On April 23, 2025, the American Clean Power Association released a report titled “Energy Storage Market Design Reform: A Roadmap to Unleash Energy Storage Potential”. This report outlines a roadmap for power market reforms across three regional transmission organizations (RTOs): PJM, MISO, and NYISO, aimed at unlocking the potential of energy storage. The report emphasizes that the wholesale electricity market was originally designed around the capabilities and limitations of traditional generators, and only recently has it begun to integrate modern storage resources into its framework. Current market designs do not adequately accommodate the unique characteristics of energy storage, such as flexibility and energy limitations, leading to an undervaluation of its potential. The report identifies five key areas for reform: capacity value assessment, day-ahead and multi-hour uncertainty products, intra-hour ramping/uncertainty products, alternative reliability solutions, and opportunity cost bidding, providing specific recommendations for each RTO’s current situation.
1. Necessity for Reform: Limitations of Traditional Market Design
The existing framework of the wholesale electricity market is primarily based on the operational characteristics and physical constraints of traditional generation technologies. As the electricity system undergoes transformation, we face dual challenges: first, there is a continuous increase in electricity demand while traditional units are being retired at an accelerated pace, highlighting the need for system resource adequacy; second, with the growing share of intermittent renewable energy sources and a reduction in dispatchable fossil fuel units, the demand for flexible resources is increasing exponentially. Energy storage technology can effectively address these challenges, but its market value is severely constrained under the current design framework. Existing market mechanisms do not fully reflect the ability of storage to meet system needs nor do they adequately account for the distinct technical characteristics of storage compared to traditional units.
Key findings include:
- The flexibility gap in the system will widen as the penetration of renewable energy increases.
- There is a structural mismatch between the technical characteristics of energy storage resources and the market compensation mechanisms.
- Market rule reforms are urgently needed to unleash the full value of energy storage.
2. RTO Market Reform Directions
MISO:
- Capacity Market: Implement seasonal and hourly models to assess supply certification and demand curves.
- Ancillary Services Market: Introduce slope products covering 30-minute reserves for multi-hour forecast errors, dynamically adjusting ancillary service capacity and incorporating scarcity pricing.
- Energy Market: Develop an energy storage market model utilizing ELMP (Energy Market Pricing).
NYISO:
- Capacity Market: Use hourly models to assess demand curves and introduce ELCC to evaluate all supply resources.
- Ancillary Services Market: Create new ancillary service products by splitting the regulation market into upward and downward services and expanding the 30-minute reserve capacity.
- Energy Market: Develop energy storage market models that allow dispatchable wind and solar to participate.
PJM:
- Capacity Market: Use hourly models to assess demand curves and introduce ELCC to evaluate all supply resources.
- Ancillary Services Market: Develop new ancillary service products by splitting the regulation market and expanding the 30-minute reserve capacity, incorporating scarcity pricing.
- Energy Market: Develop energy storage market models allowing dispatchable wind and solar participation.
3. Summary of Potential Reform Options
The following table summarizes the potential areas for reform:
| Type of Product | Capacity | New Ancillary Services | Non-Market Reliability | Energy |
|---|---|---|---|---|
| Peak Demand (or Net Demand) | 24-hour forecast error: 1%-3% of peak load + 5%-15% of wind and solar capacity | Expected intra-hour ramp demand + uncertainty: 0.2%-0.4% of peak load + 0.5%-1% of wind and solar capacity | 5%-15% of retired units may cause reliability issues | Daily net load for 2-6+ hours |
| Proportion of Storage Participation | 10%-30% | 100% | 100% (mostly long-duration storage) | 10%-30% |
4. Intra-Hour Ramping and Uncertainty Products
Regional Market Comparisons
Comparative analysis of each market’s current status regarding intra-hour ramping and uncertainty products:
| Market | Product Type | Ramp Time Requirement | Demand Coverage | Price Cap | Resource Qualification |
|---|---|---|---|---|---|
| CAISO | Flexible Ramping Product | 5 min/15 min | Expected + Unanticipated Ramping | $247/MWh | Online Resources |
| SPP | Ramping Product | 10 min | Expected + Unanticipated Ramping | $23/MWh | No special restrictions |
| MISO | Ramping Capability Product | 10 min | Expected + Unanticipated Ramping | $31/MWh | Online Resources |
Key findings indicate that:
- CAISO has the most developed product, but its price cap ($247/MWh) is still below the actual system value.
- NYISO’s proposal has significant limitations, as it does not cover expected ramping and requires a one-hour duration capability.
- PJM currently lacks this type of product entirely.
5. Alternative Reliability Solutions
Background and Current Analysis
The core challenge is that with the accelerated retirement of traditional units, the electricity system faces two critical issues:
- Local reliability gaps: Historically planned coal/gas units typically support specific transmission nodes.
- Market failures: Capacity markets cannot effectively address highly localized reliability needs.
The current solutions are limited, relying heavily on transmission expansion, which is costly and time-consuming, and on inefficient Reliability Must-Run (RMR) contracts.
Regional Practice Comparison
| RTO | Post-Retirement Reliability Solution | Compensation Method | Long-term Procurement Process |
|---|---|---|---|
| NYISO | Assess and procure short- and long-term reliability alternatives. | Cost compensation or availability and performance rates | Competitive bidding for long-term solutions |
| MISO | Identifies but does not procure reliability alternatives. | Cost compensation | N/A |
6. Opportunity Cost Bidding Mechanism
The core concept of opportunity cost defines the value of energy storage resources in real-time markets. It factors in the potential future revenue forfeited due to current discharges. The complexity arises from dynamic state of charge variations, uncertainties in multi-period price forecasts, and the need for synergistic optimization between ancillary services and energy markets.
Current market issues include:
- Price restrictions: Most RTOs impose hard caps on storage bids, leading to inefficient operation of approximately 68% of storage resources.
- Reliability risks: In emergencies, storage may fail to respond to high-price signals due to these restrictions.
Optimal Design Framework
A three-tiered solution approach is proposed:
- Implement a pre-exemption mechanism for small operators.
- Establish a dynamic pricing framework allowing for real-time bid updates.
- Create a retrospective regulatory system to review only significant abnormal pricing behaviors.
7. Conclusion
In conclusion, transforming the energy storage market requires significant reforms across multiple areas, including capacity valuation, uncertainty products, and opportunity cost bidding mechanisms. These changes are essential to fully leverage the capabilities of energy storage and enhance the overall reliability and efficiency of the electricity market.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/reforming-energy-storage-participation-in-wholesale-markets-five-key-directions-for-improvement/
