The use of fast responding resources such as batteries for balancing services has the potential to improve operational and economic efficiency and thus lower the cost for consumers. However, the current view appears to be that market structures are not yet adapted and would need to be modified in order to encourage flexible technologies such as batteries.
This view has been echoed by ENTSO-E in its position paper, where it mentions the need “for improving the market design to ensure adequate price signal for storage”. The European Parliament resolution of 13 Sep. 2016 on Towards a New Energy Market Design too calls upon the European Commission to adopt a market design structure that rewards flexible and fast reacting resources.
The same holds true in the United States, which nevertheless appears to be ahead of the EU in this aspect. In 2011, the federal energy regulatory commission (FERC O-755) ordered the overhaul of the frequency regulation market as it saw the current system as (negatively) discriminatory towards flexible and fast responding assets. Recently, FERC has proposed further changes to market design in order to facilitate a level playing field for storage technologies.
Examples of market adaptations
Some markets have already been modified to encourage flexible technologies. The three cases presented below illustrate some of the approaches that have been utilized in this regard.
SPECIAL MARKET: In the UK, National Grid created a special market for Enhanced Frequency Response (EFR) to support fast responding assets. During the first auction in 2016, roughly 200MW of batteries were able to clear this market and get contracts for providing the enhanced frequency response services.
MARKET MODIFICATION: In Pennsylvania-New Jersey-Maryland (PJM), after FERC order 755, the frequency response market has been restructured to provide fast responding resource an additional remuneration.  In the new market structure, the additional power provided by fast resources as compared to the traditional resources in a given time frame is taken into consideration while calculating payments. This has allowed batteries and even electro-mechanical devices such as flywheels to participate competitively in the market.
TECHNOLOGY SPECIFIC PROCUREMENT: In California, local capacity requirement auctions are organized by the load-serving entities. These auctions can be considered as a type of local level capacity mechanism to ensure reliability. In 2014, while approving South California Edison’s local area requirements, the California Public Service Commission specified the share of different technologies that should be contracted, of which storage was one technology. This resulted in South California-Edison contracting 100MW of batteries. This was part of a solution provided by AES in combination with a CCGT power plant.
The way forward
From these examples it can be observed that there are various possible alternatives to encourage participation of flexible resources in ancillary markets. Whether it is just modification to the current market structures or implementing special markets, the key lies in developing an approach for boosting flexibility that does not favor one technology over another. However, the risk of discrimination, which can either be two similar resources treated differently or two different resources treated in the same way, will always exist. Eventually a familiar question arises: where to draw the line in this grey area of regulation?
 NOPR, 134 FERC 61,124 at P 31.
 https://www.entsoe.eu/publications/position-papers/position-papers archive/Pages/Position%20Papers/position-on-energy-storage-and-storage-services.aspx
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