FERC Order 2222 opens up wholesale electricity markets for DER — why is this a big deal?

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The Federal Energy Regulatory Commission (FERC) issued Order 2222 last week to open up the wholesale electricity markers to distributed energy resources, which could go down as a historic decision. The public is more and more choosing to opt for cost-competitive solar and/or energy storage solutions. This rule is an acknowledgment of that reality and provides clarity for grid operators on how to harness the energy and ancillary services they provide, says Katherine Gensler, vice president of regulatory affairs for the Solar Energy Industries Association (SEIA).

“Competition in our electricity markets is a critical part of our clean energy transformation,” Gensler says. “This rule will create jobs, drive local economies, and enable the solar industry to supply 20% of U.S. electricity generation by 2030.”

“This is a gamechanger,” stated 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.”

Unfortunately, FERC is working against this principle in the nation’s capacity markets by continuing to erect barriers to the entry of new technologies in PJM and NYISO through the use of minimum offer price rules, says Gregory Wetstone, President and CEO of the American Council on Renewable Energy (ACORE).

“ While today’s order on distributed energy resources follows in the forward-thinking footsteps of Order No. 841 on energy storage, no market can be free until arbitrary resource-specific price floors are eliminated. We therefore encourage FERC to uphold and extend this same commitment to free and fair market competition by allowing the full participation of new technologies in the nation’s energy capacity markets.”

How we got here

Under the Federal Power Act, FERC is charged with ensuring that competition in the wholesale power markets is open and fair, resulting in wholesale electricity rates that are “just and reasonable and not unduly discriminatory or preferential.”

In early 2016, FERC began examining market barriers facing energy storage technologies. On Nov. 17, 2016, agreeing with Advanced Energy Economy, FERC issued a notice of proposed rulemaking (NOPR) proposing to remove barriers to the participation of both energy storage and aggregated DERs in organized wholesale electricity markets operated by RTOs and ISOs. On Feb. 15, 2018, FERC issued Order No. 841, directing RTOs/ISOs to remove barriers to the participation of energy storage resources, but elected to seek more information before finalizing a rule on DERs. The docket has been pending ever since.

In addition to smaller energy storage resources not subject to Order 841, DERs include resources like rooftop solar, electric vehicles, and other technologies located on the distribution system or behind the customer’s meter. Individually, these resources are too small to participate in regional grid markets, but technology and software advancements have enabled companies to aggregate DERs at a scale and operability level that makes them a significant, flexible resource to be called upon by regional grid operators. Allowing them to participate in wholesale markets reduces overall consumer costs and improves the economics of DER adoption by increasing their utilization, deferring investments in other resources. Wholesale market participation also unlocks new business models that can expand DER production and adoption in the United States, and will drive reductions of carbon emissions.

Chairman Chatterjee with AEE provided a real-life example of how Order No. 2222 leverages the power of electric vehicles:

“Let me give you a real-life example of what we’re doing today. Think about electric vehicles, or EVs, for a moment. Estimates from EEI show there will be almost 19 million electric vehicles on the road in the United States by the end of this decade alone, and that’s on the low end of some of the projections I’ve seen. When those vehicles are charging, say, in our garages, they amount to a significant energy resource that could – over time, using the power of advanced technologies – be managed through aggregations to provide a range of services in our organized energy markets. They could provide energy and spinning reserves, or even frequency regulation. By unleashing the power of EVs in this way, we have the ability to further drive down costs in our markets and bolster grid resilience. That’s to say nothing of the added benefit of emissions reductions we could see from increased EV deployment.”

What’s next?

The key action now moves to individual regional transmission organisations (RTOs) and independent system operators (ISOs). Each ISO/RTO will interpret and implement tariffs based on their respective market realities.

Crucially, this order specifically offers an ‘opt-in’ option to small utilities, which was a huge issue in the storage order (FERC Order 841) – not having this caused delays and legal challenges. It will be worth keeping an eye on what portion of the utility market participants choose to opt-out.

According to FERC’s fact sheet, “Order No. 2222 takes effect 90 days after publication in the Federal Register. Grid operators must make compliance filings to FERC within 270 days of the effective date. Each compliance filing must propose an implementation plan appropriately tailored for its region and must outline how the final rule will be implemented in a timely manner.”

“Leaving possible implementation headaches aside, Order 2222 truly signals the dawn of DER dominance in competitive markets, opening a whole new set of revenue streams for DER owners and operators,” Manghani notes.

Elta Kolo, lead grid-edge research for Wood Mackenzie, added: “This opens up an opportunity for the whole market ecosystem to evolve. Software becomes critical here, for the economics especially. The order allows us to design for the future, even when we don’t know the full scale of what’s to come.”

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