Rapidly declining costs and advancing technologies regarding energy storage are changing the economic landscape of the electricity industry in both regulated and customer choice states.
In the last eighteen months we have experienced an environment of generally falling electricity prices in both the spot and forward markets. Concurrently, we have seen a general increase in capacity prices (the amount all customers pay for the reserved generating/demand reduction capability) and the distribution charges by the utilities who deliver electricity. Succinctly, the impact of the commodity cost is much smaller now as these other components can comprise between 30 and 50 percent of the total electricity costs customers incur.
One way some customers have tried to combat rising capacity costs is to participate in Demand Response programs where the customers are paid to reduce their demand at particular times. We have discussed these programs before and some of the legal issues surrounding them and our opinion is that these programs will continue in one form or the other regardless of the final legal outcome. The ability to use electricity battery storage in combination with a distributed generation project makes this even more likely.
Whether a utility operates in a regulated market or in a customer choice market, there is a need for both capacity and ancillary services (services that are needed for grid support) and customers are finding that in certain circumstances they can be compensated quite well for providing these services. Battery Storage combined with a distributed generation project is allowing customers in certain areas to provide the quick flexibility to provide the ancillary services needed. One of these services is called Frequency Regulation. Frequency Regulation is the balancing of electricity supply and demand to keep frequency within operational bounds and includes services for responding to both increases and decreases in system frequency. FERC Order 755 states that the providers of Frequency Regulation should be paid according to how well they provide the service and storage batteries are exceptional at providing this service in addition to providing capacity and energy in a distributed generation environment. While such projects are complex, we want our readers to be aware of evolving opportunities to use their load as an asset.
Analyst – David Mousseau
Sources – Clean Energy Group and Federal Energy Regulatory Commission (FERC)