On September 17, the Federal Energy Regulatory Commission (FERC) issued Order No. 2222, which removes barriers that have hindered aggregations of distributed energy resources (DERs) from participating in regional wholesale markets. As a result of this order, groups of DERs like rooftop solar, energy storage, and electric vehicles will be able to compete in regional wholesale electricity markets as storage resources or distributed sources of electricity for the first time. The order also will provide regional grid operators with more visibility and control over these DERs as they become more common on the distribution grid.
FERC expects that this order will result in numerous benefits, including lower prices for ratepayers due to increased competition, along with improved grid resilience and flexibility. In particular, a significant benefit of this order is how it could unleash many more opportunities for DERs to provide demand-side services, which can improve the efficiency of electric grid operations and pave the way for grid modernization.
Until now, the participation of aggregations of DERs in wholesale markets mainly has been limited to demand response, which compensates resources for reducing demand during peak hours. While demand response has been effective at peak load shaving, more flexible demand-side services will likely be needed going forward as the composition of resources on the grid changes.
Grid operators dispatch power plants—mainly those that run on fossil fuels—to meet demand when it occurs, essentially treating demand as fixed. The grid, however, is rapidly evolving as many states across the country—including New York, California, and Hawaii—aim to meet 100 percent of power generation with renewables or zero-carbon sources within the next few decades. As such, integrating these intermittent resources is becoming increasingly challenging and will likely require some portion of electricity demand to adjust to meet supply whenever renewable generation is available, rather than the other way around.
One solution for balancing grid operations with a high penetration of intermittent renewables is demand management through flexible DERs. Some examples of this type of demand management are charging electric vehicles during times of high renewables generation or starting and stopping electric vehicle charging or water heating during momentary interruptions in renewables supply. These demand management techniques can serve as useful capacity and energy resources and can provide ancillary grid services such as frequency control.
Essentially, what FERC’s order does is enable DERs to be compensated for these energy, capacity, and ancillary services that they provide to the grid by allowing them to participate in wholesale markets. This participation could be important for two reasons.
First, as mentioned above, integrating a high penetration of renewables on the grid likely will require enhanced demand flexibility, which this order helps make possible by enabling these DERs to be compensated for the services they provide. The removal of regulatory barriers could encourage energy service companies to identify profitable opportunities to provide these demand-side services. Studies suggest that such opportunities could provide more flexibility to the grid and be less expensive than alternatives, such as using a natural gas plant to respond to fluctuations in generation from renewables.
Second, compensating flexible demand-side resources like electric vehicles and electric water heaters for contributing to grid operations could help encourage electrification, which is important for reducing emissions from the transportation and buildings sectors. Basically, if companies can aggregate multiple DERs, such as electric vehicle chargers or water heaters and have these DERs participate in wholesale markets, then the companies potentially could profit from providing these services and reduce operating costs for customers. In turn, lower operating costs could make adopting these low-carbon alternatives more attractive to consumers than fossil fuel alternatives such as natural gas water heaters. We discuss this concept of how aggregations of DERs could attract consumers to purchase low-carbon electric alternatives in our recent working paper on energy service subscriptions for the management of vehicles and water heaters, which explores this FERC order (pending at the time) as one way to remove barriers to entry and allow subscription companies like these to flourish.
Regional grid operators now have 270 days from the effective date of the order to submit a compliance filing that will create an implementation plan for DERs to participate in their wholesale markets. Once implemented, this order will help ensure that demand-side resources can become an integral part of grid operations. By removing a regulatory barrier, FERC’s order could encourage innovation in demand-side energy services in the years to come, as the grid adapts to the evolving state of power generation and relies more heavily on demand-side flexibility.
