind the meter ES uses station power when ES is charging power or when not generating (sitting idle but airconditioning or SCADA still need to be on). ES pays for the power based on retail rates. This is new! The challenge is what type of tariff rate design is reasonable for ES? Retail Rate Distribution Utility ES Owner Net from Total Generation 38 brattle.com

40 Takeaway Policy initiatives for ES must lead to sustainability of the ES. Not over compensating or under compensating ES Not creating cost shifting Accurately compensating ES values will encourage wide scale ES development in a way that: Fulfills a clean energy goal Incentivizes the location, design, and operation of ES that maximizes overall value to all utility customers 39 brattle.com

41 Presenter Information ROMKAEW P. BROEHM Principal Boston Dr. Romkaew Broehm is an economist whose practice is focused on the electric utility industry. She specializes in the areas of market deregulation and oversight, market power analyses, studies of bulk power markets, renewable integration, utility cost structures, and cost benefit analyses. She has submitted testimony and comments before the Federal Energy Regulatory Commission (FERC) on market based rates (MBR), market manipulation, and merger and acquisition (M&A) matters. She has analyzed potential competitive impacts of M&A transactions on wholesale power markets for both horizontal and vertical market power aspects in various power markets, such as ISO NE, NYISO, PJM, SERC, FRCC, SPP, Entergy System, and WECC, including the CAISO Energy Imbalance Market. She co authored Market Power and Market Manipulation in Energy Markets from the California Crisis to the Present (2015). The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group, Inc. 40 brattle.com

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