U.S. Power Storage Market Reform Roadmap

The American Clean Power Association (ACP) has released the Storage Market Reform Roadmap, which recommends that U.S. grid operators implement market reforms that support energy storage. This roadmap draws on the experiences of the Electric Reliability Council of Texas (ERCOT) and the California Independent System Operator (CAISO).

During the summer of 2024, Texas faced record-high electricity demand, and energy storage resources helped residents save over $700 million while ensuring a stable power supply. In California, energy storage reduced the risks of power outages and voltage drops, playing a crucial role in preventing grid failures in 2022.

PJM Reforms

Although energy storage can participate in PJM’s capacity, energy, and ancillary services markets, outdated rules hinder its ability to compete in a “fair competitive environment.” Current regulations were designed for traditional generation assets and do not account for opportunity costs associated with using or saving energy for more valuable time periods. Updating these rules is essential for energy storage in PJM, which can be achieved through “opportunity cost bidding” reforms. This would allow storage to include the aforementioned opportunity costs in bidding, thereby enhancing market efficiency in five key ways:

1. Improved reliability
2. Optimized scheduling
3. Enhanced market efficiency
4. Increased flexibility
5. Clearer revenue streams

The “Day-Ahead Uncertainty Product” will serve as a market tool to ensure sufficient availability to meet forecasted net demand. This tool will include an uncertainty margin that benefits the grid by providing needed availability at a lower cost. Currently, PJM lacks slope products that can meet real-time flexibility demands. Other regional transmission organizations, such as MISO, CAISO, and SPP, have implemented slope products to better manage fluctuations and create a more resilient grid. The absence of slope products may result in price volatility, increased uplift costs, and overall lower grid efficiency.

MISO Reforms

MISO’s power demand is on the rise, and energy storage can help address this challenge. By 2030, MISO’s annual and peak loads are expected to increase by 50 gigawatt-hours and 9 gigawatts, respectively. Michigan plans to build approximately 2.5 gigawatts of storage by 2030, while Illinois aims for a storage target of up to 15 gigawatts over the next decade. However, the region still lags in deployment compared to others.

According to the report, “Since 2019, U.S. energy storage deployment has increased 25-fold, with nearly 29 gigawatts connected to the grid, enough to power 22 million homes cumulatively. By 2024, energy storage is expected to become the second-largest resource deployed, but outdated market rules and restrictive modeling practices have caused MISO to fall behind other regional grids.” Currently, MISO is reforming its Direct Load Loss (DLOL) method and Loss of Load Expectation (LOLE) modeling. The DLOL method reforms aim to introduce probabilistic analyses to better assess resource performance during high-risk periods rather than averaging risk throughout the year. The LOLE metric estimates the probability of electricity shortages over the entire year, but the report claims it fails to adequately capture the impacts of weather-driven variability, renewable energy, and demand fluctuations. The DLOL method does not fully reflect the true reliability contributions of energy storage.

The report clarifies that “MISO can better model and support energy storage deployment using energy equity or capacity equity approaches, as illustrated in the chart below.” This method more accurately reflects the actual performance of storage resources and enhances grid resilience by aligning planning and resource adequacy requirements with actual system conditions.

NYISO Reforms

By 2030, NYISO’s annual and peak loads are expected to increase by an additional 12 gigawatt-hours and 1 gigawatt, respectively. However, similar to PJM, the region’s market structure and rules are designed for traditional generation assets, creating barriers for energy storage. In NYISO, it is recommended to introduce “Day-Ahead Uncertainty” and “Slope and Uncertainty” products. The Day-Ahead Uncertainty product will ensure there are enough resources available to meet net demand forecasts for the following day, including an uncertainty margin. Improvements to the current design will involve raising the maximum of the operating reserve demand curve above the current $750 per megawatt-hour threshold to more accurately reflect system value under scarcity conditions. Additionally, reforms will address the availability needs to meet day-ahead net demand forecasts.

The “Slope and Uncertainty” products will benefit the grid by quickly responding to short-term load changes. This reform will mean including expected slopes in market procurement and raising the maximum of the demand curve above $40 per megawatt-hour to reflect the system value of incremental reserves when available reserves are exhausted during periods of high ramp-up slopes.