Figuring out distributed energy storage in Texas’ deregulated market

By Bob Gibson and Miriam Makhyoun

Oncor Electric Delivery Company, the largest electricity transmission and distribution business in Texas, made a big splash in the energy industry news in November when it announced plans to invest $5.2 billion in up to 5 gigawatts (GW) of electric energy storage to help improve the reliability of its grid. On paper, the plan would dwarf the nation’s hottest market for grid-tied energy storage in California, where investor-owned utilities are now racing to meet the state’s mandate to install 1.3 GW of storage by 2020.

But Oncor faces significant hurdles in bringing its plan to fruition, as it seeks permission to rate-base its investment, that is, to recoup its costs via regular rates. Under Texas deregulation rules, Oncor is a wires-only company, meaning it is prohibited from owning generation. Any electrical energy storage system it might own could be used only as a transmission and distribution asset rather than as an asset for wholesale power or frequency regulation.

Ramping up storage in Texas: Duke Energy’s Notrees wind farm in West Texas includes 36 megawatts of battery storage, located in the white-roofed building, (center right). (Photo courtesy of Duke Energy.) 

Building on an analysis from The Brattle Group, a Massachusetts-based economic consulting firm, Oncor’s energy storage plan would distribute battery systems throughout its service area. Approximately one-third of the value from the battery banks would come from the provision of voltage support and other services to the Oncor system. The remaining two-thirds of the value would come from revenues derived from the auction of storage capacity to generation companies participating in the state’s energy market, which is managed by the Electric Reliability Council of Texas (ERCOT).

Oncor is currently seeking support from the Texas Legislature to change the regulatory rules that block its ability to own, deploy and sell energy storage services. To date, no bill has been introduced, and the legislative session ends in June.

While Oncor has a lot of clout in Texas, the changes it seeks are opposed by other powerful business interests, including electricity generators from within its parent company, Energy Future Holdings. These and other fossil fuel generators supply regulatory services in ERCOT, and they likely see a massive deployment of energy storage as competition for the potentially lucrative peaking power market.

Check out energy storage-related reports and webinars on the Solar Electric Power Association website, free for members, here.

Stepping back from the Oncor proposal, is there a near-term future for distributed energy storage in Texas?

“There is a big market for storage in Texas,” said  Jeff Gates, Director of Sales and Field Operations for Alevo, a Swiss energy services provider that is developing energy storage solutions at research and manufacturing facilities in North Carolina. “ERCOT is facing increasing issues in managing a system that has gained a significant amount of variable generation, first from wind and now with solar on the rise.”

Gates has a unique perspective. He came to Alevo last month after 14 years with Duke Energy, where he spent the last six years developing and managing a 36-megawatt energy storage system at Duke’s Notrees wind farm in Texas. Notrees is currently the only battery storage system participating in ERCOT’s ancillary services market, allowed under Texas rules because Duke operates as a merchant power provider in Texas, not as a utility providing both power and transmission.

Unlike PJM, the regional transmission organization that coordinates the movement of wholesale electricity in all or parts of 13 East Coast and Midwest states and the District of Columbia, ERCOT is not under the jurisdiction of the Federal Energy Regulatory Commission (FERC).  At the same time, similar to PJM and other grid managers, it has recently begun to re-evaluate its ancillary service needs and market, modeling some changes based on the success of PJM’s more robust market for these grid support services.

One such initiative is known as “pay-for-performance,” implemented in PJM in accordance with FERC Order 755,  which recognizes the value of fast-ramping power and grid support.  For energy storage providers in PJM’s territory, the order increased revenue for their services two to three times by valuing quick response of a few seconds, a feature that resources such as batteries and flywheels are ideally suited for.  This kind of pay-for-performance program can fill in sudden gaps induced by outages and rewards resources that can quickly and accurately make  the grid more stable.

ERCOT has been studying this mechanism with a pilot project completed in early 2014. ERCOT used a variation of the PJM model, sending out a separate signal to tap into the higher speed of response available with storage, but paying the storage resource owners a regular frequency regulation rate, with no premium. Following the pilot, ERCOT made this fast-responding frequency regulation mechanism a permanent part of ancillary services.

How will energy storage be used in the 51st State? All submissions will be posted on the 51st State website here following the Feb. 27 deadline. 

The size of the fast-response frequency regulation market in ERCOT’s service region is still very small, 65 MW for ramping-up generation to keep frequency stable, and 35 MW for ramping down. The down regulation market can be met by the Notrees storage system alone. It is unclear how quickly ERCOT will move to expand this market.

In a deregulated electricity market such as Texas, where the possibility of brown-outs is looming but the idea of developing a capacity market is politically untenable, a strong case can be made for developing energy storage as a utility service, filling gaps at the distribution, transmission and generation levels.

In his new role at Alevo, Gates has strong opinions on what constitutes a fruitful marriage of energy storage and solar.

“Trying to make solar a firm, 24-hour, 7-day a week product is very difficult in most applications. You can’t make the economics work doing only one cycle a day or less,” he said.

Rather Gates sees the most productive use of utility-scale storage as a fast-response tool to provide stability. Energy storage, he said, can “make everything else better, from variable renewables to conventional power plants. You can reduce greenhouse gas emissions, reduce water use, reduce stop-and-start costs at power plants and save a lot of money for consumers.”

Bob Gibson is the Solar Electric Power Association’s Vice President for Education and Outreach. He can be reached at [email protected].

Miriam Makhyoun is a research manager at SEPA. She can be reached at [email protected].