ENERGY STORAGE REGULATION

Introduction

Energy storage regulation refers to the legal and regulatory framework governing technologies that receive energy, store it, and release it at a later time. Storage includes battery energy storage systems (BESS), pumped-hydro storage, compressed-air storage, thermal storage and other technologies. Its regulation has become increasingly important because electricity systems with large quantities of renewable generation require flexibility to manage the intermittency of solar and wind power.

The central regulatory difficulty is that energy storage does not fit neatly into the traditional division between electricity generation, transmission, distribution and consumption. A storage facility may consume electricity while charging, operate like a generator while discharging, and simultaneously provide grid-support and ancillary services. Modern energy law therefore increasingly treats storage as a distinct and multifunctional energy resource.

1. Legal Classification of Energy Storage

One of the first questions for regulators is how storage should be legally classified. Traditional electricity legislation generally developed around generators producing electricity, transmission companies transporting it and consumers using it. Storage performs several of these functions.

A storage operator may purchase electricity from the grid, store it and later sell electricity back into the market. Treating the facility purely as a consumer can therefore result in inappropriate network charges, while treating it purely as generation ignores its charging function.

Modern regulation consequently adopts a functional approach under which storage may participate in generation, transmission, distribution and electricity-market activities depending upon the service being provided.

India provides an important example. The Electricity (Amendment) Rules, 2022 expressly recognised Energy Storage Systems as part of the power system and enabled their use across generation, transmission and distribution functions.

2. Market Participation and Competition

Energy-storage regulation must establish rules allowing storage facilities to participate fairly in electricity markets. Storage can provide:

• energy arbitrage;
• peak-demand management;
• frequency regulation;
• balancing services;
• reserve capacity;
• congestion management; and
• renewable-energy integration.

An important regulatory objective is therefore the removal of market rules designed exclusively around conventional generators.

In the United States, FERC Order No. 841 required Regional Transmission Organizations and Independent System Operators to establish participation models capable of accommodating the physical and operational characteristics of electric storage resources. The purpose was specifically to remove barriers preventing storage resources from participating in capacity, energy and ancillary-service markets.

3. Regulatory Jurisdiction

Storage also creates difficult questions concerning the allocation of regulatory jurisdiction. A battery may be connected to a local distribution network but simultaneously participate in a national or interstate wholesale electricity market.

This issue was directly considered in National Association of Regulatory Utility Commissioners v. FERC, 964 F.3d 1177 (D.C. Cir. 2020). State and public-power interests challenged FERC Orders 841 and 841-A, arguing that federal regulation improperly intruded into matters reserved to state authorities.

The D.C. Circuit rejected the challenge and upheld FERC's storage-market rules. It concluded that the petitioners had failed to establish that the orders violated the jurisdictional division established by the Federal Power Act. The decision is important because it confirmed substantial federal authority to remove barriers preventing distributed storage resources from participating in wholesale electricity markets.

The broader jurisdictional reasoning can be connected with FERC v. Electric Power Supply Association, 577 U.S. 260 (2016). The US Supreme Court recognised FERC's authority over practices directly affecting wholesale electricity rates while maintaining the statutory boundary between federal wholesale-market jurisdiction and state authority. This principle provides an important doctrinal foundation for regulating new technologies such as storage that operate across conventional regulatory boundaries.

4. Grid Access and Network Charges

Storage regulation must also address grid connection and network charging. If storage pays network charges when electricity enters the battery and again when the same electricity is discharged, economically inefficient "double charging" may arise.

Regulators therefore need rules distinguishing electricity consumed permanently from electricity temporarily withdrawn for storage and subsequently returned to the grid.

Fair network regulation is particularly important because storage can actually reduce transmission congestion and defer expensive network expansion.

5. Renewable Energy Integration

Energy storage has become an important regulatory instrument for renewable-energy integration. Storage allows surplus renewable electricity produced during periods of low demand to be retained and supplied during peak periods.

India's regulatory framework increasingly reflects this relationship. The Ministry of Power established an Energy Storage Obligation trajectory, while the National Framework for Promoting Energy Storage Systems provides a broader policy framework for storage deployment and market integration.

Storage is also incorporated into India's resource-adequacy planning framework as a resource capable of supporting peak demand and system reliability.

6. Safety and Environmental Regulation

Battery storage creates regulatory issues beyond electricity markets. Large battery installations may create fire, thermal-runaway, chemical and electrical risks. Regulation therefore includes technical standards concerning installation, operation, emergency response, fire protection and electrical safety.

Environmental regulation is equally important. Battery production requires minerals such as lithium, nickel and cobalt, while end-of-life batteries create recycling and waste-management obligations. Consequently, storage regulation increasingly extends across the complete battery lifecycle—from manufacturing and deployment to reuse, recycling and disposal.

7. Ownership and Regulatory Independence

Another major issue concerns who may own storage. Storage may be owned by independent developers, electricity generators, transmission operators, distribution utilities or consumers.

Allowing regulated network companies to own storage may improve reliability, but it can create competition concerns where the same utility controls network access and competes against independent storage providers. Regulatory systems must therefore balance infrastructure planning with competitive neutrality.

8. Indian Regulatory Development

India illustrates the transition toward a comprehensive storage regime. In addition to recognition under the Electricity Rules, policy measures include procurement guidelines for BESS, pumped-storage guidelines, Energy Storage Obligations, resource-adequacy requirements, infrastructure status for storage and the National Framework for Promotion of Energy Storage Systems.

A practical regulatory example appears in Delhi Electricity Regulatory Commission, Petition No. 02/2024 (Order dated 1 May 2024), where the Commission considered a proposed BESS project in the context of Rule 18 of the Electricity Rules and India's developing storage framework. The order also discussed the Energy Storage Obligation trajectory and the regulatory treatment of renewable-energy-based storage.

Conclusion

Energy storage regulation represents a major transformation of traditional electricity law. Storage challenges the conventional separation between generation, transmission, distribution and consumption because the same asset can perform several functions simultaneously. Effective regulation must therefore provide clear legal classification, non-discriminatory market access, appropriate network charges, safety standards, environmental responsibility and fair ownership rules.

Cases such as National Association of Regulatory Utility Commissioners v. FERC demonstrate that courts are increasingly required to adapt traditional jurisdictional principles to technologies capable of operating across several levels of the electricity system. Ultimately, energy storage regulation is becoming a central component of modern energy law because storage connects renewable-energy integration, electricity-market reform, grid reliability, decarbonisation and long-term energy security.