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{***} “Pursuant to Section 16-135(g) of the Public Utilities Act, the Staff of the Illinois Commerce Commission (ICC or “Commission”) coordinated a workshop process for the purpose of facilitating the development of an initial forward storage procurement process for the procurement of energy storage resources. This report is to address the fourteen questions outlined in Section 16-135(g) of the Public Utilities Act (“Key Questions”) and to recommend the most effective procurement process, structure, and contract terms for the initial forward storage procurement.” {***}

Key Recommendations from the ICC’s energy report to the Governor:

{***} “The main points and recommendations of the report include the following: 

Contract

Two contract structures were considered by stakeholders: a tolling agreement structure and an indexed storage credit (ISC) agreement structure. The initial procurement should use an ISC agreement structure, rather than a tolling agreement structure. An ISC agreement structure which is a contract for difference, is currently used in utility-scale renewable energy credit procurements conducted by the Illinois Power Agency (IPA) to implement the Renewable Portfolio Standard (RPS); hence the ISC agreement structure is compatible with the legal and regulatory structures of Illinois. 1

The ISC agreement structure is congruent with and leverages the existing PJM Interconnection, LLC (PJM) and Midcontinent Independent System Operator, Inc. (MISO) operational requirements and enforcement mechanisms that apply to storage projects within PJM and MISO wholesale markets. The ISC agreement serves as a hedge against merchant revenue volatility in the wholesale energy and capacity markets and is designed to provide stability and predictability in cash flows. The ISC agreement fills in the energy and capacity payment shortfalls to sustain project economics, which is beneficial for project financeability. The ISC agreement provides ratepayer protections by requiring payments back to utilities and ratepayers when energy and capacity payments exceed the strike price offered by the bidder. Importantly, the ISC agreement structure does not require the utility buyer to dictate how the energy storage system should operate but generally incentivizes the owner operator to optimize its energy and capacity revenues when it operates consistent with the incentives set forth by PJM and MISO for grid reliability and resource adequacy. 

The tolling agreement structure generally requires the utility buyer counterparty to assume operational control of the project and to pay a toll to the owner of the project for its use. This tolling agreement payment structure is akin to a lease agreement and is considered a liability on the utility’s balance sheet; which impacts the utility’s cost of capital and consequently customer 1 In the indexed REC model, developers submit bids with a strike price in $/MWh basis and are required to generate a specified amount of RECs based on their electricity production. Payments to developers are based on the difference between the strike price and the spot price of electricity, establishing an indexed cost structure. For energy storage, the ISC agreement incorporates an energy arbitrage price and a capacity price as offsets against the strike price, recognizing the unique capabilities of storage resources to engage in energy price arbitrage and provide resource adequacy through capacity markets. A tolling agreement is preferred by some developers as it defers operational decisions to the utility buyer while securing revenue certainty through the lease of the project to the utility buyer. Given the tight timeline to conduct an initial procurement by August 26, 2025, a timeline contemplated in Section 16-135(g) of the Illinois Public Utilities Act, adapting existing tolling agreements to fit within the legislative and regulatory framework in Illinois may be challenging vis-à-vis an ISC agreement structure and is thus not adopted for this initial procurement. 

A model contract based on an ISC agreement structure is provided in Appendix A. The contract clarifies the roles, rights, and responsibilities between the seller, buyer, and the Illinois Power Agency. While not recommended for this initial procurement, a sample tolling agreement term sheet is provided in Appendix B, which could serve as a starting point for further exploration and discussion in future procurements. 

It is recommended that the utility buyer recovers its costs using a pass-through mechanism similar to that which is used for cost recovery of the carbon mitigation credits procurement conducted pursuant to Section 1-75(d-10) of the Illinois Power Agency Act, taking into consideration the lessons learned and best practices for such rate design. F. The contract length is set to a 20-year term to complement the tenor of third-party service agreements customary in the industry for such projects so as to enhance project financeability.

Procurement 

It is recommended that the initial procurement limits participation to only standalone storage energy storage resources that are greater than 20 megawatts (MW), with a round-trip efficiency of at least 85% and a duration of 4 hours; where standalone energy storage resources refer to those energy storage systems that are (a) separately metered by a revenue quality meter that satisfies the requirements of RTO, (b) where normal operations of such energy storage systems are not constrained or hindered by other generation units, and (c) where such energy storage systems can demonstrate the ability to charge and discharge independent of any generation unit output. 

It is recommended that the initial procurement seeks to award approximately 1,038 MW of storage resources. Sufficient competition is assured considering the projects listed in current PJM and MISO interconnection queues and awarding approximately 1,038 MW limits risk of over-procuring from a single technology for the 20-year tenor. The procurement target should be separated for projects interconnected within MISO’s Local Resource Zone (LRZ) 4 (450 MW) and for projects interconnected within PJM’s ComEd Locational Deliverability Area (LDA) (588 MW). Given the lumpiness of project size, these procurement targets are viewed as soft caps and the RFP should set forth rules to allow for these procurement targets to be exceeded under 7 specific circumstances if, with respect to a procurement target, accepting the project with the marginal bid would cause the target to be exceeded, but not selecting such project would leave the target unfilled. 

It is recommended that proposed projects (i) be sited only within Commonwealth Edison Company (ComEd)’s LDA or Ameren Illinois Company (AIC)’s LRZ; and (ii) are either currently in the interconnection queue of PJM or MISO, or demonstrably in a late-stage development in order to qualify for the initial procurement. 

It is recommended that proposed projects located in an Enterprise Zone designated by the Department of Commerce and Economic Opportunity or an eligible area for Energy Transition Community Grants could be granted preference in the project selection in the event of tie bids. 

It is recommended that the initial procurement incorporates similar labor and minimum equity requirements as those required under indexed REC contracts for utility-scale renewables projects. 

It is recommended that the IPA, in consultation with the ICC and the procurement monitor, conduct up to three additional subsequent procurements between 2025 and 2027 for each of AIC and ComEd, to award up to a minimum of 3 GW of storage capacity inclusive of the initial procurement targets. It is recommended that resources awarded under the initial procurement as well as these additional subsequent procurements be in service and operational by 2030 or as soon thereafter as practicable. Conducting subsequent procurements between 2025 and 2027 will allow for further exploration and development of contracts and contract terms, which may feature a tolling agreement structure and/or hybrid storage resource. 

It is recommended that the IPA develop an energy storage procurement plan in 2027 for procurements to be conducted in 2028 and 2029 to meet the resource adequacy needs of Illinois beyond 2030; and that the IPA update the procurement plan every two years. It is recommended that this process follow the general process currently used for utility-scale renewable energy credit procurements, which includes making the IPA procurement plan subject to the approval of the ICC.” {***}

Energy Storage Procurement Report to the Governor  (05/01/2025)