- The California Independent System Operator (CAISO) is launching a stakeholder process to explore new market reforms to help integrate a huge influx of commercial-scale energy storage. The Energy Storage Enhancements process will focus on market mechanisms to capture the full value of storage.
- As part of the stakeholder process, CAISO released an issue paper detailing some potential policy options, including expanding the real-time market, integrating scarcity pricing or developing a new "energy shift" product.
- Mark Rothleder, chief operating officer of CAISO, said the new outreach is a "continuation of our ongoing efforts to integrate energy storage." Rothleder said the state's storage policy is an ongoing process "applying what we've learned from the early entrants to develop this into a durable, long-term success."
At the end of 2020, CAISO had roughly 250 MW of storage connected to the grid. Already this year, another 250 MW has been added and CAISO expects to have 2,000 MW of storage by August 1. That rapid growth is expected to continue; a recent report from the California Energy Storage Alliance (CESA) estimates the state will need between 2 and 11 GW of long-duration energy storage by 2030 to meet its goals of getting 60% of electricity from renewable sources.
That rapid scale-up means that existing storage is large enough to go beyond simply providing regulation service, creating a new challenge for CAISO. This summer could prove especially interesting, Rothleder said, with the four-fold increase in storage coupled with hot, dry conditions that could strain the grid.
"Once you go into the thousands of megawatts, you're expecting this to do other things," Rothleder said, adding that storage assets could be expected to handle the increased load in the evening hours of the summer. "We have to look at optimizing the market. With that evening peak, to make sure these resources are fully charged, we may have to create some additional compensation mechanisms to make sure they are not losing money as we try to manage this change."
CAISO recently completed the fourth phase of its Energy Storage and Distributed Energy Resources initiative, which added market power mitigation for storage resources and modified state of charge scheduling tools. In November 2020, the agency approved policies to ease integration of hybrid solar and storage projects. The latest energy storage enhancements will build on those efforts and look at long-term market adjustments to make storage more cost effective.
"Making a market designed for fossil fuels work for storage resources can be difficult. There will be growing pains," said CESA executive director Alex Morris. "This is a sign of success for California. It means we've moved quite far along in bringing storage to the market, which means we're moving along in integrating renewables."
Among the policies that will be explored are expanding the real-time market, possible to one that looks at approximately 14 hours or one that has less granular time intervals. The issue paper also details a potential "energy shift" product that would allow the ISO to get energy in the day-ahead market at a specific strike price, then use it to charge certain storage resources at low-priced hours and discharge it during the net load hours. Another alternative would be a biddable stored energy product, setting a total state of charge for the market and imposing a constraint on the market to ensure that charge is available.
The enhancement process will open with a stakeholder call on May 5. Rothleder said any new policies wouldn't be decided on until early next year, with implementation later that summer or fall.
The ISO is tasked with removing "market inefficiencies" that don't compensate storage assets for their benefits, according to Adenike Adeyeye, Western states energy manager and senior analyst with the Union of Concerned Scientists. Adeyeye said she was "cautiously optimistic" about the market tools that could emerge through this stakeholder process.
"We'd like to see CAISO change market policies such that energy storage operators are incentivized to be available during critical periods and to charge and discharge at optimal times, which we think is politically and economically achievable," Adeyeye said.