12.4 Regulatory frameworks and market mechanisms

Regulatory frameworks and market mechanisms are crucial for integrating energy storage into the grid. These systems create incentives, establish rules, and set standards that enable storage to compete fairly and provide valuable services to the power system.

From capacity markets to time-of-use rates, various mechanisms encourage storage deployment and operation. Meanwhile, regulations like FERC Order 841 and grid codes ensure storage can participate effectively while maintaining grid reliability and safety.

Market Mechanisms

Incentives for Energy Storage Participation

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• Capacity markets provide a means for energy storage systems to earn revenue by offering capacity to meet peak demand
• Wholesale market participation allows energy storage to compete with other generation sources in energy, ancillary services, and capacity markets
• Net metering enables energy storage owners to receive credit for excess energy fed back into the grid (typically at retail rates)
• Feed-in tariffs offer guaranteed prices for energy storage output over a specified contract period, providing long-term revenue certainty

Pricing Structures Favoring Energy Storage

• Demand charge reduction incentivizes energy storage use by reducing charges based on peak demand, as storage can help shave peak loads (commercial and industrial customers)
• Time-of-use rates vary electricity prices based on time of day and system demand, encouraging energy storage to charge during low-cost periods and discharge during high-cost periods (peak shaving)

Regulatory Frameworks

Federal and State Regulations

• FERC Order 841 requires wholesale markets to remove barriers and establish rules for energy storage participation, ensuring fair competition and compensation
• Energy storage mandates set targets or requirements for energy storage deployment at the state level, driving market growth and investment (California, New York)

Grid Integration Standards

• Grid codes specify technical requirements for energy storage systems connecting to the grid, ensuring safe and reliable operation (voltage and frequency support)
• Interconnection standards streamline the process of connecting energy storage to the grid, reducing costs and time for developers (IEEE 1547, UL 1741)