Distributed Energy Scores Big Win in US Wholesale Markets with FERC Order 2222

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The Federal Energy Regulatory Commission (FERC) on Thursday issued Order 2222, its much anticipated ruling that paves the way for aggregated distributed energy resources (DERs) to compete alongside traditional power plants and other grid resources in wholesale markets.

Order 2222

FERC Order 2222 marked a victory for distributed energy resources competing against large power plants

The landmark ruling was heralded in a commission news release as important to “help usher in the electric grid of the future” by removing “the barriers preventing distributed energy resources from competing on a level playing field in the organized capacity, energy and ancillary services markets run by regional grid operators.”

Previous FERC rulings have opened wholesale markets to distributed energy resources in general, but Order 2222 will now enable these resources to be bundled together into a single bidding entity, opening new possibilities and competitive opportunities.

What’s included in FERC Order 2222

FERC’s expansive ruling opens the door to a wide array of technologies to participate. Aggregate resources can be located on a utility’s distribution system (or a subsystem) or on-site behind a customer’s meter. 

Bundled technologies can include energy storage, on-site renewables, energy efficiency, distributed and backup generators, electric vehicles and their charging equipment, and other energy systems common in microgrids. There is no practical limitation on the number of distributed technologies that can be networked together in this manner, and combinations of generation and load modulation can be deployed simultaneously into one unified market offering.

Most notably, this new rule allows several distributed resources to aggregate to satisfy minimum size and performance requirements that they might not be able to attain individually, meaning aggregation can open access to any and all DERs located in competitive markets.

What happens next

The basis for FERC Order 2222 stems from the commission’s court-affirmed jurisdiction under Order 841 to regulate regional markets and any necessary participation criteria. FERC has now asserted that it wants aggregated resources to participate, so each regional grid operator must revise their tariffs and participation rules to accommodate this dynamic class of resource.

The order will officially take effect 90 days after publishing, and grid operators must then make compliance filings to the commission within 270 days of the order going into effect. Compliance plans are therefore due in about a year. They must  propose a pathway for participation that is customized to each market’s needs and outlines their timely implementation of the order.

Bundled technologies can include energy storage, on-site renewables, energy efficiency, distributed and backup generators, electric vehicles and their charging equipment, and other energy systems common in microgrids.

In announcing the final ruling, FERC made clear that aggregate resources will be able to “register their resources under one or more participation models that accommodate(s) the physical and operational characteristics of those resources,” restructuring capacity, energy and ancillary services markets run by regional grid operators.

Under these auspices, FERC has laid out minimum requirements for each market to conform to when setting up their participation models. They include:

  • Adhering to minimum size requirement no larger than 100 kW
  • Addressing technical considerations like locational value and distribution factors
  • Incorporating advanced metering, telemetry, and data requirements, among other provisions

Order 2222 upholds previous determinations that allow resources connected to the distribution grid to serve both retail and wholesale markets, but also directs grid operators to include “narrowly designed restrictions” necessary to prevent double counting of services. 

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This order does not supersede previous rulings that allow local utilities to prevent customers from bidding local demand response into regional markets, and it will still allow some of the smallest utilities (<4 million MWh) to opt their customers out all together.

Local utilities will also still maintain jurisdiction over interconnection of distributed resources to the electric grid, whether or not the resource intends to participate in retail activities. These types of local utility considerations will help prevent legal challenges that bogged down previous proceedings on demand response and energy storage.

Celebration abounds

The long-anticipated decision elicited positive reviews from industry leaders and recognition of FERC Chair Neil Chatterjee and Commissioner Richard Glick for their leadership.

“Today is another landmark day for competition and innovation in the power sector,” said Energy Storage Association CEO Kelly Speakes-Bachman in a statement, adding that the order “removes regulatory barriers to aggregation of distributed resources in wholesale electricity markets, and is the next step forward for energy storage and other distributed energy resources.”

Others noted that with so many nascent types of DERs emerging on the grid, that for many of them policy and regulation is ahead of technology, an uncommon situation.

“The draft rule is a big win. It provides an overarching framework for DERs to participate in wholesale markets,” said Ravi Manghani, Wood Mackenzie’s head of solar. “Policy is leading technology for the first time, at least as it pertains to emerging DERs like vehicle-to-grid.”

A multi-billion dollar opportunity awaits

The different regional wholesale markets oversee hundreds of millions of dollars in energy transactions every day, and FERC’s ruling will open the door for DERs to access those competitive opportunities.

Previous FERC orders allowing for grid-tied energy storage systems to access limited market opportunities (like frequency response) caused a bit of a battery gold rush in early mover markets like the PJM Interconnection. New wholesale revenue opportunities combined with declining costs and increasing retail value could spur new deployments and accelerate the already burgeoning DER sector.

While the specifics of each market’s implementation plans are still months away, FERC Order 2222 is a major win for the DER industry and will have a significant impact on how distributed resources are designed, operated, and compensated for years to come.

The FERC order is available here.

Matt Roberts is the director of strategic growth & government affairs at Microgrid Knowledge.

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Comments

  1. “FERC’s expansive ruling opens the door to a wide array of technologies to participate. Aggregate resources can be located on a utility’s distribution system (or a subsystem) or on-site behind a customer’s meter. ”

    So, on the East Coast in PJM territory where the MOPR has been promoted as the “proper” way to address capacity markets in the North East by allowing coal fired, natural gas fired and nuclear to have a Minimum Offer Price Rule. IF a minimum offer price is set, it could rule out more alternative energy resources being built to replace coal, natural gas and nuclear plants. The question is does passing rule 2222 abrogate the determination by FERC in December of last year for a MOPR in the PJM sphere of influence conflict with rule 2222?

  2. This may be a foolish question but… If we had real transactive energy for both generation and demand, wouldn’t that put everyone on a level playing field? And require a lot fewer middlemen to figure out an overly complicated system.

    • Transaction energy would require considerable upgrade to many power systems. This ruling applies to how the power system is currently set up and forces the utilities to pay markets rates to those generating smaller amounts of power.

      Since smart meters are required for to participate in this order, it seems like a possible intermediate step towards transaction energy on the power system.

    • ERCOT the utility aggregate used in Texas is basing cost on available generation. It’s more of a ‘merchant’ market than a ‘capacity market’. More installed distributed solar PV systems on homes and businesses, when energy storage keeps dropping in price will drive folks to use solar PV and ESS as their own ‘merchant’ energy system, as coal fired plants go offline for good, the generation vacuum will drive more residential solar PV installations.

  3. Why would small DERs opt to aggregate together to sell at whole sale rate when they can more easily net meter there entire generation and get retail rate? Installing more capacity that yields more yearly energy production than there load? The moment you start putting 100kW systems up on secondary distribution systems that used to only serve 5-10kW customer loads, you are going to start incurring huge network costs that won’t make it a scalable solution to generating electricity on a ‘wholesale’ basis. This order seems pretty inconsequential to me given the current way DERs are compensated by the states.

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