by Jeff St. John
May 28, 2019

It’s been a busy two months for Federal Energy Regulatory Commission Order 841, the federal mandate for U.S. interstate grid operators to integrate batteries and other modern energy storage assets into their wholesale markets.

Last week, FERC voted 3-to-1 to deny a request for a rehearing of Order 841, including an effort from rural electric co-ops to give states the ability to “opt out” of complying with it.

The decision, which is likely to be appealed to the U.S. Court of Appeals for the D.C. Circuit, was hailed by energy storage and environmental groups as a fair reading of FERC’s authority to set interstate energy market policy, while giving states and utilities the right to manage their own retail and grid interconnection policies as they see fit. 

But at the same time, last week’s decision also raises a key issue: how to integrate distributed energy resources (DERs) at the distribution-grid level with wholesale energy markets at the transmission grid level. In that sense, FERC Order 841 is driving “a slow-motion collision between how the markets operate as they are, and out-of-market participation and payments,” said Daniel Finn-Foley, energy storage analyst at Wood Mackenzie Power & Renewables. 

Even though FERC split off and delayed the DER-specific portions of Order 841, recent activity still “directly addresses the issue of behind-the-meter and distribution-connected storage participation” in wholesale markets, Finn-Foley said. That’s because Order 841 mandates that storage assets can serve both wholesale and retail markets — so-called "dual-use" — and includes systems as small as 100 kilowatts. 

This challenge, and conflicts around it, have also arisen in the latest updates to grid operators' Order 841 compliance plans.

In April, FERC sent out “deficiency letters,” asking mid-Atlantic grid operator PJM, New York ISO (NYISO), ISO New England (ISO-NE), California ISO (CAISO), Midcontinent ISO (MISO), and Southwest Power Pool (SPP) to explain a laundry list of potential problems with their compliance plans filed in December. 

As we noted at the time, storage and clean energy advocates have a host of concerns with these plans. PJM, NYISO and ISO-NE have come in for particular focus, given that they make up the vast majority of market potential, outside California and Texas. Key issues included:

  • PJM’s 10-hour duration requirement for participation in capacity markets — a requirement that could undermine the economics of today’s 2- to 4-hour duration lithium-ion batteries. 
  • ISO-NE’s automatic derating of storage as it approaches a 1-hour duration threshold, which could reduce its economic competitiveness in capacity markets. 
  • NYISO’s restrictions on wholesale and utility program “dual participation,” its problematic approach to managing batteries’ state of charge, and market barriers for projects less than 2 megawatts in size. 

In early May, grid operators filed their responses to FERC’s deficiency letters, providing a window into their current thinking. FERC has set a December 2019 deadline for implementing them — although NYISO, MISO and SPP have all requested delays into 2020.

But while these letters provided a wealth of detail into each ISO's ongoing work on Order 841, outside of a few notable exceptions — like NYISO’s new DER market tariff proposal, which we’ll get to later — most of the problems from December’s compliance plans remain, according to interviews this week with the Natural Resources Defense Council (NRDC), Advanced Energy Economy (AEE), and the Energy Storage Association (ESA). 


PJM’s 10-hour duration requirement for its lucrative capacity performance market remains the biggest concern for storage industry groups. While PJM has proposed to let storage systems derate their capacity to cover the 10-hour window, this would involve significant reductions in capacity and value for most battery-based systems. 

Jason Burwen, ESA’s vice president of policy, noted in an interview that PJM’s stance flies in the face of research, submitted as part of ESA’s filing to FERC (PDF), that shows that “storage at very significant penetrations in 4- or 6-hour durations would still contribute, effectively, full capacity value, equivalent to any conventional generator resource.”

Barring that effective capacity from serving the market “we think runs afoul of the intent of Order 841. Not only that, it will take away more potentially cost-effective means of meeting capacity needs — which makes load pay more for the capacity than they need.” 

In fact, PJM’s insistence on its 10-hour requirement led to a public spat between PJM CEO Andy Ott and U.S. Sen. Martin Heinrich (D-New Mexico), an energy storage supporter, during an event hosted by Politico in Washington, D.C. earlier this month. As Politico reporter Gavin Bade tweeted at the time, Heinrich criticized Ott on stage regarding PJM’s stance on 10-hour duration, saying it’s been “pretty roundly criticized” as being out of compliance with Order 841’s mandate. 

Ott stood behind the plan, however, telling Utility Dive that lowering the threshold to two hours could lead to energy storage displacing PJM’s demand response market, now the country’s most robust. He suggested that future changes to PJM’s reserve markets could allow storage systems to be combined with demand response or other generators to create “synthetic ramping” products — although he also said that batteries may be better suited to PJM’s shorter-term reserve markets. 

