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FERC Adopts Battery Storage Rule, With Long-Term Implications For Natural Gas v. Renewables

A final rule issued by FERC Thursday, an effort to more effectively integrate electric storage resources into regional transmission organization (RTO) and independent system operator (ISO) markets, has the potential to impact the use of natural gas and other carbon fuels in years to come.

The rule, adopted by unanimous vote during the Federal Energy Regulatory Commission’s regular public meeting, is scheduled to take effect 90 days after publication in the Federal Register [RM16-23]. It encourages power operators to balance drops in wind or solar power or unusual weather-driven demand with stored battery power.

FERC's action adopted a November 2016 notice of proposed rulemaking (NOPR) with respect to the participation of electric storage resources in the capacity, energy and ancillary service markets operated by RTOs and ISOs, with certain modifications and clarifications.

The final rule helps remove the barriers to entry for new technology by requiring each regional grid operator to revise its tariff to establish a participation model for electric storage resources that consist of market rules that properly recognize the physical and operational characteristics of electric storage resources," FERC said.

A recent report by Raymond James & Associates Inc. concluded that U.S. natural gas markets have little to fear from battery storage projects for now, but don’t overlook the threat to gas-fired peaking power plants as grid-scale storage is mainstreamed within a few years. The impact to gas markets from batteries so far has remained below the radar because storage technology adoption has been slow.

Commissioners said the rule would allow the electricity grid to adapt to changing technologies and market conditions, and would aid grid resiliency efforts.

"Not only is this rulemaking a win for both consumers and industry, but it is also the kind of positive regulatory action that removes barriers to competition, allowing emerging technologies to compete in the marketplace," said Commissioner Neil Chatterjee. "Ultimately, that means greater reliability and lower costs for the American people.

“Importantly, the storage rulemaking also recognizes the value of empowering different regions in taking focused actions that best address their individual challenges rather than forcing upon them a one-size-fits-all, top-down approach. Put simply, it’s good regulatory policy that people from all political backgrounds can support."

The long-term impacts on natural gas markets as battery prices further recede may be cause for concern, according to Maryland-based energy consultant Ben Schlesinger.

"This starts with the weakest markets first -- indeed, batteries may already have done it in the small-vehicle CNG [compressed natural gas] market, as manufacturers rush to produce electric cars. Next, peak shaving and renewables matching markets are vulnerable, as has evolved recently in Southern California. Then come residential and commercial markets especially in the 330-day sunshine southwest region, where combined solar-battery costs are falling fast."

In a winter risk assessment released in November, California officials said natural gas curtailments to large industrial users in the state's southern region have become more likely with three natural gas transmission pipeline outages and operations limited at the Aliso Canyon underground gas storage facility.

Electric utilities in the Los Angeles area are facing peak shortages, forcing an urgent turn to batteries, Schlesinger said. "Gigafactories are now ramping up to meet growing battery demands. This is already lowering costs to produce batteries."

The NOPR also proposed reforms related to distributed energy resource aggregations, but FERC left those reforms aside in the final rule, concluding that more information is needed. To that end, a technical conference has been scheduled for April 10 and April 11 [RM18-9, AD18-10].

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