The main challenges in managing bid cost recovery (BCR) for utility-scale energy storage revolve around the unique operational characteristics of storage compared to conventional generators, the risk of strategic bidding, and ensuring that payments reflect legitimate costs without creating undue market distortions.
Key Challenges in Bid Cost Recovery for Utility-Scale Energy Storage
1. Unique Operational Characteristics of Energy Storage
Energy storage resources differ fundamentally from traditional thermal generators and variable renewable energy resources. Their bids do not only reflect their production costs in a given interval but also incorporate opportunity costs associated with their ability to secure state of charge (SOC) required to fulfill future dispatch awards. This intertemporal dimension complicates the bid cost recovery process because storage must balance current energy dispatch with future availability.
2. Misalignment of BCR Provisions With Storage Operations
Current or past BCR constructs were originally tailored for conventional resources and do not fully account for the operational realities of energy storage. This mismatch can lead to unusually high BCR payments to storage resources that exceed their actual costs or realistic revenue shortfalls, thus raising concerns about the appropriateness and efficiency of BCR payments in encouraging efficient market behavior.
3. Potential for Strategic Bidding and Market Exploitation
Since storage resources typically lack fixed commitment costs and many operating constraints faced by conventional plants, there is a risk that scheduling coordinators might exploit BCR rules through strategic bidding practices — such as market buy-backs and sell-backs — to artificially inflate BCR payments beyond legitimate operational costs. This strategic behavior can lead to inefficiencies and undermine market fairness.
4. Disproportionate BCR Payments Relative to Energy Delivered
Storage resources have been observed to receive disproportionately large BCR payments compared to the actual amount of energy they supplied to the grid. For example, from January 2022 to September 2024, energy storage received approximately $58 million in bid cost recovery, a value much higher relative to their energy contribution, raising questions about the balance between compensation and performance.
5. Designing Fair and Effective Tariff Revisions
CAISO and regulators face the challenge of revising tariffs and BCR formulas to properly reflect storage’s operational costs and economic realities, while preventing gaming of the market. Recent tariff changes aim to adjust how real-time BCR is calculated, introducing proxy price mechanisms and tighter rules to limit excessive payments but still allow recovery of legitimate opportunity costs.
In summary, managing bid cost recovery for utility-scale energy storage involves addressing the challenge of aligning BCR mechanisms with storage’s unique intertemporal operational characteristics, preventing strategic exploitation of market rules, and ensuring payments fairly compensate storage without granting excessive uplift. These issues have led to tariff revisions and regulatory scrutiny to refine BCR treatment for storage resources in markets like CAISO.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-main-challenges-in-managing-bid-cost-recovery-for-utility-scale-energy-storage/
