CAISO monitoring harmful market behavior in BESS Bid Cost Recovery process

In a recent conversation with storage sector and market optimization experts at CAISO, concerns over battery energy storage system (BESS) facilities in the Bid Cost Recovery (BCR) process within the California Independent System Operator market were discussed.

CAISO, a non-profit organization serving California’s electric grid, administers the BCR process where eligible resources recover their bid costs, consisting of various components such as start-up bid cost, energy bid cost, and ancillary services bid cost.

Initially intended for traditional generation assets like natural gas units, the BCR process saw BESS facilities, including battery storage, recover roughly $18 million in 2024, representing a significant portion of the total BCR payments.

Ali Karimian, a director at GridBeyond, highlighted the purpose of the BCR program to ensure resource owners are fairly compensated when CAISO dispatches their assets beyond the owners’ intentions. However, concerns arose due to potential manipulation of bid curves by some asset owners to unfairly trigger BCR payments.

CAISO’s Department of Market Monitoring (DMM) monitors market efficiency and potential market manipulation, working to inform stakeholders of any issues that arise in market design and operation. The DMM identified strategic bidding concerns in the market, prompting CAISO to modify the BCR calculation method to prevent potential abuse.

By limiting battery bids for BCR payments, CAISO aimed to address the issue of inflated payments to battery storage facilities. The amendment to the BCR calculation method became effective in December 2024 to help maintain market integrity and fairness.

The DMM recommended further adjustments to the BCR rules, such as eliminating day-ahead BCR for BESS, redesigning BCR rules to assume no eligibility for batteries initially, and aligning with other OMS MW capacity derates. These changes aim to enhance bidding accuracy, ensure fair compensation, and deter gaming behavior in the market.

CAISO and the DMM continue to monitor for potential gaming behaviors to uphold market fairness and integrity until these adjustments are fully implemented. The focus remains on creating a transparent and efficient market environment for all participants involved.