Storage initiative will improve reliability

By Gabe Murtaugh, Storage Sector Manager |

After nearly two years of work by many people at the California ISO and constructive input from stakeholders, the energy storage enhancements final proposal was approved by our Board of Governors and the Western Energy Imbalance Market Governing Body at their joint December meeting.

The new tools in this initiative will improve grid reliability and help ISO operators fully utilize storage resources. These changes are very important as storage continues to grow on the system and makes up greater portions of generation during peak hours of the day. The changes will also be beneficial to stakeholders, as they improve the model to help accommodate new storage resources operating on the grid.

As I previously wrote in this space, California is leading the country and the world in utility scale battery storage capacity. Just over two years ago, there was about 500 megawatts (MW) of lithium-ion battery storage on the ISO grid. Today, the ISO has nearly 5,000 MW of storage available for dispatch in the market. These resources charge primarily during the lowest priced periods of the day, when solar is abundant, and discharge during peak net-load hours when prices are high. The buildout of storage will continue to be brisk with a tremendous amount of new capacity planned for interconnection during the next few years.

Storage performed well and proved invaluable for reliability during the record 10-day heat wave in September. Batteries on the grid successfully served significant portions of the peak net-load both in the day-ahead and real-time markets, generally performing as expected. The ISO’s day-ahead market provides good financial signals to storage resources, essentially maximizing profits, by charging storage when prices are lowest and discharging storage when prices are highest.

This charging and discharging behavior aligns with system reliability needs where the market ensures that loads are met across all 24 hours of the day. These schedules account for charging energy as well as losses associated with charging that allow resources to discharge when needed during critical hours. The day-ahead process worked well and set up the ISO’s storage fleet to assist with critical needs in September.

Changes in system conditions between day-ahead and real-time markets can lead to different results between the two markets that need to be reconciled. Sometimes, high real-time prices in hours prior to day-ahead discharge schedules incentivize storage resources to discharge earlier than day-ahead schedules. This occurred during the heat wave on September 6 and 7 when the ISO operations team took out-of-market action and manually instructed specific storage resources to not discharge before the peak. With demand for power setting new records, operators did this so batteries would be available to dispatch power later in the day when less solar was available and system need was most critical.

Today, manual instructions, like those taken by the ISO during the heat wave, can lead to reduced compensation if resources are prevented from discharging when prices are highest and eventually discharge later when prices are lower. One aspect of the energy storage enhancements policy just approved addresses this issue, and provides additional compensation to cover lost opportunities when storage resources are following manual instructions and holding charge for later. This policy will also enhance tools that provide the ISO’s operations team visualization into the storage fleet and tools to easily issue and manage manual instructions to storage resources.

In addition to these new tools, the proposal includes five additional main areas for market changes:

Enhancements for reliability

1. Improved accounting for state of charge while providing ancillary services

2. Enhanced bidding requirements for resources providing ancillary services

Today, the ISO procures energy to meet expected demand and ancillary services to help smoothly operate the grid. Where energy is required for a sustained period of time, ancillary services – which include regulation, spinning reserves and non-spinning reserves – may be called upon to smooth very small deviations within the timeframe for which the energy is procured. The ISO relies on storage resources to meet ancillary service requirements and storage resources routinely provide a majority of regulating services for the grid.

Sometimes resources that are scheduled for ancillary services are unable to provide these services, and these are tracked by the ISO. The ISO flagged certain hours when storage resources have been unavailable to provide awarded regulating services. These situations tend to arise for storage resources when they are either close to empty or have a full state of charge.

The energy storage enhancements initiative includes two proposals to help address this concern. First, the initiative includes estimated impacts on state of charge from regulation awards in the day-ahead and real-time markets. Today the model uses an implicit assumption that there is no impact. This change should help ensure that schedules awarded in the day-ahead market can be achieved in real-time. Second, the proposal includes bidding requirements in the real-time market for storage resources while providing ancillary services. This rule will ensure that the ISO will have the ability to charge or discharge resources with close to insufficient state of charge.

Enhancements to co-located model

3. Electable mechanism to prevent ‘grid charging’

4. Extension of the co-located model to resources outside of the California footprint

Many storage resources developed today obtain financing by assuring lenders that they will maximize credits from the federal government through the investment tax credit (ITC) program. Financing for some of these projects comes with stipulations that storage must operate in a way that maximizes these credits, which implies that they will never charge at or below the level of energy coming from on-site renewable generation. Addressing requests from market participants, this applies to facilities that have storage located alongside solar or other renewable generation. The new policy expands the existing co-located model to accommodate resources operating in this manner.

Market participants developing assets outside the California footprint also asked that the market allow for similar functionality to the co-located model that the ISO currently offers resources located inside California. The new policy allows for modeling these resources.

Improvements to the storage default energy bid

5. Add an opportunity cost component into the day-ahead default energy bid

Market power mitigation provides a guard against resources on the grid exercising market power and artificially increasing market prices in an uncompetitive manner. The energy storage enhancements policy allows for an additional adder in the market power mitigation calculation for storage resources. This measure will help increase dispatch efficiency.

The ISO has been successful in efficiently integrating a rapidly growing battery resource fleet during the last two years. With the changes approved in the energy storage enhancements initiative, reliability, efficiency and confidence in storage resources will continue to improve.

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