On Nov. 17, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) that has the potential to significantly expand opportunities for advanced energy technologies in the coming years. The proposed rule will allow more competition from advanced energy technologies in the regional electricity markets under FERC’s jurisdiction, driving down costs for consumers while giving the industry greater chance to grow. AEE has frequently noted that current rules do not allow advanced energy to compete fully in wholesale markets. With unnecessary obstacles removed, the advanced energy industry will be able to grow with the simple force of free markets. With Thanksgiving just behind us, we’re thankful for this effort by FERC to remove market barriers for advanced energy in wholesale markets.
FERC – whose mission is in part to ensure that competition in the wholesale power markets is open and fair, such that tariffs set in these markets are “just and reasonable and not unduly discriminatory or preferential” – has been looking into barriers facing advanced energy technologies since earlier in the year. In April, FERC began an inquiry into barriers facing energy storage by asking each of the six regional transmission operators (RTOs) and independent system operators (ISOs) that it regulates to describe in detail how their market rules treat energy storage resources. In its comments to this inquiry, AEE applauded the agency, but urged FERC to broaden its scope to all advanced energy technologies. FERC then held a technical conference, to which AEE submitted pre-conference comments, again arguing that barriers to technology and competition – writ large – ought to be examined and brought down.
In its NOPR, FERC cited AEE seven times, concluding: “…[W]e agree with the comments of Advanced Energy Economy and Public Interest Organizations that electric storage resources and other resources connected to the distribution system should be able to participate in all of the organized wholesale electric markets in which they are technically capable of participating and that barriers that unnecessarily prevent distributed energy resources from providing certain services may be caused by market rules that are unduly discriminatory.”
The proposed rule expanded FERC’s initial scope from a narrow focus on one technology – energy storage – to include aggregated distributed energy resources (DERs). DERs are resources like energy storage, rooftop solar, electric vehicles, and other technologies that are located on the distribution system, close to where energy is consumed. Considered individually, these resources are too small to participate in regional grid markets, but technological advancements and new software developments have enabled companies to aggregate DERs at a scale and operability level that makes them primed to enter the wholesale power markets – with potential to take off as a result.
To participate, energy resources must first register as “market participants” in the appropriate RTO/ISO under a specific category like generation or demand response. Through these categories, RTOs/ISOs describe what resources must do, or not do, in order to take part in the markets.
FERC is proposing to open up the markets to competition from storage and aggregated DERs by requiring RTOs/ISOs to create a new market participant category unique to energy storage, and to allow aggregated DERs to participate in categories for which they are suited. In addition to allowing storage and DERs market participant status, FERC is giving these resource unfettered access to all components of the wholesale market: energy, capacity, and ancillary services. This is a welcome improvement over current rules, under which some technologies are boxed into only providing one service even though they are technically capable of providing others.
Take the Stored Energy Resource (SER) category in the Midcontinent Independent System Operator (MISO) territory, for example. This category was designed to allow energy storage resources to participate in the wholesale market but limits them to providing specific ancillary services, in this case, frequency regulation. That means storage registered under the SER market participant category can’t buy and sell energy even though it is technically capable of doing so right now. If a storage resource owner wants to buy and sell energy, it must participate under one of the other market participant categories, like demand response or generation.
However, these categories aren’t designed for storage. They don’t take into account the technology’s unique physical abilities or limitations, such as a battery’s state of charge. Not only does that make it difficult, from a technical perspective, to operate the storage resource, it makes it harder for storage to offer the services it can provide at lowest costs. For instance, storage might get lumped in with generators selling energy at a lower wholesale price but, in recharging, forced to buy back energy with consumers at a higher, retail price.
The same issues arise for aggregated DERs. Putting together multiple resources may be enough to meet the minimum requirements necessary for participation in the market, but that doesn’t mean these resources can be treated as if they were traditional power plants.
FERC pointed to the technological advancements and cost declines over the last several years as reasons for a rule change. This proposed rule will reinforce those developments and spur further investment, cost declines, and innovation.
Of course, we are not there yet. FERC will accept comment on the proposal for 60 days once it is published in the Federal Register, and after that, FERC will need to consider those comments and issue a final rule. That will take time. But ultimately, the FERC rule will give rooftop solar, smart homes, and electric vehicles, working together as aggregated DERs, the opportunity to compete with traditional power plants to meet wholesale electricity needs, with investment in these resources driven by price signals from the market. That’s all that the advanced energy industry could ask for.
Earlier this year, AEE hosted a webinar that took a look at the rules of wholesale electricity markets that prevent advanced energy technologies from competing on cost and performance. Click below to view the webinar featuring AEE's Arvin Ganesan and Suedeen Kelly, Chair of the Energy Regulation, Markets, and Enforcement Practice at Akin, Gump, and a Former Commissioner of FERC.