Appeals Court’s support for FERC rule ramps up the need for flexible energy programs

The federal government has taken a defining stance in favor of energy storage and stronger regional energy markets, and now a U.S. Court of Appeals has given it firm legal ground on which to stand. The U.S. Federal Energy Regulatory Commission (FERC) in 2018 passed Order 841, a regulatory statute that establishes the right for distributed energy storage, not owned by the electric utility and spread across many different locations, to participate in wholesale energy markets. 

Since then, it has been up to states and regional regulatory bodies to propose programs that determine how that participation can take place. The industry is impatiently waiting. Most recently, utility groups and state utility regulators took FERC to court, arguing for the states’ right to opt out of the provisions of Order 841. The D.C. Circuit of the U.S. Court of Appeals ruled against states’ right to opt out, indicating that energy storage is a matter of interstate commerce and federal interest. This ruling is a watershed moment that will help to accelerate the shift of value in the energy system away from supply and toward flexibility. It will also open the door for all kinds of flexibility markets in the United States, similar to what is already available here in the United Kingdom.

Shortly after the court ruling, some of the U.S.’ largest publicly traded utilities, including Southern Company and Duke Energy, showed support for a regional Southeast Energy Exchange Market, similar to the Western Energy Imbalance Market in the U.S. that touts delivering over $1 billion in gross benefits. These relatively new markets are exactly what is needed in the U.S. to modernize and decarbonize our energy systems: regional platforms where energy supplies and demand reduction from all available sources can fit together to ensure reliable power supplies at the lowest possible cost. They combine two quintessentially American concepts to make a better energy sector: democratization and free market forces.

With increasingly accessible, yet intermittent renewable energy and more decarbonization of generation and transport, energy systems and electricity suppliers like utilities will value energy that acts as a standing reserve. In other words, it will not be about the energy on the electric grid, but rather how much flexibility is available to increase or decrease supply, locally, responsively and reliably. The ruling to allow energy storage — essentially big batteries that can store energy generated by renewable sources — is ideally suited to provide this flexibility, in coordination with all other types of generating, load management and renewable assets. FERC Chairman Neil Chatterjee talked about how important energy storage is, saying, “FERC’s Order 841 will be seen as the single most important act we could take to ensure a smooth transition to a new clean energy future.” While California and Texas are leading the charge in the U.S. with innovative trading schemes that take advantage of diverse energy resources, the rest of the country largely lacks open flexibility markets and has much work to do.

In my opinion, as an American energy professional for the past 40 years that is now based in London, the U.K. offers valuable perspective for the U.S. Largely because of its limitations as island nations, the U.K. opened its energy markets to more diverse participants much earlier than the U.S. and is now arguably one of the most advanced energy markets in the world, where flexibility is highly valued. The market here includes multiple markets, short and long term, for energy players to participate in, each getting closer and closer to real-time pricing of energy supplies — the best-possible model for matching the needs of modern society while encouraging renewable generation and pushing toward a net-zero economy by 2050.

As a recent example, in response to reduced demand on the grid resulting from COVID-19, the U.K. implemented a new flexibility market program, Optional Downward Frequency Management (ODFM). My company, Kiwi Power, and our flexibility suppliers participated in the ODFM program by responding to grid frequency requirements, using a mixed-asset response of load and generation, that helped counter the unprecedented drop in demand caused by the combination of bank holidays and a COVID-19 impacted economy. The U.K.’s advanced flexibility markets were a big reason why the country was able to eliminate all electrical generation from coal during a short time this past spring for the longest time since the Industrial Revolution began. 

Flexibility market programs are designed to enable efficient communication between grid operators, the “traffic engineers” of the electricity system who ensure electricity is delivered where it is needed, and available energy assets. Once an energy asset like a wind turbine, battery or facility motor is set up to participate, it is scheduled to respond to real-time market price signals or local utility constraint signals calling for the dispatch of those assets within the specified short-cycle timeframes. 

The next steps to opening these flexibility markets will be to expand these programs, not just in scope but also in geographic range.

The D.C. Circuit of the U.S. Court of Appeals’ support of FERC Order 841 is a welcome ruling to those of us who would like to see a less carbon intensive economy in the U.S., just as others are already demonstrating globally. It would be refreshing indeed to see these groups accept the court’s decision and turn their collective resources toward the future of a flexible grid, which is needed to absorb the demands placed on it by the ever-increasing demands for sustainable growth. The U.S. consumer wants a return to economic growth. Renewables, electric vehicles and other less carbon intensive ways of transport and power generation is a strategic approach to accomplish that sustainably and with urgency; more litigation to protect the status quo is not.

Jay Zoellner is the CEO of Kiwi Power, an advanced energy technology company with projects across the globe.