FERC Order No. 2222 Can Drive Innovation, Lower Costs Across the U.S. Considering the Range of Use Cases for Distributed Energy in Wholesale Markets

 

WASHINGTON, D.C., June 10, 2021 – Today, national business group Advanced Energy Economy (AEE) released a report illustrating use cases for distributed energy resources (DER) in wholesale electricity markets that DER aggregators and other stakeholders expect to pursue under the Federal Energy Regulatory Commission’s (FERC) Order No. 2222. These use cases demonstrate how increased DER participation in wholesale markets can improve competition, lower rates, give customers greater choice, and provide needed flexibility to support the reliability and resilience of the electricity grid. In the report, AEE also offers recommendations to guide Order No. 2222 compliance planning efforts currently underway by grid operators to ensure that implementation of the landmark order overcomes barriers that stand in the way of delivering the full value of DERs to customers and regional grid operators.

 

“Customers are already adopting these distributed, cost-effective, flexible resources. FERC’s order simply embraces existing market trends and ensures that we are making the best use of this new set of flexible resources to ensure grid reliability and affordability," said Jeff Dennis, Managing Director and General Counsel at AEE. “But the benefits of Order No. 2222 will only be realized if RTO/ISO participation models accommodate a wide range of near-term and future DER use cases.”

“As FERC and the regional grid operators work to implement Order No. 2222, they will be creating the market rules that can unleash the many services these technologies can provide,” said Dennis. “Opening up energy markets to allow these resources to compete on price and performance is a win for owners of these resources, regional grid operators, and all electric power customers served by these markets.”

In September 2020, FERC issued the landmark Order No. 2222* directing the nation’s regional grid operators to enable aggregations of DERs to participate in the wholesale markets they operate. FERC’s order means that any resource located on the distribution system or behind a customer meter is eligible to participate, provided it is capable of providing wholesale services. This includes a range of technologies such as battery energy storage, renewable energy, distributed generation, demand response, energy efficiency, thermal storage, and electric vehicles (EVs), all of which can aggregate together to provide valuable services in wholesale markets.

The four use cases in AEE’s report, “FERC Order 2222 and the Use Cases It Can Unlock,” demonstrate that DERs can deliver a range of services, from retail demand response, peak load shaving, customer bill management, smart charging at off-peak times, and non-wires solutions for distribution utilities, to wholesale energy, capacity, ancillary services and voltage regulation, and reactive power. The four use cases are:

• DERs such as electric school buses and other vehicle fleets that often sit idle during times of peak demand could be frequently dispatched for demand response.
• Residential demand response such as smart thermostats and water heaters control the largest energy loads in homes and could substantially reduce costs.
• Residential behind-the-meter resources such as customer-sited solar plus storage could be optimized for greater customer and wholesale market savings.
• Front-of-the-meter distribution-connected resources such as community solar offer scale and strategic location; allowing greater participation would reduce costs.

Each of these use cases faces unique barriers to participation that must be overcome to facilitate full wholesale market participation. Considering the different use cases can help RTOs/ISOs and stakeholders to develop plans to comply with Order No. 2222 that remove these barriers, as FERC intended when it issued the rule.

Order No. 2222 set in motion the development of new tariffs and rules by wholesale grid operators to allow for aggregated DER participation. In the report, AEE offers specific recommendations for each use case as well as three overarching principles to guide RTO/ISO compliance efforts and ensure that the participation models they create accommodate near-term use cases while ushering in a new wave of innovation:

• RTOs/ISOs should create market rules that maximize the participation of DERs. The goal of stakeholder processes in RTOs/ISOs should be to create pathways that allow full participation of aggregated DERs in all wholesale markets.
• RTOs/ISOs should ensure that a range of business models and technologies can participate.
• Grid operators should seek to harmonize retail and wholesale use cases. When designing market rules, grid operators should account for the technical operational characteristics of DER aggregations and the services they can provide in both the wholesale markets and in state-regulated retail programs.

AEE developed these use cases in part at the request of RTOs asking for examples to illustrate DER aggregator opportunities under Order No. 2222 in the relatively near future.