The Challenges of Energy Storage
Although energy storage has the potential to benefit the electric power industry, it has been a challenge for the Federal Energy Regulatory Commission (FERC) and state regulators to integrate this new technology into existing law. Utilities, governed by state and federal regulations, will need clear guidelines before they decide to invest in battery energy storage. Key regulatory issues include functional classification, rates and metering, and justification for the high cost.
First, regulations will need to define exactly what energy storage is. This is important for a few reasons. Current regulations in the electric energy industry keep generation and transmission separate. In fact, FERC Order 888 requires jurisdictional utilities to “unbundle,” or separate, generation and power marketing from transmission services. This was to promote competition in the generation market, by ensuring fair access and market treatment of transmission customers. Also, there is a distinction between retail and wholesale sales. Wholesale sales are sales of electricity to an entity other than the end user (e.g., from a power producer to a utility, who will then sell to a customer). These sales are governed by federal law, and usually FERC. Retail sales are sales to an end-user (e.g., utility produces electricity and sells to own customers). These sales are generally governed by state law.
Defining what energy storage is can be challenge because it can be applied in many different ways. As the applications above illustrate, energy storage can perform both generation and transmission functions, and regulatory bodies would have to decide whether to functionally classify specific storage facilities as transmission, generation, or both, or whether to determine such classification on a case-by-case basis.
Another challenge is figuring out how to apply current rate structures to energy storage and how to meter these facilities. Regulators have had difficulty in determining how to compensate storage facilities because they can be classified as a load when taking energy off the grid, but a generator when returning energy back to the grid.
An additional hurdle for energy storage is justifying the high costs of large-scale batteries. Batteries are a unique technology, and the way they are operated can have a significant impact on total resource cost. Fully charging and discharging (full cycling) on a regular basis significantly reduces the lives of the batteries. A fully cycled battery lasts about 1,000 cycles whereas a battery that is partially cycled can last up to 300 times longer. If a battery is fully cycled regularly, the reduction in battery life increases the cost of energy and capacity making it less economically viable. In a recent development, Montana-based Zinc Air Inc. claims its technology has a much longer battery life and the lowest life cycle cost. However, many potential buyers of Zinc Air batteries have delayed purchase until the uncertainty surrounding federal tax incentives is resolved. Production Tax Credits, a current income tax credit for production of electricity from renewable energy sources, has been an incentive for utilities to invest in renewable energy. But, this incentive will expire on December 31, 2012 unless it is renewed by Congress.
FERC is now starting to consider regulatory issues surrounding storage. Decisions about regulating made in the near future will have significant implications for encouraging continued investment in storage technology and enabling this technology to play an increasingly important role in fostering a more sustainable grid. On June 11, 2010, FERC filed a Request for Comments Regarding Rates, Accounting, and Financial Reporting for New Electric Storage Technologies. FERC recognized the “growing interest in the use of non-traditional technologies to meet the nation’s electricity needs.” FERC also recognized that the role of energy storage within the electric system is not so well understood as the roles of traditional generation, transmission, and distribution assets. FERC has sought comment on options for categorizing and compensating storage services as well as ideas on rate policies that fairly accommodate the flexibility of storage.
Implications for the Northwest
As demonstrated above, legislative changes and rulemakings play an important role in the integration of storage. Neither Washington nor Oregon has addressed how to treat energy storage within the framework of existing public utility laws. FERC and Northwest regulators will need to address energy storage in the laws governing energy transactions.
Energy storage, with its many capabilities, has the potential to make a significantly positive impact on renewables integration and on the bulk power grid across the nation. However, there are challenges to the integration of energy storage technologies into existing regulations. These include the difficulty of defining energy storage, addressing rates, and justifying the high costs. With the expansion of energy storage on the horizon, it is evident that FERC will continue to initiate policy and rulemaking to address energy storage in the near future. While many issues remain undecided, energy storage continues to be an innovative technology that has the ability to revolutionize the electric energy market.
