FERC Opening Markets to Distributed Resources Not Cause for Celebration in California Yet

Distributed resources advocates across the country celebrated the 2-1 vote approving Federal Energy Regulatory Commission Order 2222 for opening capacity, energy, and ancillary service markets to aggregated distributed energy.

They applauded FERC’s pomise to “usher in the electric grid of the future and promote competition in electric markets."

The celebration may have been premature, especially in California, according to distributed energy resource aggregators and policy experts.

(Source: Utah State University)

FERC cannot immediately impose rules that eliminate barriers to distributed energy aggregators participating in the California Independent System Operator and Regional Transmission Organization markets , Sunrun Director for Policy and Storage Market Strategy Chris Rauscher acknowledged. Sunrun, the leading U.S. solar-battery system installer, operates the first DER aggregation serving New England’s system.

Two important steps are necessary. According to Concentric Energy Advisors Senior Project Manager and former FERC economist Emma Nicholson, the first is meeting legal challenges to FERC’s jurisdictional authority over distribution utilities. That could set precedents for addressing “the ever-evolving and murky line between transmission and distribution,” she said.

The other step is coordination with distribution utilities and state regulators, delaying implementation “probably 2 years to 4 years away in some markets.”

Aggregators cheered Order 2222 because it “recognized current market rules have unaddressed, unreasonable barriers to full participation and full compensation of DER aggregations in wholesale markets,” Ted Ko, VP for Policy and Regulatory Affairs for Stem, an energy storage system software provider , said.

California’s unique barriers

Perhaps most challenging is that compliance by CAISO will require revised compensation tariffs with “a specific market participant designation for DER aggregators.” That will give them their own place in the market, Sunrun’s Rauscher said.

Grid operators will propose rules expected to include aggregation size, bidding parameters, data, metering, and telemetry requirements, and coordination between the grid operator, the resource aggregator, the local utility, and regulatory authorities.

In California, that presents significant challenges, Stem’s Ko said. Compensation to DER aggregations in energy markets is inadequate to compete with utility-scale resources. But, higher capacit

y payments in Eastern and Midwestern markets can even up the value proposition.

CAISO does not use a capacity market. In addition, the California Public Utilities Commission has not established full Resource Adequacy compensation for aggregated DER, undermining distributed energy’s role in the market, Ko said.

The FERC order clearly identifies CAISO’s distributed energy resource provider (DERP) approach as a model for DER aggregations, CAISO spokesperson Anne Gonzales said. But she acknowledged, “we currently have no DERP market resources.” Creating resource adequacy credits for aggregated distributed energy "could change that."

Without CPUC-approved compensation for distributed energy supply reserves for exported energy, the DERP tariff does not even up the value proposition for DER aggregations, Ko confirmed. Two other changes are needed for an effective CAISO response to 2222, he added.

Rules must allow participating distributed energy aggregations to meet retail customer needs when they are not participating in the wholesale market. And accounting rules on costs they pay for charging from the grid must change.

DER aggregators should pay retail rates only when their systems charge from the grid to serve retail customers. And, they should be charged the lower wholesale rates when their systems charge from the grid to serve the wholesale market.

FERC’s order may spur the CPUC and CAISO to resolve these issues preventing the energy exported by DER aggregators from earning full RA credit, Ko said.

The commission is still analyzing the possible impacts of 2222 and cannot yet comment, CPUC spokesperson Terrie Prosper said.

There is much work to be done in all the markets, agreed Sunrun’s Rauscher . And even if the markets put perfect 2222 compliance filings in place, a ruling by FERC earlier this year will remain an obstacle because it sets the price for aggregated DER too high to compete in competitive markets with lower prices set for legacy resources.

When in place as intended, 2222 will unlock “additional value and new opportunities for grid-capable DER,” Smart Electric Power Alliance Grid Integration Principal Ben Ealey said. That will save ratepayers money, lead to incentives for “private customer investment,” and drive utility planning for and development of the tools that enable DER aggregation for wholesale markets.

The vision

The result will eventually be a marketplace that incorporates “all distributed resources, including electric vehicles, because it offers a new value proposition that should drive adoption,” Strategen Senior Director Edward Burgess, a policy consultant to the Vehicle Grid Integration Council , said.

This order is an explicit endorsement from FERC of the vision that behind-the-meter resources can be wholesale market resources, Sunrun’s Rauscher said.

As the fight against the climate crisis leads to the electrification of the entire economy, “we are going to need the flexibility of DER aggregations to smooth peaks and shift usage to reduce the total megawatts and to make the power system more efficient and less expensive,” Rauscher added.

The high-level vision is that aggregated DER “will be virtual powerful plants and transform customers from passive consumers to active grid citizens and transform customer-sited resources into grid assets,” Stem’s Ko added. “That is not going to happen next year, but it is coming.