IEEE Power & Energy Magazine - September/October 2017 - 45

takes on the matter: they both support the implementation
of market designs that guarantee energy storage eligibility to
participate in electricity markets. While we fully agree with
this premise, it is important to remember (in a spirit of neutrality) that technology-specific restrictions as well as technology-specific products should be avoided where possible; only
technical requirements based on actual physical limitations
of the system should be preserved.
In the following, we address the main market designs
limiting storage participation in long-term capacity mechanisms, discuss energy markets and ancillary services markets, and introduce possible design improvements to enable
storage eligibility and help realize the potential of flexible
resources. The goal of these suggested design updates is
not to create favorable conditions for storage but rather to
remove unjustified adverse conditions that prevent efficient
investment in and operation of storage resources.

Capacity Remuneration Mechanisms
Long-term capacity remuneration mechanisms (CRMs)
are consistently identified as crucial for storage economics. However, the ability of ESSs to provide firm capacity
has been repeatedly questioned, particularly for ESSs with
limited discharge duration capacity. As a result, there is an
ongoing debate regarding the extent to which product definitions should be altered to accommodate storage. CRMs
have traditionally been focused on resource adequacy (i.e.,
contracting firm capacity) without accounting for the quality (i.e., flexibility) of the resource procured, which is often
captured in companion markets.
Eligibility

The first crucial issue regarding storage participation in
CRMs is eligibility. FERC and the European Commission
have different takes on the subject. Furthermore, significant
differences can be observed among current CRM rules
in European and U.S. systems. European markets that
have implemented some sort of CRM in which limited
energy storage participation is allowed include Ireland,
Germany, France, Italy, Denmark, and the United Kingdom. Despite the current trend toward inclusion of new
resources, limited energy storage device participation is
still restricted in several European markets including Portugal, Spain, Belgium, and Poland. In the United States,
CAISO, PJM Interconnection, ISO-New England (ISONE), and New York ISO (NYISO) capacity markets are all
open to storage participation. An ESS is currently not eligible to participate in Midcontinent ISO's (MISO's) capacity
market; however, MISO submitted a filing (to be effective
in September 2017) to establish a new resource category
(stored energy resource-type II) that will be allowed to
participate in capacity markets. Capacity mechanisms
should be open to all resource participation, so long as the
mechanism is designed effectively to ensure the desired
product is delivered.
september/october 2017	

Open Product Design

Several CRMs currently include a performance incentive,
the main objective of which is to ensure that an agent committed in a capacity mechanism manages its resource(s) in
a way that permits it to fulfill its obligation when needed or
else pay for underperformance. Although there is certainly
debate over the pros and cons of this requirement, some systems
(e.g., PJM, ISO-NE, and UK Power Networks) have considered
it essential to ensure reliable system operation.
These performance requirements, and their associated
penalties, can hinder storage participation. In particular, the
specification of the period during which the capacity obligation must be fulfilled and the methodology used to assess
the performance of the resource might not be achievable for
ESSs. Resources offering their capacity must be able to perform, if required, for several consecutive hours and must pay
a penalty if they fail to do so. For instance, CAISO requires
resources bidding into its capacity market to perform, when
required, at the maximum committed output for at least four
consecutive hours and to do so over three consecutive days.
For UK and PJM, capacity obligations do not have a defined
time period, thus increasing the penalty exposure for ESSs.
This type of rigid performance requirement fails to capture the value of energy storage in securing the supply. One
way to acknowledge this value is to link it to storage's ability
to provide energy during periods of system stress.
Alternatively, PJM's Reliability Pricing Model offers
two different products, with each product imposing a different length of service requirement. Under this framework,
conventional resources and limited-energy resources (such
as small storage devices or demand response) participate in
different markets. If the markets are correctly designed, the
additional value provided by resources partaking in the more
demanding product should be compensated. However, adequately designing these two products is challenging because
it requires regulators to determine ex ante the amount of
each product to be procured or to define each product's value
as a function of the other's procured capacity.
The penalty exposure of ESSs might also be mitigated by
allowing small resources (including storage assets) to offer
their capacity in aggregation. This solution is already implemented in a number of systems including PJM, where capacity storage resources are eligible to aggregate with other
resources when bidding in the mechanisms.
Finally, a commonly advocated solution is to allow storage
devices to de-rate their capacity to meet duration requirements. Under this design, which is supported by FERC, an
ESS with 1 MW of nameplate capacity and 1 MWh of energy
capacity could bid 0.25 MW into a capacity market with a
4-h performance requirement. Despite being a straightforward implementation, some stakeholders have argued that
this design fails to remunerate storage systems for their full
capacity value.
Storage's potentially beneficial contribution to minimizing
shortage events should be captured. Combining current CRM
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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - September/October 2017

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