ESA: Market design, frequency response and Jigar Shah’s ‘blunt’ words on renewable

The big wins have really been in some of the market structures that are out there. The stuff that PJM is doing in frequency response, some of the capacity markets that are coming online, that’s where the real excitement is right now.

A lot of people have talked about the PJM frequency response market in the US. Could you briefly explain that market for the benefit of an international audience please?

It was built off of a FERC (Federal Energy Regulation Committee) order – they can mandate down to the ISOs and RTOs (independent system operator and regional transmission organisations, essentially responsible for grid networks in the US). Basically, [this applies to] everyone but ERCOT, which always does their own thing and are not under FERC jurisdiction. They [FERC] mandated down that everyone needed to put in place FERC Order 755, also known as ‘pay for performance’.

The concept behind this is, if I’m a natural gas peaker plant and I respond to a grid signal, the grid goes, “hey, we need energy for a hundred thousand more houses, a bunch of people just got home, flipped on their electric stoves and so on”. The grid sends out a signal to the plants, the plant ramps up, it takes it a minute or two to get up to speed, then it will hold that speed for as long as it needs to, then it will drop off again.

The problem is, that takes a couple of minutes and by the time it responds, those 100,000 people might have decided to have takeout instead! And so now it’s following the signal in the wrong direction so it has to overcorrect, it has to go back under where it was before, then its two minutes behind that signal, it’s just constantly fluctuating.

That’s the nature of the grid, it’s a real-time market. But the downside is that some of these big power plants are just not great at being dynamic. Energy storage is sub-millisecond response time. So you can hit it on the head and go, you want 8MW, I have 8MW and it’s instantly out there on the grid.

It does it way more efficiently than that power plant, so it took me 8MW where it took the power plant 10MW to do the same service. That power plant actually gets paid more, because it’s paid on energy delivered to the grid system to perform an application.

So energy storage can do it better, faster, stronger, it can move onto the next thing, it can dynamically handle these changes but it’ll get paid less in the tariff structure. What pay-for-performance says is, let’s track that mileage, let’s find out how much we’re saving and effectively reward these new solutions to these ever-present challenges on the grid, a higher rate of return for the service they provide.

So PJM is a model [to follow] and I think they’ll continue to modify what they’re doing. ISO New England’s next, California, all of these guys are going to be jumping aboard soon. Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP) are about to go [for something like this] as well.

Roberts and Jigar Shah are in agreement that integrating renewables is one path available to storage, but not the only one, by any means.
Is it likely time of use tariffs will be introduced across more sectors of the US in near future to add to already-existing time of use charges at commercial and industrial level? What’s your perspective on those? (Note: as this interview was being prepared for publication, California opted to introduce time of use charges, likely to be brought in in early 2019).

I’m supportive of time of use rates, of real cost of energy. Everyone should pay their fair share. Where the government needs to [help], like rural electrification or impoverished people, we should financially subsidise that. But time of use rates are important – if you want consumers to be part of the solution you have to put a little skin in the game…something like that helps encourage people to be mindful of how they use energy.

…It’s the same I would say with gasoline in the US compared to the UK and other places. We subsidise it so heavily and we don’t tax it for the real cost that we incur societally from that energy so people don’t understand how much it really costs to get a gallon of gas, so we’re not as conservative with our gas as some other places are.

[It's] kind of the same with energy, we don’t really pay the full price for it because it’s heavily subsidised in a lot of ways, and we don’t care if we consume twice as much energy during the peak when it hurts utilities the most and costs society the most, or costs the system the most.

Solar industry veteran Jigar Shah made some controversial comments at the show, saying that if people are trying to found an energy storage industry purely on the strength of what it can do to integrate renewables, they may as well give up and go home…

We love to have him there, but he’s really blunt! He said that if you’re going to chase on solar’s coattails, get out and go home now.

He’s not wrong and his delivery always entertains me, but I think that’s a good assessment – the industry is more than that, and has to be more than that to succeed. There are so many more high value applications out there. It’s easy to wrap our heads around ‘I want to have electricity when the sun’s not shining, I need a battery’. That’s a really simple concept for everyone.

So renewable integration isn’t the killer app, it isn’t the high value application that’s going to revolutionise the storage industry but it’s among the drivers for continued storage adoption. Storage really shines when we’re talking about resiliency and grid infrastructure challenges and choke points and congestion on the system and once again just back to the flexibility issue.

It has a different value to every customer that buys it for a different reason, but renewables integration isn’t going to be the number one driver I don’t think, it’s just the easiest one to wrap our heads around and explain to the public.