IEEE Power & Energy Magazine - September/October 2017 - 44

Regulations must be updated to clarify
the role of storage and enable it to provide
value to power systems.
ultimately be responsible for the full operation of ESSs, taking into account that ESSs can have significant impacts on
wholesale market prices.
FERC has stated that the focus should be on how multiple-service provision by ESSs can be efficiently enabled
rather than on whether it should be enabled. Further, FERC
addresses the three main concerns surrounding the implementation of multiple services: namely whether allowing
storage to provide liberalized services while simultaneously
receiving cost-based rate recovery would 1) place storage
in an advantageous position with respect to resources, the
cost recovery of which depends strictly on market-based services; 2) generate potential market distortions; and 3) jeopardize system operator independence.
FERC argues that there are several ways to avoid double
cost-recovery when a resource is providing both marketbased and regulated services. The commission's suggestion
is to resort to market revenue crediting subject to the fraction
of costs the resource seeks to recover through cost-based
rates. Therefore, a resource that seeks to recover full cost
through cost-based rates will credit 100% of market revenue,
whereas a resource that only recovers half of its costs will
credit half of its market revenues, and so on.
Despite market revenue crediting, some stakeholders still
believe multiple service provision will not only weaken competition but also suppress market prices to subcompetitive levels.
FERC argues that there are currently many assets participating
in liberalized markets while simultaneously receiving some
form of cost-based rate; therefore, denying electric storage the
same opportunity would require revisiting years of precedent
allowing simultaneous cost-based and market-based sales.
However, FERC Commissioner Cheryl A. LaFleur issued a
dissenting opinion arguing that, while FERC should be open
to ESSs participating in wholesale markets while recovering
costs through cost-based rates, no broad conclusions should be
advocated regarding potential market distortion.

Refocusing the Debate
We argue that, rather than allowing existing regulatory definitions of ESSs to guide who can own and operate storage,
we should let sound regulatory and market economics define
the proper rules. The key regulatory challenge is to maximize the efficiency of market mechanisms (e.g., by avoiding conflicts of interest, market barriers, and cross subsidies
between regulated and market parties) while also optimizing
the contribution of ESSs as a provider of both market and
network services.
44	

ieee power & energy magazine	

Regulatory discussions have yet to address this problem
holistically. Simply preventing ESS ownership by regulated
entities satisfies unbundling principles, but it does not enable
the most efficient use of ESSs. On the other hand, allowing
full or partial ESS ownership by DSOs may enable ESSs
to provide valuable network services, but it may lead to market inefficiencies and conflicts of interest (as well as endless -discussions).
Under an incentive regulation framework that equalizes
incentives for efficiency in capital and operational expenditures, DSOs and TSOs can profitably procure network services from third-party ESS operators. This could eliminate
the debate over the requirement that competitive assets be
owned by regulated network companies. If properly implemented, this could also remove the debate over cost- and
market-based service provision.
While further analysis is needed, we believe that an ownership model in which network businesses contract the needed
services from a third-party ESS provider has clear advantages. Network companies could use competitive tenders to
provide clearly defined technology-neutral network services.
Competitive bidders could incorporate into their bids potential r-evenues from market-based services provided outside
the network-service contract. Therefore, this model allows the
ESS owner to both deliver the necessary network services
and participate in liberalized activities (whenever the network
company does not need its services). Profits or losses derived
from the operation of the battery in the wholesale market belong only to the liberalized owner of the ESS.

Market Design
Most energy markets were designed during an era when there
was only minor bulk storage participation and little distributed
ESSs. In addition, as electricity systems move toward more
intermittent resources, the need for flexible operations (i.e., the
power system's ability to quickly respond to changes in demand
and -supply) is increasing. Flexibility of operation requires
flexible market mechanisms that do not impose unnecessary
constraints on the power system's operation. In the face of this
new challenge, market designs ranging from long-term capacity
mechanisms to very short-term ancillary services may likely
need -revisiting to better integrate ESSs.
In light of the fast response characteristics of ESSs, regulations concerning the eligibility of storage to participate in
wholesale electricity markets has until recently focused primarily on the provision of ancillary services. Recent proposals from FERC and the European Commission reveal similar
september/october 2017



Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - September/October 2017

IEEE Power & Energy Magazine - September/October 2017 - Cover1
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IEEE Power & Energy Magazine - September/October 2017 - Cover3
IEEE Power & Energy Magazine - September/October 2017 - Cover4
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