I like the way you FERC it

Two landmark decisions in recent days have gone some way to resolving uncertainty for key energy transition technologies such as storage and rooftop solar PV in the US.

Much of the US’s energy policy and regulation takes place at state level or multi-state market level. However, the US constitution provides for federal government oversight of interstate commerce. Since most of the states are physically interconnected by transmission lines, wholesale electricity is considered interstate commerce and so wholesale markets are overseen by the Federal Energy Regulatory Commission (FERC). A notable exception is Texas whose main grid has quite deliberately never been connected up to neighbouring states, meaning FERC has no jurisdiction over the Texan market, ERCOT.

In many matters FERC sets overarching guidelines and individual markets or states work out the details most appropriate to them. A recent example is the catchy-sounding Order 841, which has just been upheld in the courts. This order requires US wholesale markets to allow participation by storage. On the face of it this sounds uncontroversial, but the order covers smaller and aggregated systems that may be connected to the distribution network or behind a customer meter. This is ostensibly the basis for the failed appeal to the courts – that in doing so, FERC was overreaching into distribution and retail matters that are not under its purview. The actual motivation of the appellants may be more complex.

The order applies to a range of services, given the versatility of fast-response storage such as Lithium-ion batteries that can (in principle) provide network support, energy, frequency control and capacity. There will be some devil in the detail and some markets’ rules may be subject to challenge that they are non-compliant. For example, the largest wholesale market, PJM, will only pay capacity fees to resources that can provide 10 consecutive hours of capacity. Storage advocates argue that this is discriminatory. A fuller list of issues with specific market rules can be found here.

The unique approach to market regulation in the US means there is no direct analogy to the NEM, but it’s worth noting that AEMC has a rule change request on its books from AEMO that proposes an overhaul of the wholesale rules as they apply to storage.

The second decision was FERC’s rejection of a petition for it to rule against the practice of net metering. This refers to a common practice in some US states of rewarding rooftop PV owners for exported energy at the retail rate they pay for imported energy. In areas where smart meters are not prevalent, this is a pragmatic approach, essentially allowing exports to wind the meter back and charge homeowners for their net consumption. The US with a few exceptions such as Hawaii is a long way off Australian levels of penetration of household solar. However, the economic case for net metering being generically fair value for rooftop PV exports is pretty weak, and some states with growing penetration may find the cross-subsidy from non-solar customers to solar customers becomes unsustainable. Solar advocates (and indeed their opponents) have made a shibboleth of net metering, so there will be quite a battle when that day comes. FERC’s decision carefully sidestepped the question of passing judgement on net metering as a policy, simply that the petition as presented “does not identify a specific controversy or harm that the commission should address in a declaratory order”.

Here in Australia, the debate has largely moved on to issues such as “solar sponge” tariffs to boost demand in the middle of the day when the sun is shining and whether rooftop PV owners should be charged for grid access.