IEEE Electrification - September 2021 - 109

Market Participation
In practice, interested customers and developers can
choose from a variety of behind-the-meter generation
technologies. These include storage systems, rooftop
solar panels, fuel cells, and gas generators. A hybrid
resource of more than one technology type can also be
implemented as a behind-the-meter asset. Investors and
customers should choose a technology
type that makes the most financial
sense, based on the site location
and the market in which they operate
(state policies and market rules
vary and provide different incentives).
Note that electric utilities may
also be incentivized to install utilityscale
storage systems and take
advantage of market participation.
The markets or ancillary services
in which a storage system may participate
and benefit include frequency
regulation, energy arbitrage, spinning
reserve, reactive power or voltage
support, and black start. Of these,
frequency regulation is one of the
most popular services as it provides
attractive revenue.
In the previous section, we discussed
the deferral effect on the distribution
upgrade from implementing storage systems.
For the following back-of-the-envelope example, we
assume that the storage system is properly registered and
operates in a state and market that allow market participation
from behind-the-meter technologies. Using common
cost data (see Wu et al. in the " For Further Reading "
section), a 3-MW, 12-MWh storage system costs approximately
US$5.6 million in capital investment and US$1.7
million in O&M costs throughout its 20-year life span-a
projected total cost of US$7.3 million. Assuming that the
average difference of electricity prices from charging and
discharging periods is US$0.03/kWh and that the storage
system is operated 360 days a year for 20 years, the revenue
from energy arbitrage would be 12,000 kWh ×
US$0.03/kWh × 360 days × 20 years = US$2.6 million. This
leads to an investment recovery gap of US$7.3 million -
US$2.6 million = US$4.7 million.
Such a shortfall would have to be compensated by the
ratepayers if the storage system cannot generate additional
offsetting revenue. We note that a substation project to
upgrade the distribution power transformer and corresponding
circuit breaker would likely cost less than US$4.7
million. This makes the investment in a storage system
used only for deferral of upgrading not justifiable. However,
if the storage system participates in a frequency regulation
market for 10 h between the charging and
discharging periods, it can earn US$0.02/kW × 3,000 kW ×
10 h × 360 days × 20 years = US$4.3 million. We assume a
Regardless of who
owns the storage
facility (the utility,
the developer, or the
end-use customer),
its financial value
generated from
market participation
is highly contingent
on policies and
regulations.
frequency regulation price of US$0.02/kW on average. This
additional revenue decreases the investment recovery gap
to US$4.7 million - US$4.3 million = US$0.4 million.
Furthermore, on behalf of all ratepayers, the utility can
make additional rewards to the storage system owner,
based on the storage system contribution to capacity
reductions. As a result, the storage project may achieve a
" win-win-win " status. Not only does
the storage system owner get a return
on investment, but also the reliability
of the electric supply in the considered
feeder is improved. In turn, a
ratepayer receives a lower electricity
bill because the overall storage system
project is less expensive than the
upgrading project. The utility saves
the expense of upgrading the corresponding
circuit, and it can use these
savings to cover other needs.
Behind-the-meter technologies
including storage can also be valuable
to end-use customers through direct
ownership or a power purchase agreement
with a developer. One of the
most obvious values comes from electricity
bill reduction by using the
behind-the-meter generation to
reduce the peak demand. This reduces
the charges that are based on peak load values.
Regardless of who owns the storage facility (the utility,
the developer, or the end-use customer), its financial value
generated from market participation is highly contingent
on policies and regulations. In 2018, the Federal Energy
Regulatory Commission (FERC) passed the landmark
Order No. 841 to remove barriers to the participation of
energy storage in the capacity, energy, and ancillary markets
operated by regional transmission organizations
(RTOs). In 2020, FERC passed groundbreaking Order No.
2222, which allows customers' aggregators to use distribution
resources (i.e., storage systems) to participate in FERCregulated
wholesale markets. In such a case, a distributed
energy resource aggregator (which includes storage) is no
longer a passive player that is only able to earn profits by
energy arbitrage. Instead, the storage system can actively
participate in a wholesale market, competing with other
traditional generating sources. Considering that a storage
system has no fuel cost, it has the flexibility to compete
and have its offers accepted.
The intent of this order seems to be to incentivize more
installations of behind-the-meter distributed energy
resources/storage systems and to encourage owners to sell
clean energy to the bulk electric system. However, this will
impose a number of challenges for electric utilities. First, if
the amount of the participating distributed energy resources/storage
systems becomes large enough, the direction of
distribution power flow may be reversed, which may
IEEE Electrification Magazine / SEPTEMBER 2021 109
IEEE Electrification - September 2021

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