Weekly Brief

A Distributed Change

Brian Knowles, Director of Business Development, Energy Storage, Cypress Creek Renewables

Brian Knowles, Director of Business Development, Energy Storage, Cypress Creek Renewables

On February 15th, 2018 the Federal Energy Regulatory Commission issued Order 841 directing Independent System Operators and Regional Transmission Organization to modify their markets and remove barriers to the participation of electric storage resources in the capacity, energy, and ancillary services markets. This landmark ruling crystallizes an undeniable evolution in the electric grid where a fundamental change in the way electricity is generated, distributed, and transacted is underway. But long before FERC 841 there was a ground swell of factors challenging the status quo of both grid operations and energy markets. A confluence of fundamental changes in transmission infrastructure, generation capacity, and technology has now provided a truly unique opportunity to alter the way the electric grid and energy markets function.

"But now distributed energy storage is becoming a reality fueled by an explosion in Li-Ion battery production and real-time insight into localized grid operations"

As of 2017, the Edison Electric Institute (EEI) counts over 150 transmission projects representing approximately $41 billion dollars in investment through 2019. Many of these projects are driven by the need to alleviate congestion or provide grid access to remote sources of generation. Yet the planning, siting, cost allocation, and cost recovery processes have all grown in complexity and threaten the future of many of these projects. Recently the New Hampshire Site Evaluation Committee unanimously rejected the Northern Pass transmission project; a project proposed by the utility Eversource and intended on bringing power from Hydro-Quebec dams in Canada to Massachusetts to help meet its Renewable Portfolio Standard quotas. The committee felt that the utility developing the transmission lines “failed to prove” that the transmission lines “will not unduly interfere with the orderly development of the region.” Situations like this are not unique and it is safe to venture that many of the 150 projects highlighted by EEI will suffer the same fate as the Northern Pass Transmission project. Across the country, local permitting process slow or thwart large infrastructure projects due to potential impacts to surrounding communities.

But constraints can help drive innovation and today there are alternatives. Recently, National Grid was faced with the dilemma of how to meet summer time peak demand on the island of Nantucket. The small island is served by only two undersea transmission lines but is “one of our fastest growing load areas,” according to Terron Hill, director of network strategy for National Grid’s FERC-regulated business. Instead of building an expensive new transmission line, the utility opted to build a 6MW, 48MWh Tesla battery energy storage system, which will charge overnight via the existing undersea cables when demand is low, and discharge during daytime peaks effectively shaving off the load peaks. This is a clear example of a growing trend of Non-Wires-Alternative (NWA) projects and there should be no doubt that more of these projects are to come.

Transmission constraints are not the only driving force behind the innovative ways of thinking about the electric grid; generation capacity itself is forcing utilities to re-think grid design. In 2017, NRG Energy suspended its application for the Puente natural-gas peaker power plant after learning California regulators were planning to reject their contract signed with Southern California Edison. And more recently in January 2018, California regulators ruled that three existing natural gas peaker plants will not be awarded future expensive reliability-based contracts and that Pacific Gas & Electric can choose to replace the lost capacity with energy storage. This could be the first time a utility will choose to replace existing generation with energy storage, but it may actually become a new trend. According to S&P Global Market Intelligence, over 9GW of non-coal and non-nuclear capacity will be retiring by 2027. Given the changes already happening on the grid, it is unlikely that investors and utilities will be interested in simply replacing this capacity with traditional generation. Today we have smarter and more distributed solutions, which are less expensive and help improve key attributes of the grid such as reliability.

This brings us to the technology itself which is further helping drive these changes to the grid. Electricity markets around the world represent one of the only commodity markets unable to benefit from pervasive storage options. As a result, layers of regulation have developed to keep the markets functioning. Occasionally these regulatory solutions fail as they did during the California energy crisis, where market manipulation resulted in an 800% increase in wholesale prices from April 2000 to December 2000. But now distributed energy storage is becoming a reality fueled by an explosion in Li-Ion battery production and real-time insight into localized grid operations. Yet as these energy storage solutions have been deployed, regulatory artifacts often imped their ability to optimally function or participate in markets.

And here is why FERC Order 841 truly is a landmark; at the highest level our nation’s regulators are signaling that they recognize innovative technology is enabling a fundamental change to the electric grid and that regulation must catch up to accommodate it. The changes to come will be distributed across nearly every facet of the electric grid, from transmission planning processes to home energy solutions. The current generation of energy professionals will be part of the most exciting time for energy technology and policy.