Regulators Should Grant DERs More Wholesale Market Access: Report

Sept. 26, 2019
If allowed to participate in wholesale markets, distributed energy resources (DERs) would improve the grid. But regulators are not giving these resources needed market access, says a new report.

If allowed to participate in wholesale markets, distributed energy resources (DERs) can improve the grid’s reliability and resilience and reduce its costs. But regulators are not giving these resources needed market access, says a new report.

Published by Advanced Energy Economy (AEE),”Putting Distributed Energy Resources to Work in Wholesale Electricity Markets,” calls for federal and state regulators to cooperate with wholesale market operators and utilities to ensure that DERs can participate in markets.

The issue dates back to November 2016 when the Federal Energy Regulatory Commission (FERC) issued a notice proposing the participation of DERs in wholesale markets (RM16-23). It has yet to issue a final order, but earlier this month requested additional information from regional grid operators and gave them 30 days to respond.

By frankie’s/

Currently, the participation of DERs in wholesale markets varies by region. In some cases, they are allowed, in others, they are explicitly prohibited. FERC’s next step is to take a look and issue a final ruling on market participation by DER aggregations.

“The timing is unclear,” said Jeff Dennis, managing director and general counsel for AEE, a public policy advocacy organization.

Who’s in charge?

One of the biggest issues in the record is clarifying the extent of federal and state regulatory authority to allow DERs to participate.

In theory, this question was already established with FERC rule 841 and 841a, which told regional transmission organizations (RTOs) and independent system operators (ISOs) to account for distributed energy storage. Those rules were supported by a 2-1 FERC majority in February 2019 and again in May 2019.

For their part, the big utilities are almost uniformly opposed to the participation of DERs, Dennis said.

And regulators do not always grant DERs market participation even though many states have enacted policies to encourage the growth of DERs: lowering carbon intensity, improving system resilience and giving consumers more choices for energy.

See related story: Microgrid Operators and Regional Grid Operators Really Need to Talk

If structured properly, DER participation in wholesale markets can benefit all participants in the electricity sector in several ways, among them:

  • Offer fast responding and flexible resources that can improve reliability and grid resilience
  • Meet the needs of the larger grid when DERs are incorporated into market dispatch
  • Limit congestion and line loss in areas with inconsistent service or long down times
  • Improve competition and ensures reasonable rates
  • Give utilities insight to help guide system pricing, improve real-time load management, reduce localized congestion and defer expensive infrastructure investment

In addition, participation in the wholesale market can improve the economics of DERs by increasing revenue and allowing developers to pass on cost savings.

The paper gave five examples of various DER technologies participating in wholesale markets across the country.

Batteries as flexible resource

In one case, the study showed battery storage systems provide flexible resources that can support the electric grid and indirectly enable deployment of more intermittent renewable generation. Many states have provided incentives for battery storage. As a result, commercial and industrial buildings have started installing customer-sited systems to manage peak load charges and occasionally as replacements for backup generation.

STEM, for example, offers front-of-meter storage solution and storage-as-a-service to commercial and industrial customers in an effort to reduce costs by limiting consumption from the grid during times of peak demand. The company uses artificial intelligence to aggregate distributed energy storage assets and participates in the California ISO. In California, aggregated DER portfolios also participate directly in wholesale energy and ancillary service markets as Distributed Energy Resource Providers.

DERs in apartment buildings

In another case, commercial solar and storage saves money and improve operations for commercial and industrial customers. In addition, this technology helps companies reach sustainability goals that often include carbon reduction targets.

Glenwood Management, one of New York’s largest builders and owners of luxury apartments, has partnered with Enel X to install and operate standalone storage and solar plus storage at 13 of its buildings. The DERs are used to protect residents from grid interruptions and brownouts and reduce demand at peak times. In addition, the assets also participate in retail programs offered by Consolidated Edison. Glenwood’s DER provides multiple benefits: increased visibility for transmission grid operators, improved utilization of distributed storage assets and better reliability.

By buffaloboy/

EVs and wholesale markets

The study notes that aggregated electric vehicle fleets can provide benefits to the grid. Those benefits include additional flexibility for transmission and distribution, new revenue streams, lower costs for developers and customers and enhanced wholesale competition. The cost of developing new batteries and federal and state incentives for this technology are expected to boost the sale of electric vehicles in the coming years. In the US, 80% of the charging of EV happens at home, where one EV can increase household electricity consumption by 50%.

The growth of this new technology has the potential to destabilize the grid without careful planning.

Enel X e-Mobility manages more than 35 MW of “virtual battery“ capacity from EVs, some of which is offered into the California ISO day-ahead and real-time energy markets. Stopping, starting and delay charging this network of EVs and EV charges allows Enel X to provide dispatchable energy through the state’s Proxy Demand Resource program. Through this model, the company receives market award notifications from the CAISO when the market clearing price is greater than its bid price. The company is compensated for its measured load reduction during that interval.

Selling back in NY at locational marginal prices

One potential risk for microgrid operators is that they are often forced by the utility to pay the full cost of standby service and upgrades to the interconnection infrastructure even as the operator uses microgrid assets as a power supply in times of grid stress. Co-op City in the Bronx owns and operates one of the largest residential microgrids serving nearly 50,000 residents.

The system centers around a combined heat and power facility with a total capacity of about 40 MW. It was originally installed in the mid 1960s as a heating and cooling system, but it now provides nearly 95% of the community’s electricity. The co op sells excess power back to Con Edison through the utility’s buy-back tariff and receives wholesale locational marginal prices. The arrangement allows them to be compensated similarly to an independent power producer. The co op was able to export power during the polar vortex and summer heat waves, which makes the grid more resilient and supplies power in times of critical need.

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About the Author

Keefe Borden

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