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Pairing Battery Storage with Renewables: “Co-Location” or “Hybrid”?

By Daniel R. Simon, Tom Anson, Omar Bustami / Aug 07, 2020

With increasing frequency, renewable energy developers seek to physically pair large-scale battery storage devices with solar and wind projects. Although independent system operators (“ISOs”) and regional transmission organizations (“RTOs”) generally allow developers to “co-locate” storage and renewables if they function as separate resources, many developers want the opportunity to manage each pairing as an individual, but “hybrid,” resource.  

This article identifies key issues raised by the pairing of storage and renewable facilities, and the efforts of ISOs/RTOs to allow developers to choose whether to operate them as separate “co-located resources” or a single “hybrid resource.”

Co-Location versus Hybrid?

Physically pairing individual storage renewable facilities provides several benefits, including capital cost savings, utilization of the federal investment tax credit (when paired with solar), and the ability to share interconnection and transmission capacity. Allowing each pairing to also operate as a single “hybrid” resource may bring additional benefits, including more flexible market participation and higher capacity value. 

The Federal Energy Regulatory Commission (“FERC”) held a technical conference on July 23, 2020, to understand the implications of treating these configurations as two resources or one, but it has not yet announced any policy proposals or preferences. For now, ISOs/RTOs must serve as policy “laboratories” to determine whether and how to recognize the physical pairing of storage with a renewable facility. Therefore, it is critical for developers to understand the current rules of ISOs/RTOs, as well as the status of any market rule changes under development in their stakeholder processes. 

Key Issues

The ability to treat a storage/renewable combination as either one “hybrid resource” or two separate “co-located resources” raises questions for at least three major issues: (i) interconnection rights, (ii) capacity value and resource adequacy issues, and (iii) participation in the organized wholesale energy markets.  

Interconnection

Co-location versus hybrid approaches can complicate the interconnection process. ISOs/RTOs typically allow customers to co-locate different technologies through separate interconnection requests for each unit, resulting in separate interconnection agreements. Several markets (including California Independent System Operator (“CAISO”) and Midcontinent Independent System Operator (“MISO”)) already allow customers to submit a single interconnection request to include renewables with storage, making for a more efficient process. The New York Independent System Operator (“NYISO”) is developing tariff changes to enable customers to include storage and renewable units within one interconnection request and interconnection agreement to operate as separate but co-located resources. To maximize developer flexibility, all ISOs/RTOs may eventually allow customers to execute a single interconnection request for each hybrid resource.   

Capacity Value

Measuring capacity value for a storage unit (whether sited alone or co-located with a separate renewable resource) has already raised contentious issues, with grid operators taking different approaches. Operating a storage unit together with a renewable facility as one hybrid resource further complicates the issue, yet it also can potentially provide a higher capacity value than when operating separately, depending on the ISO/RTO’s methodology.  

Most grid operators establish a separate capacity value for physically paired storage and renewable facilities. In contrast,  ISO New England (“ISO-NE”) already allows certain physically paired technologies to participate as a single capacity resource under multiple configurations, including when registered in the energy market as either a single resource or two separate resources. CAISO, MISO, NYISO and PJM Interconnection (“PJM”) plan to examine the issue in upcoming stakeholder initiatives.  

Market Operations

Markets are developing their own approaches regarding how physically pairing storage with renewables can operate in the energy and ancillary services markets.  Because it is less complicated to treat different co-located technologies as separate resources, most ISOs/RTOs need to implement fewer market rule changes and software modifications to improve the functionality and the efficiency of this approach. (An exception is ISO-NE, which already allows for single-resource hybrid operation in certain configurations.) As a result, several ISOs/RTOs have initiated a two-phased stakeholder process – a first phase to quickly improve co-location efficiencies, followed by a second phase to allow for hybrid operations.  

For instance, in its first phase, CAISO plans to file market rule changes with FERC (for implementation in late 2020) to allow co-located units to each register their maximum operating limit even if their aggregate values exceed their total interconnection limit.  Under the revised rule, congestion from the interconnection constraint will only be used to determine the megawatt dispatch for each co-located resource and will not be used to set the price for the co-located resources, allowing for potentially higher energy price awards.  In phase two, CAISO will develop a proposal to extend the market functionality of individual renewable projects to hybrids. CAISO aims to finalize and to implement its hybrid resource market proposal in Fall 2021.

MISO has announced a two-phased initiative to address hybrid resource issues. It is intended to allow the full participation of hybrid resources in ancillary service markets. MISO anticipates that its first phase will address market participant ability to decide when to charge and discharge, energy offer curve development, and to clarify how to specify bid parameters. MISO intends for its second phase to address commitment and dispatch optimization must offer requirements, and the ability for asset owners to choose asset registration type.

NYISO is developing tariff changes to be completed in 2020 designed to facilitate energy market participation by co-located resources. In this option, each resource component (e.g., solar and storage) will have a distinct single point identifier (“PTID”)/bid/schedule/settlement. This option is designed to accommodate co-located projects with an injection limit that is less than the combined capability of its component resources. For completion in 2021, NYISO is developing a hybrid design concept that would allow multiple co-located technologies (e.g., solar and storage) to have a single PTID/bid/schedule/settlement.

The Electric Reliability Council of Texas (“ERCOT”), which is not subject to economic oversight by FERC, also has undertaken a two-phased approach since 2019 through its Battery Energy Storage Task Force.   

Conclusion

Each ISO/RTO continues to develop and implement potentially unique approaches to how co-located and hybrid resources can interconnect and participate in the energy markets. It is unclear whether FERC may impose certain requirements or attempt to standardize approaches. Although FERC staff signaled that they would solicit post-technical conference comments, the growth of storage and renewable pairings may be unfolding too quickly for FERC to lead the charge. At a minimum, FERC might build on its July 23 technical conference by requiring (as a common starting point) every ISO/RTO to allow market participants to elect whether to operate as two co-located resources or as a single hybrid resource. 

For questions related to the content of this article please contact Dan Simon (dsimon@clarkhill.com), Tom Anson (tanson@clarkhill.com), or Omar Bustami (obustami@clarkhill.com).