All DER is Local, but you go FERC

On February 15, FERC issued Order 841 to remove barriers to the participation of electric storage resources in the capacity, energy, and ancillary service markets operated by Regional Transmission Organizations (RTO) and Independent System Operators (ISO). With its order FERC solidified its commitment to opening the nation’s wholesale markets to distributed storage. The FERC push has been lauded by many as landmark, a “lifting of the floodgates” for energy storage. Looking ahead, an April FERC Technical Conference suggests the regulator may soon follow suit with technology-neutral aggregations of distributed energy resources (DERAs).

 

These steps deservedly engender good feelings and FERC’s leadership is a welcome turn of events, especially when we recall that it’s been less than six months since that Secretary Perry nonsense. But while FERC steams ahead, I can’t help but ponder how they/we will thread the needle with with local interests? This question seems well teed up with FERC’s upcoming Technical Conference, including, the Panel Discussion on “Operational Implications of DER Aggregation with State and Local Regulators.” That panel includes important questions like, “what are the proper protections and policies to ensure that DER aggregations participating in wholesale markets will not negatively affect efficient outcomes in the distribution system?”

Gridworks has straddled the wholesale-retail divide in support of DER for several years now. Our core takeaway from that experience is that wholesale integration of DER is important, but local factors also carry enormous weight. As Tip O’Neil would say, “All DER is Local.” With this conclusion in mind, here are three yet unanswered questions we bring to FERC’s April Technical Conference.

 

First, can the operational challenges of interconnecting at the distribution level while being dispatched at the wholesale level — so called “tier bypassing” — be overcome? The Gridworks paper on DER integration into wholesale markets, which was the culmination of months of ruminating on these challenges by the California grid operators, is chalk full of insights on this question. This paper has been webinared, podcasted, and profiled; we hope it will be presented at the conference next month. One key takeaway from that paper: “outages and abnormal circuit configurations can create capacity constraint conditions on a distribution grid, which in turn affect a DER’s ability to participate in wholesale energy markets.” In other words, don’t forget that the wire you’re connected to needs to be physically capable of supporting wholesale participation and that wire won’t always be up to the job. But how normal are abnormal configurations? And are they predictable? Will DER that is limited by capacity constraints be totally out of luck or somehow accommodated (read: “derated”)? How will all this affect DER business models?

Second, speaking of business models: are they working? For all the excitement, actual participation of storage in CAISO markets remains limited. CAISO has made good progress in distributed storage participation as demand response, but this participation is limited to a change in load (only) rather than an injection of power from the battery into the grid. This summer, we may celebrate the second anniversary of CAISO’s DERP tariff with no actual participation in that tariff — like a toddler birthday party but nobody is covering their face with cake. Why are aggregators still waiting on the sidelines? Rumors and speculation are plenty, but will there be an official answer? Will CAISO’s ESDER 3 process work out the kinks?

 

Finally, will a storage resource’s participation in wholesale markets reduce GHG emissions? A recent CPUC evaluation concludes energy storage resources under it’s SGIP program contributed to emissions and system peak. (Regulatory staff underscored their frustration by showing this sad polar bear in their slide!) Whether a storage resource reduces emissions depends on the carbon intensity of the power you take, round-trip efficiency of the battery, and the power you displace when injecting back to the grid. Do these factors naturally align with the least cost dispatch of the wholesale market? The CPUC’s evaluation has led to some soul searching and a Commission led working group to develop recommendations to improve GHG emission reductions from storage systems. How will this effort inform questions of whether market dispatch of storage resources reduces emissions? And if we can conclude that it does, should market integration be required for storage systems to receive incentives?

 

These questions have at least one thing in common: they’re ostensibly wholesale, but actually local. Whether the distribution system, business models, and emission profiles of these resources succeed or fail largely depends on local interests. Threading the needle with those interest will require some pretty excellent rulemaking. Godspeed to the good people of FERC.

 

Cheers,

Matthew