Storage was something of a second class citizen in California’s ISO (CAISO), at least until recently.

Recently approved changes to CAISO’s operating procedures should make it easier and more efficient for storage to participate as a demand resource tool in the California wholesale market.

“It is not a big step, but it is a step in the right direction,” Jason Burwen, policy and advocacy director at the Energy Storage Association, said.

In a larger context, CAISO’s tariff builds on FERC’s Order 745, which was upheld by the Supreme Court in January, said Burwen. The order established that demand response must be compensated at market rates when it is used as an alternative to generation.

CAISO’s proposed rules were recently approved by the Federal Energy Regulatory Commission (FERC). The tariff revisions apply to non-generator resources and fall under two main headings: the day-ahead electricity market and behind-the-meter demand reduction. The tariff changes take effect on Oct. 1, 2016.

In the day-ahead market, the changes will allow storage providers to self manage their state-of-charge and energy limits and to directly submit their state-of-charge status into the day ahead market.

In CAISO a storage resource’s available energy is a function of its state-of-charge. Under existing rules, state-of-charge status is provided remotely through telemetry. That approach works well enough in the real time market, but it does not work as well in the day-ahead market.

For storage bids in the day-ahead market, CAISO assumes that the initial state-of-charge is the ending value from the previous day’s day-ahead awards. If there are no day-ahead awards, CAISO assumes the initial state-of-charge to be 50% of the resource’s MWh limit.

Under the tariff changes, storage resources will be able to submit actual state-of-charge bids that will provide more accurate market information and allow resource bids to better reflect actual conditions.

Allowing storage providers to manage their own resource and submit actual state-of-charge bids will allow for more accurate bids, and it will allow providers to install devices that more accurately match needs. The statistical methods the ISO uses breeds a tendency to overbuild a storage system. Among other things, Burwen said, the tariff changes will make it less likely that storage providers will over build systems because they will be better able to match capacity and market needs.

CAISO has been using a similar statistical model in the behind-the-meter (BTM) market. To calculate demand reduction, CAISO looks back at historical data for 10 days and uses a statistical analysis to compare that with actual usage during a demand reduction event. The tariff reductions call for the use of a second meter, or sub-meter, behind the existing meter that can record the output from any behind-the-meter generation. That gives demand response providers a combination of three methodologies to choose from when providing demand response data to the ISO. CAISO said all those methodologies “will enable greater and more accurate participation in the CAISO markets by energy storage, load curtailing, and behind-the-meter generation resources.”

Storage has been participating in the demand response market as a proxy demand resource (PDR), but the tariff changes will make that participation more efficient and accurate. “For us, this is quite a big deal,” said Ted Ko, director of policy for Stem. “There is always a problem when you are trying to prove a counter positive” using a statistical method.

Having standards – the tariff changes incorporate methodologies developed by the North American Energy Standards Board – and meters in place to monitor a battery’s discharge provides accurate information on just how much energy a battery has offset, and it allows for the separation of the battery’s output from other inputs, such as solar generation.

By using actual data rather than a statistical approach, the new tariffs also make it much clearer and more economical for the multiple services that Stem provides, such as peak shaving for commercial customers and load reduction for utilities, said Ko. “The more risk you take out of the business, the better your battery can perform.”

Ko said that Stem and other storage providers have been working with CAISO for at least a year to come up with the new tariffs, and he applauds how quickly they were able to come up with standards and move them through the approval process. “California is looking to integrate storage into its grid; this is a mechanism to do that,” he said. CAISO is leading the pack, Ko said, and he hopes other ISOs around the country follow California’s lead.

CAISO's next steps

The next step in the PDR market is to get paid to charge to charge a battery, said Ko. There would be obvious benefits to storage providers, but it could also provide benefits to utilities and to the grid. It would be a way to address the “belly of the duck,” Ko said, referring to the duck curve, a graphical representation used to show the quick rise of demand in the evening hits the grid just as solar output is falling. In his scenario, storage would be paid to charge during times when there is excess renewable generation and thus be available to offset the need to ramp up thermal generation when the sun sets.

CAISO, in fact, has a straw in process that examines changes that would allow for paying for BTM battery charging as a second phase of its energy storage and distributed energy resources (ESDER) initiative. The next iteration in that process will likely occur in October when CAISO releases its latest revisions, following stakeholder comments.

The CAISO changes also move storage closer to a longer term goal of storage providers who are seeking to revise market rules to allow storage to more fully participate in the market as either load (charging) or supply (discharging). The goal, said Ko, is for storage providers to be able to “procure and transact around a service, not a technology.”