Panel 1: VALUE AND BENEFITS OF GRID ENERGY STORAGE Scope of discussion, background and guiding questions. November 14 th, Cuernavaca, Morelos, México

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1 Panel 1: VALUE AND BENEFITS OF GRID ENERGY STORAGE Scope of discussion, background and guiding questions November 14 th, Cuernavaca, Morelos, México

2 Contenido 1. VALUE AND BENEFITS OF ENERGY STORAGE IN ELECTRICAL NETWORKS Scope of discussion Background Applications of energy storage in electricity markets and transmission and distribution grids Energy storage in the context of the Mexican Electricity Market Wholesale market products and ancillary services The price of products and services in the Mexican Electricity Market The operation of the Energy Storage Equipment Regulatory aspects pending to be defined or clarified International trends on the regulation of energy storage in Electric Markets Guiding questions for workshop panelists

3 1. VALUE AND BENEFITS OF ENERGY STORAGE IN ELECTRICAL NETWORKS 1.1 Scope of discussion The panel will address how the benefits of energy storage are monetized in the context of the Mexican Electricity Market, the products and services that energy storage can provide, and the regulatory aspects that still are pending to be defined or clarified. The discussion will not focus on any specific energy storage technology. The expectation is that the panel will Identify and prioritize research initiatives of technicaleconomic nature, that would help leverage the economic value of energy storage in the Mexican Electricity Market. 1.2 Background Applications of energy storage in electricity markets and transmission and distribution grids The potential uses of energy storage systems in markets and electrical systems, as well as transmission and distribution networks, have been identified in various parts of the world. Table 1 presents an overview of the applications. Application Arbitrage of energy prices Ancillary services Capacity Defer investments Integration of renewable energy Reactive power and voltage support Integration of distributed generation Table 1. Applications of energy storage Distribution Grids Transmission Grids Wholesale Electricity Markets and System Operation 3

4 1.2.2 Energy storage in the context of the Mexican Electricity Market The Wholesale Electricity Market Rules refer to energy storage devices by the term: "Energy Storage Equipment". This is defined as a system capable of storing a specific amount of energy to be released when required in the form of electrical energy 1. The Energy Storage Equipment shall be registered under the figure of Power Plants and shall be represented by a Generator, observing the following 2 : (a) These Generators may make offers for the sale of all products that the energy storage equipment is capable of producing, in the same terms as any other Power Plant Unit. (b) Also, in order to operate the energy storage equipment, these Generators will be able to make all the purchase offers that correspond to the Load Centers, assuming for that purpose all the responsibilities that correspond to the Load Serving Entities. (c) When a storage equipment is part of the National Transmission Network or the General Distribution Networks, the strict legal separation between the Generator representing the equipment in the Wholesale Electricity Market and the Carrier or Distributor using the equipment to provide the Public Service of Transmission and Distribution. Also, these Generators, Transporters and Distributors will be subject to the tariff regulation established by Energy Regulatory Commission (CRE) Wholesale market products and ancillary services The products and services that Generators can offer in the Electric Market are the following 3 : (a) Energy (MWh). (b) Ancillary Services (MW): Secondary Frequency Regulation Reserve; Spinning Reserve_10 minutes; Non Spinning Reserve_10 minutes; Supplementary Spinning Reserve; Supplementary Non Spinning Reserve. In the SECOND STAGE market, additional categories of related services may be defined, or additional factors in the payment scheme for Secondary Regulation Reserves, in order to assess the accuracy, speed of response, and other factors relevant to quality of the procured reserves, so that those resources that provide a higher quality regulation are compensated in a manner proportional to the reduction in the costs of the National Electric System that they produce. 1 Manual de Costos de Oportunidad, SENER, 30 de agosto Bases del Mercado Eléctrico. Base 3 Registro y Acreditación de Participantes del Mercado, Diario Oficial, 8 de septiembre Manual de Manual de Mercado de Energía de Corto Plazo; Diario Oficial, 17 de junio

