America's Energy CEO Series: Key Capture's Jeff Bishop says FERC's BSM rule creates uncertainty for energy storage

The challenge for New York battery storage developers is developing projects without knowing how much energy market revenue the projects can make at a time when capacity revenue is being taken off the table, Key Capture Energy co-founder and CEO Jeff Bishop said in a recent interview.

The Federal Energy Regulatory Commission issued a batch of orders February 20 narrowing exemptions from New York Independent System Operator's buyer-side market power mitigation rules.

"We have New York's largest battery in service ... and put six projects during class year 2019 into the NYISO's capacity market so FERC's BSM ruling puts these projects into question," Bishop recently told S&P Global Platts.

NYISO president and CEO Richard Dewey recently told an industry publication that energy storage resources in New York City and the lower Hudson Valley, where transmission congestion and higher capacity prices make siting projects attractive will be the "most adversely impacted by these orders." Dewey said the grid operator is planning its own BSM rule improvements to favor energy storage.

The deployment milestone for changes to the Energy Storage Resource Participation Model has been moved to Q4 2020, according to a December NYISO presentation.

Bishop said the recent FERC orders along with these pending changes have led to market uncertainty for energy storage project developers.

With the roughly 2,000-MW Indian Point nuclear plant in Zone G retiring in 2020-2021 and the New York State Department of Environmental Conservation looking to retire as much as 3,500 MW of downstate peaking capacity it looked like energy storage would be needed closer to the load of New York City and Long Island, Bishop said.

Under BSM, any Lower Hudson Valley, New York City or Long Island projects will be assessed a minimum offer floor price and if that price is higher than the prevailing capacity price the resource can't participate in the capacity market.

The friction we have now is New York's clean energy goals are trying to inject more energy storage capacity into the power market, but incumbents are erecting barriers and making New Yorkers pay twice for the same capacity, Bishop said.

PAYING TWICE

For instance, the New York State Energy Research and Development Authority offers a market bridge incentive – which is a state grant intended to be the "missing money" for storage that is not already provided under current market rules – so the agency pays a certain amount of money annually for four years with New Yorkers paying for that in utility bills.

Storage owners typically charge their batteries when power prices are low and discharge when prices are high, but because the BSM rules limit participation in the capacity markets, they are making NYISO procure that capacity elsewhere, so ratepayers have to pay again, Bishop said.

"BSM makes it challenging for storage to successfully participate in capacity auctions, which will lead to other resources with higher bids serving a void due to the lack of energy storage in the market," he said.

Furthermore, the BSM testing process currently has many unknowns due to the ambiguity of items such as future system costs and revenue projections. There is not a clear scoring criteria for BSM, Bishop said.

"In turn, it is not known if we will be over the floor price. We are unsure if we will 'clear' but are still developing these projects with uncertainty for how we will be judged, ultimately driving us to factor this risk into our financial models," Bishop said.

"The challenge for battery storage developers is we don't know how much revenue we can get because NYISO is creating a new revenue structure that won't be out until Q4 ... so we are developing projects without knowing how much money the projects can make while capacity revenue is being taken off the table ... I may need to put development dollars in a market with more clarity," Bishop said

"I'm a wholesale markets guy. I would like for wholesale power markets to exist in 10 years, but it's been proven that if federal policies prevent states from doing what they want with their energy policies, states will do their own thing," he added.

Prior to founding Key Capture Energy, Bishop was at Brookfield Renewables and EDP Renewables/Horizon Wind Energy.

He is currently on the Leadership Circle of the Energy Storage Association, is serving on the Maine Commission on Energy Storage, and has served on or led the boards of organizations such as Renewable Energy Northeast, the Alliance for Clean Energy New York, the Advanced Contracting in Energy Storage (ACES) Working Group, and the Maine Renewable Energy Association.