Barriers to Energy Storage providing Ancillary Services in ERCOT Beacon Power Corporation Barriers to Energy Storage providing Ancillary Services in ERCOT Prepared for: ERCOT Power Storage Working Group October 1, 2010

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Benefits of Storage Speed greatly improves regulation performance, lowers cost to ratepayers Up to 100x faster response than current providers Available a la carte Reduces the need to run additional generation units at night in order to control wind Very low operating cost, high efficiency No fossil fuel, recycles energy Zero direct CO2, NOX and other emissions Frees generation capacity (1- 3%) 3

Barrier: Cannot model Storage Characteristics Barrier: Cannot model operational characteristics of Storage under existing protocols Energy Storage Resources provide service by storing (withdrawing) and injecting energy Must have the ability to model a positive High Sustained Limit (HSL) and a negative Low Sustained Limit (LSL) which is not allowed per the protocols ERCOT models the limits of both Generators (which only inject) and Load Resources (which only withdraw) as positive values Energy Storage Resource HSL LSL < 0 Ancillary Services Provided: Reg Up Reg Down Load Resource Generation Resource HASL = LASL Recommendation: Create Storage category and enable storage to receive both positive and negative signal instructions

Barrier: Required Storage Capacity New Storage technologies designed to provide Regulation Service, such as flywheels and batteries, have 15 minutes storage capacity (Power to Energy ratio = 1 MW/250 kWh) An AES commissioned KEMA dynamic simulation study of NYISO, PJM, and CAISO shows significant system benefits from energy storage systems with 15 min of storage capability AES batteries successfully providing service in PJM Beacon Power’s flywheels successfully demonstrated in NYISO, CAISO and ISO-NE

Barrier: Required Storage Capacity Barriers: Protocols limit New Storage technologies, such as flywheels and batteries, to providing only 50% of their available capacity General Capacity Testing Requirement tests a Generator Resource at its High Sustained Limit (HSL) for 30 minutes, the HSL is then determined as the average real- time MW telemetered during the 30 minutes of constant output (Section 8.1.1.2) Under the Nodal Protocols a 20 MW/5 MWh Energy Storage Resource would only be capable of providing 10 MW over this 30 minute test, thus limiting the 20 MW storage resource to providing only 10 MW of regulation service However, ERCOT qualifies Controllable Load Resources for Regulation Up and Regulation Down service different from Generator Resources Regulation Up Qualification: Over the 60 minute qualification test one ten (10) minute period will test the Controllable Load Resources ability to achieve the entire amount of Regulation Up Regulation Down Qualification: Over the 60 minute qualification test one ten (10) minute period will test the Controllable Load Resources ability to achieve the entire amount of Regulation Down Recommendation: Create separate testing requirements for Energy Storage Resource

Barrier: No Mechanism to Manage Energy Level Inherently the capacity of a Storage resource varies based on its stored energy level (i.e. state-of-charge) EPRI confirmed that a 15 minute energy storage device can continuously provide regulation if it has a mechanism to manage its energy level Results: Regulation can have a significant energy bias (this data set had a maximum bias of 929 MWh over 1 week) Utilizing a 5-minute correction (purchase or sale of energy) dramatically reduces the amount of energy storage capacity required to provide regulation (in this example it reduced required storage from 2.1 hours to 3 minutes) Power Energy PJM AGC Data w/o 5-minute Correction PJM AGC Data w/ 5-minute Correction EPRI study showed 15 minute energy storage can continuously provide Regulation with mechanism to manage SOC

Barrier: No Mechanism to Manage Energy Level Recommendation: Allow Storage resources to utilize the 5-minute energy market to schedule energy into/out of the resource to maintain stored energy level or exempt from energy deviation charges Normally the system can provide full regulation in both directions When empty provide “Up Reg” like DR; when full provide “Down Reg” like Generator Recommendation: Allow Storage to adjust its ancillary service capacity within the hour using similar regulation performance tolerances provided to Generation A Generation Resource must meet its regulation signal within a 5 MW or 5% tolerance band for 85% of the five-minute clock intervals in the month (Section 8.1.1.4.1, para. 7) 8