5 Other Ancillary Services that Generators can provide that are not included in the Short- Term Market are the following 4 : Reactive Power Reserves. Reactive Power. (c) Power (MW-year) Emergency start up and Islanded Operation. In the Power Balance Market 5, the Market Participants may carry out transactions of the Power product. This is a commercial product that is bought and sold and is expressed in MW-year. It is defined 6 as the commitment to maintain installed Generation Capacity and to offer it to the Short Term Energy Market for a specific period of time, which is offered by the Generators and is acquired by the Load Serving Entities, in order to fulfill their capacity obligations. The Power Balance Market operates annually for the immediately preceding year (Year of Production) for the purpose of conducting sales transactions of Power not covered or committed through Capacity Contracts. Through this market, the Load Serving Entities whose contracts did not meet the actual Power requirements according to the obligations established by the Energy Regulatory Commission and the Generators whose operation did not meet their contractual commitments, will be able to carry out transactions with the Generators and Load Serving Entities that have surpluses relative to their obligations. The Power is a product that the National Energy Control Center (CENACE) credits to Power Plant Units, depending on the amount of power that they have made available to the National Electric System in the Year of Production, on average in the hundred hours in which the system in question had the greatest need of such power. These hundred hours will be known as the Critical Hours. Load Serving Entities have an obligation to acquire Power in accordance with the amount of power (capacity) that they have demanded on average from the National Electricity System for the consumption of electricity, at Critical Hours during the Year of Production, at their Load Centers The price of products and services in the Mexican Electricity Market The ancillary services included in the wholesale market are programmed and their prices are calculated together with the dispatch of energy in the Day Ahead Market and in the Real Time Market 7. The energy dispatch guarantees the sufficiency of the ancillary services and co-optimizes its provision simultaneously with the procurement of energy. 4 Bases del Mercado Eléctrico. Base 4 Operación del Mercado de Energía de Corto Plazo, Diario Oficial, 8 de septiembre Manual del Mercado para el Balance de Potencia, Diario Oficial, 22 septiembre Bases del Mercado Eléctrico. Base 2 Términos Definidos, Diario Oficial, 8 de septiembre Manual de Mercado de Energía de Corto Plazo; Diario Oficial, 17 de junio

6 The price of energy and the prices of related services are determined by solving a Mathematical Programming problem that maximizes the total economic surplus in the shortterm market. The prices are expressed in terms of the Local Marginal Prices and the shadow prices corresponding to the constraints in each hour of the Day of Operation. The regulated tariffs applicable to the control and voltage support, as well as the emergency start, and islanded operation shall be determined by CRE. The price of Bilateral Power Transactions will be agreed between the parties, while the price of Power transactions carried out through the Market for Power Balance is calculated by CENACE in the Power Balance Market The operation of the Energy Storage Equipment Market Rules classify Energy Storage Equipment as Limited Energy Resources 9. The so called Limited Energy Resources include Power Plant Units, Energy Storage Equipment or Guaranteed Controllable Demand Resources that have energy limitations over a period of time, which affect their electricity production in the case of generation and energy storage resources or their energy consumption in the case of Guaranteed Controllable Demand Resources. CENACE will optimize the use of the Limited Energy Resources in accordance with its registered operational characteristics and its type of energy limitation, in order to maximize the Total Economic Surplus for the National Electrical System. CENACE will classify Energy Storage Equipment as Energy Limited Resource, in accordance with the following criteria: (a) In the National Interconnected System, Energy Storage Equipment with capacity greater than or equal to 20 MW and storage capacity greater than or equal to 80 MWh. (b) In Baja California and Baja California Sur, Energy Storage Equipment with capacity greater than or equal to 10 MW and storage capacity greater than or equal to 40 MWh. CENACE will establish in an Operational Guide the Energy Storage Equipment representation in the short-term energy market optimization models, which should address the following aspects: (a) Parameters related to capacity, operational limits and efficiency of loading and unloading cycle; (b) Parameters related to the offers of energy products and ancillary services in the day Ahead Market; 8 Manual del Mercado para el Balance de Potencia, Diario Oficial, 22 septiembre Manual de Costos de Oportunidad, SENER, 30 de agosto

7 (c) Decision variables (charge, discharge, stand by); (d) Constraints on loading; (e) Constraints on discharge; (f) Constrained on stand by; (g) Stored energy limits; (h) Mode transition constraints; (i) Mode transition costs. The Market Participant representing Energy Storage Equipment that is not classified as a Limited Energy Resource shall submit its sales offers directly on the Short Term Energy Market, as any other Power Plant Unit Regulatory aspects pending to be defined or clarified In the case of battery storage, the current regulatory framework does not consider a special entity or special regime so that energy storage can be considered as generation of electric energy when it is supplied to the grid, a situation that does not make it eligible to participate in the wholesale market. In this regard, CRE assesses the participation of storage in the electricity market. The current regulatory framework does not establish guidelines or definition of priorities and responsibilities regarding the control of the equipment in the delivery of ancillary services, when the same Energy Storage Equipment provides ancillary services at market prices and services at a regulated tariff International trends on the regulation of energy storage in Electric Markets The participation of storage in competitive electricity markets is an issue that continues to be addressed in different parts of the world. This is the case of the United States of America, where recently FERC (Federal Energy Regulatory Commission) has accelerated its efforts to enhance the benefits of energy storage 10. In January 2017 FERC published a public policy statement that provides guidance on the capacity of storage resources as transmission assets that provide network support services at regulated rates while at the same time provide other products and services at market prices 11. The statement is intended for Independent System Operators in the US that operate capacity, electricity and ancillary services markets. 10 FERC Accelerates Efforts to Integrate Electric Storage Projects Into Jurisdictional Wholesale Markets, 11 Utilization of Electric Storage Resources for Multiple Services When Receiving Cost-Based Rate Recovery, Policy Statement, Docket No. PL (Jan. 19, 2017) 7

