STORAGE OVERVIEW 2010

Steve Isser, JD, PhD

Vice President & General Counsel

Good Company Associates

Storage Is Here – Grid-Ready

• ARRA Funding - Batteries

– 8 battery companies received $1.14 billion,

– primarily automotive, but spillover possible

• ARRA Funding – Storage

– Flywheels, Amber Kinetics, Beacon Power

– CAES, NYSEG, PG&E, SustainX “mini-CAES”

– Li Batteries, Seeo Inc., SCE project, DTE/A123

– Lead Batteries, East Penn Ultrabattery

– Si Batteries, 44 Tech Inc.

– Zi/Br, PSNM

– Redox, Ktech Corp

Short-Term Energy Storage in A/S Markets

California ISODemonstrated:-100 kW Beacon FlywheelInterconnected:- 2 MW AES A123 batteries

New York ISO: 5/12/09Demonstrated:-100 kW Beacon flywheels

Planned:-(2) 20 MW Beacon flywheel plants (Stephentown, Glenville)-(3) 20 MW AES battery plantPJM: Spring 2009

Operating:-1 MW AES Altairnano batteries at PJM HQ

Planned:

-20 MW Beacon flywheel plant (Chicago)-20 MW Battery plant (PA)

ISO New England

Operating: 3 MW Beacon Flywheels

Midwest ISO: 1/1/10

Demonstrated:-2 MW AES Altairnano batteries

Operating:- 15 MW Alcoa Reynolds DR

ISOs that have market rules in place to allow energy storage to provide regulation are attracting investment

Initial Driving Force – FERC Order 890

• FERC modified the Regulation and Frequency Response Services tariff to allow provision of those services by generating and non-generation resources. See Order No. 890 at P 888.

“We therefore modify Schedules 2, 3, 4, 5, 6, and 9 of the pro forma OATT to indicate that Reactive Supply and Voltage Control, Regulation and Frequency Response, Energy Imbalance, Spinning Reserves, Supplemental Reserves and Generator Imbalance Services, respectively, may be provided by generating units as well as other nongeneration resources such as demand resources where appropriate.”

Energy Storage in Other ISOs

• Status of Storage in Regulation markets:

– NYISO: FERC approved new market rules for Limited Energy Storage Resources (LESRs) to provide Regulation on May 15, 2009

– Midwest ISO: FERC approved new tariff for Stored Energy Resources (SERs) based on NYISO proposal on December 31, 2009

– PJM: Implemented a frequency-based signal for energy storage resources in March 2009; allow resources to self-manage energy and capacity

– CAISO: Non-generators proposing an energy management method similar to NYISO, is in stakeholder discussions

– ISO-NE: Currently operating a pilot program for alternative technologies, such as energy storage, to provide Regulation and developing permanent market rules

Barriers to Alternative Technologies

Challenge/Barrier Why? Recommendation

Regulation resources required to be dispatched in energy market

• Storage resources not designed for continuous energy injection

• Allow “regulation only” providers

Energy bias in Regulation signal

• Storage fills up or empties • Allow resources to manage their energy level (i.e. NYISO/MISO method)

Reg. High/Low Limit rules don’t work for storage

• Generator/Load rules work for resources that either only inject or only withdraw, not both

• Create storage asset category for resources that both inject and withdraw

Inability to settle net energy at wholesale

• Storage provides regulation by injecting and withdrawing energy (recycles energy)

• Allow net energy settlement at LMP

Pilot Data: Generation Dispatch Method is Not Effective

When Energy Storage does not have the ability to modify its energy base-point, it results in high fade time and under utilization of the resource

• Originally energy base-point was fixed at zero

• When hit extreme state-of-charge LESR faded until signal moved in opposite direction

• No ability to adjust energy base-point

• No ability to utilize LESR’s available regulation capacity

Fade time Fade time

NYISO/MISO: Energy Storage Tariff

•Created New Resource Category:

Limited Energy Storage Resource (LESR) or

Stored Energy Resource (SER)

•Allowed to supply Regulation only

–Eliminated requirement to bid into the energy market

LESR/SER energy level managed by ISO to maintain regulation capability

Resources dispatched based on speed of response

•Hourly Energy Settlement = Net Injections/Withdrawals *LMP

PJM Frequency Based Signal• PJM developed a new ‘frequency-based’ AGC for storage devices;

• Could be similar to ERCOT’s current AGC due to the fact that ERCOT is an ‘island’

• PJM allows storage to self manage its energy base point and capacity in real time under existing market rules

Energy Storage AGC based off the Frequency Error•More volatile – fast changing•Utilizes storage’s fast response speed•Less energy bias

Generator AGC based off of the ACE value•Contains longer term energy trends

The combination of signal and energy management enables LESR/SERs to continuously provide regulation (no fade)

ISO-NE Pilot: “Mileage” Component

2008 Status ISO-NE PJM NYISO CAISOFast First Dispatch N N N

Pay-for-Performance N N N

Maximum Allowable Response time 5 minutes 5 minutes 5 minutes 10 minutes

Regulation Procurement (as % of Avg. Load)

0.80% 1.11% 1.13% 1.35%

Regulation Procurement vs. NE 100%(baseline)

139% 141% 169%

“Regarding compensation, some storage technologies appear able to provide a nearly instantaneous response to regulation signals, in a manner that is also more accurate than conventional resources. These two characteristics can reduce the size, and hence overall expense, of the regulation market. Most existing tariffs or markets do not compensate resources for superior speed or accuracy of regulation response, but such payment may be appropriate in the future ...”

- FERC Chairman WellinghoffTestimony, Senate Hearing on Energy Storage, Dec. 10, 2009

TEXAS Activities

Presidio Battery – AEP

Renewable Technologies Working Group

– Storage; TRIPS Report, MDO5

- Whitepaper on Storage Issues

- http://www.goodcompanyassociates.com/files/manager/StoragePaper20100120.pdf

- Storage key element of 2010 RTWG Agenda

Project 38118 – Storage Investigation