But storage advocates remain committed to asking FERC to deny the 10-hour duration requirement.

AEE said in its Wednesday filing with FERC that it “would present a significant new barrier to the participation of ESRs in PJM’s capacity market, harming competition and just and reasonable rates in that market,” and criticized PJM’s latest responses, and plans to rely on coming reserve market changes, as inadequate for meeting FERC’s mandate. 

ISO New England

ISO New England has jumped ahead of most other grid operators in implementing much of the energy storage integration structures that underlie its Order 841 compliance plans, through its Enhanced Storage Participation filing in September

But in reading ISO-NE’s response to FERC’s deficiency letter, storage advocates still see some problems, specifically having to do with aggregating behind-the-meter or distribution-connected storage systems. 

For example, ISO-NE plans to bar multiple DERs from aggregating to meet Order 841’s 100-kilowatt minimum size unless they're behind a single point of grid interconnection. “This is a pretty big limitation for distributed resources,” Caitlin Marquis, director at Advanced Energy Economy, said in an interview. “Our view is that Order 841 says these resources should be able to offer services they’re technically able to offer."

AEE also called out ISO-NE, as well as PJM, for what it called unacceptable vagueness in how they plan to ensure that distribution-connected storage systems would not be subject to both retail and wholesale charges for energy. 

ISO-NE’s latest response did lay a path to fix one key issue, ESA’s Burwen noted. That’s ISO-NE’s previous plan to limit the value of storage assets that have less than 1 hour of capacity remaining, through a process that would significantly shave a storage system’s capacity value. 

In its latest filing, ISO-NE revealed that it has come up with a manual workaround mechanism, called the “reserve down” flag capability, to fix this problem — a decision it made because it can be done by December, without making changes to its software. “We are pleased that ISO New England is providing clarity in their response to the commission’s letter, providing a possible remedy to the Order 841 violation” on this issue, Burwen said. 

New York ISO

New York ISO’s Order 841 compliance plan came under multi-pronged attack after its December release, with Sustainable FERC Project, Natural Resources Defense Council, Earthjustice, and other groups joining to protest several of its provisions.

But one of the biggest problems — NYISO’s prohibition against storage assets being paid for both wholesale and retail services, and its lack of a specific plan for closing that gap — is now on the verge of a solution. 

That’s because NYISO has been separately developing a DER market design to fulfill the state’s Reforming the Energy Vision plan to integrate DERs into day-to-day grid operations and energy markets. Last week, NYISO’s board of directors approved a set of tariff changes expected to help the grid operator fulfill its Order 841 mandates on the DER front. 

Most critically for the dual participation issue, NYISO’s proposed DER market design will allow DER aggregations, and storage resources in general, to “simultaneously participate in the ISO-administered wholesale markets and in programs or markets operated to meet the needs of distribution systems to also provide services to another entity (e.g., the utility or a host facility),” according to an NYISO presentation from April (PDF).

NYISO plans to file the tariffs with FERC in June, and wants to put them into effect on May 1, 2020 — the same delayed deadline for Order 841 implementation it's asked for, and which FERC has yet to rule on. 

NRDC attorney Miles Farmer noted in an interview that these new rules represent “real progress from NYISO," although he added, "I suspect the rules will need to be further clarified and revisited, as the process for implementing them takes place.” 

At the same time, Farmer said that NYISO’s response to FERC’s deficiency letter fails to address other concerns.

For example, NYISO is proposing to extend an economic screen, known as a buyer-side mitigation test, to resources under 2 megawatts in size, as well as larger projects. This complicated process “could block them from selling in the capacity market, based on having received an incentive from a state program,” he said.

That runs counter to New York’s broader policy support for energy storage, and has already drawn protest from the New York State Research and Development Authority, a major player in the state’s energy storage efforts. 

NYISO also continues to draw fire for how it's proposing to manage the dispatch of storage assets in its capacity market. This is a highly technical issue, dealing with how grid operators’ dispatching software interacts with batteries at various states of charge. But in simple terms, storage advocates worry that the proposal could violate FERC Order 841’s provision that storage systems should be able to “self-schedule,” to ensure they’re not forced to perform uneconomic actions or push their batteries beyond their operating capacity.

As ESA’s Burwen explained, “NYISO is saying that for [storage systems] to be technically capable of providing capacity, NYISO need to be able to manage their energy levels, and set their schedules, a day ahead.”

But NYISO’s latest response to FERC also noted that it won’t offer “make-whole” payments to storage operators, which “presents the possibility that the asset could be scheduled to take uneconomic actions without being made whole. That is a concern to us," Burwen said.