Using Storage = Smart Following Adjusted Load Forecast Load Forecast Load Regulation Down Forecasted Load Adjusted Load Forecast Power Regulation Energy Regulation Up Regulation Energy 5 10 15 Minutes 5 Minutes 10 15 Interval 1 Interval 2 Interval 3 Regulation Up Storage injects energy If storage nearing empty, ISO schedules storage to “charge” and adjusts Interval 3 load forecast ISO procures the energy necessary to meet new forecast in energy market on most economic resource Regulation Down Storage withdraws energy If storage filling up, ISO schedules storage to “discharge” in interval 3 Storage injects recycled energy as price taker, displacing deployment on marginal unit in energy market Fast response storage instantaneously responds to imbalance; energy used to restore storage to its preferred state-of-charge can be economically scheduled Energy management results in sending the right energy market price signal Energy Management = “Smart Following”

Market Improvement: Value Fast Response Regulation Per MW offered, Beacon Power with its under 4 second response time is correcting more of the Area Control Error (ACE) as compared to a generator with a 5 minute ramp In addition, slow ramping resources can add imbalance to the system because of their inability to quickly change direction (from ‘Up’ to ‘Down’) 1 MW of Regulation Flywheel Generator ACE Corrected 0.48 MWh 0.18 MWh Against ACE 0 MWh -0.07 MWh Net ACE Correction 0.11 MWh Faster regulation resources provide more ACE correction per MW offered, can improve control performance and assist in meeting reliability criteria

Market Improvement: Value Fast Response Regulation Recommend: Utilize Fast response capabilities of Storage. Change formula that derives a Resource’s Regulation ramp rate from its offered capacity (Ramp Rate = Regulation Capacity/5 min) For a 20 MW flywheel plant implies a ramp rate of 4 MW/min Actual Flywheel Ramp Rate = 300 MW/min, fully deployed in 4 seconds Dispatch resources based on ramp-rate, fast resources first Recommend: Regulation payments be based on both the amount of capacity offered and resource ramp rate, “Pay-for-Performance” Barrier: Protocols pay the same $/MW clearing price for Regulation to all resources regardless of speed of response or amount of ACE corrected Example of Pay-for-Performance: ISO-NE has 2 component payment mechanism for Regulation, and procures least amount of Regulation per Load than any other ISO/RTO (.66% of load vs. ERCOT 1.8% of load) Time on Regulation Credit: Based on the amount of capacity available to the ISO to provide Regulation Regulation Service (“Mileage”) Credit: Based on the resource’s total amount of up and down movements. Faster generators accrue more Mileage because they can be more frequently dispatched to correct imbalances on the system

Barrier: Net Energy Settlement Provisions Barrier: Protocols not clear on whether Energy Storage Resources will be allowed to settle its energy charges based on its net energy Protocols only allow Generators to qualify for Generation Netting with ERCOT-Polled Settlement Meters (EPS) (Section 10.3.2.3) When generation is greater than load over a 15 minute interval the net must be settled as a generator at the Resource Node (Section 6.6.3.1) When generation is less than load over a 15 minute interval the net must be settled as a load at the Load Zone and carry load shared charges (i.e. its auxiliary station power use) (Section 6.6.3.2) However, Load Resources carry load shared charges on all withdrawals from the grid Energy Storage withdraws energy from the grid to provide Ancillary Services, not for consumption FERC has found that energy withdrawn from the grid by energy storage resources should be excluded from load charges because such energy is stored for later wholesale delivery Recommendation: Allow Energy Storage Resources to settle its energy on its net injections/withdrawals over 15 minutes and exempt energy storage from load charges

Vice President, Asset Management and Market Development Judith Judson Vice President, Asset Management and Market Development Phone: (978) 661-2070 Email: judson@beaconpower.com Isaac Read Systems and Markets Analyst Phone: (978) 661-2030 Email: read@beaconpower.com