8 In summary, this statement establishes that a storage resource can provide services at a regulated tariff and at market prices simultaneously, provided that the following conditions are met: Avoid double recovery of costs by the operator or owner of the resource, and The level of control of the energy storage resource should not jeopardize the independence of the System Operator. Possible alternatives to avoid double recovery of costs, are the following: a) that any income from the market is returned to the consumers who pay the regulated tariff services, or b) that the income from the market is used to pay the regulated rate, and that the remaining or missing amount is credited or charged to consumers who pay the tariff. To ensure the independence of the System Operator, the recommendation is that when an energy storage resource provides regulated tariff services, and at the same time also provides services at market prices, the owner of the resource should exercise control of the the resource, not the System Operator. The priority should be the provision of services contracted at the regulated tariff. In November 2016, FERC published a Notice of Proposed Rulemaking aimed at removing barriers to the participation of storage resources and distributed energy storage resource aggregators 12. In summary, under that proposal, market rules must satisfy several requirements, among them: Energy storage resources must be eligible to provide all capacity, energy and related services that are technically capable of providing. The model of the energy storage resources must take into account the physical and operational constraints of the equipment, and the corresponding parameters must be included in the offers that the operators of the energy storage resources must present for sale of capacity, energy and ancillary services. Energy storage resources can be accepted as buyers and sellers, and their offers can set market prices, according to the rules established in each market. The purchase of energy in the wholesale markets by the energy storage resources, which will later be sold to those markets, must be at the local marginal price of the wholesale market. The minimum size requirement for storage resources participating in the wholesale electricity market should not exceed 100 kw. 12 Electric Storage Participation in Markets Operated by Regional Transmission Organizations and independent System Operators, Notice of Proposed Rulemaking, Docket Nos. RM and AD (Nov. 17, 2016). 8

9 1.3 Guiding questions for workshop panelists What service categories additional to those that currently exist should be considered in the second stage of the wholesale market, in order to assess the accuracy, speed of response and other relevant factors in the quality of the reserves? What circumstances will make these additional categories necessary? Would it be necessary to conduct a technical-economic study or research to support the proposal? Which parameters should be considered in the model of energy storage resources, additional to those listed in section of this report, to be included in the shortterm market optimization model. Would it be necessary to carry out a study or research to support the proposal? What categories of additional ancillary services will be relevant for Energy Storage assets that are part of the National Transmission Network or the General Distribution Networks? What circumstances will make these new categories necessary? Would it be necessary to conduct a technical-economic study or research to support the proposal? How should the corresponding regulated rate be determined? How should the pending regulation address the operation of energy storage resources to avoid jeopardizing the independence of the System Operator. Would it be necessary to carry out a study to support the proposal? 9

10 November 14, Group 1: The Value and Benefits of Energy Storage in Power Networks PANEL: Value and benefits of energy storage in the Mexican Electric Market Schedule Activities Scope of Discussion Guiding Questions 10:00 a.m. Leader Opening speech and introduction Energy storage in the context of the Mexican Electricity Market Rules. 10:15 a.m. Panelist presentation 1 10:25 a.m. Panelist presentation 2 10:35 a.m. Panelist presentation 3 10:45 a.m. Panelist presentation 4 10:55 a.m. Panelist presentation 5 11:05 a.m. Questions and answers Leader and Panelists 11:20 a.m. Questions and answers Observers, Leader and Panelists Products and services of storage in the Mexican Wholesale Electricity Market. Regulatory aspects pending to be defined or clarified, that would leverage the economic value of storage in the Mexican Electricity Market. What service categories additional to those that currently exist should be considered in the second stage of the wholesale market, in order to assess the accuracy, speed of response and other relevant factors in the quality of the reserves? What circumstances will make these additional categories necessary? Would it be necessary to conduct a technicaleconomic study or research to support the proposal? Which parameters should be considered in the model of energy storage resources, additional to those listed in section of this report, to be included in the short-term market optimization model. Would it be necessary to carry out a study or research to support the proposal? What categories of additional ancillary services will be relevant for Energy Storage assets that are part of the National Transmission Network or the General Distribution Networks? What circumstances will make these new categories necessary? Would it be necessary to conduct a technicaleconomic study or research to support the proposal? How should the corresponding regulated rate be determined? How should the pending regulation address the operation of energy storage resources to avoid jeopardizing the independence of the System Operator. Would it be necessary to carry out a study to support the proposal? 11:30 a.m. Meeting of the leader, co-leader and Panelists Conclusions and definition of priorities 12:00 a.m. Break 10