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RULE 2222: A Good Start in the FERC’s Efforts to Bring Renewables into Wholesale Markets

The purpose of this article is to unpack one of the most recent FERC Orders on alternative energy and discuss the new market opportunities, if any, that it will open to an industry struggling to find a path for broader customer engagement on renewables and demand reduction products.  The Federal Energy Regulatory Commission (“FERC”) latest order has changed the rules for who can participate in the wholesale power markets.  This latest FERC move will allow renewable energy producers as small as homeowners with a roof covered in solar panels or an electric vehicle in the garage, to participate in wholesale markets through aggregation with other smaller scale resources, despite being located on the distribution system. Under prior rules, most of these resources were too small to participate in the wholesale markets.  However, with its Order No. 2222, issued September 18, 2020, FERC changed the opportunities for these smaller users by permitting distributed energy resources (“DER”) to participate as part of an aggregation in wholesale markets operated by Regional Transmission Organizations (“RTO”) and Independent System Operators (“ISO”).  Despite, efforts to alter Order 2222 by Order 2222-A on March 18, 2021, and Order 2222-B on June 17, 2021, Order 2222 remains largely unchanged.

Until Order 2222 many RTO/ISO’s restricted participation in the markets for ancillary services and capacity markets, to units above specified size thresholds and/or to those with specific performance characteristics, while at the same time requiring certain types of resources to participate only as demand response, which limited the economic benefit of wholesale market entry.  By allowing DER assets, which can be as small as 100 kW, and which by definition are connected to the distribution system, to participate as wholesale producers – in an aggregation process – the FERC is expanding the number of potential participants and vastly increasing the scope and scale of resources that can be brought to bear to address reliability and other concerns in the bulk power system.

There are a number of benefits to including DERs including the RTO/ISO actually knowing where they are, what they are and being able to include them in planning.  Another benefit cited in the Order is the ability of DERs to locate where price signals are more favorable, i.e., where there is a need for the service they provide, sometimes even co-locating with load.  These resources also tend to have shorter timeframes from concept to operations.

RTO/ISOs are now required to have tariffs that allow DER aggregations to participate in the markets and to set up rules for how such aggregations can participate in the wholesale markets.  RTO/ISOs are required to have multiple participation modes so, for example, aggregations can be created that contain heterogeneous or homogeneous mixes of assets.  The flexibility of the aggregations should allow entrepreneurial businesses to develop products and services that benefit both electricity sellers and electricity consumers.  For example, aggregating solar and batteries with demand response could provide a solution for a retail energy seller to provide demand response to interested commercial customers while creating a natural hedge and alternate income stream to allow the product to be competitively priced yet profitable.  The examples are many, but the takeaway is that small DER resources that were formerly kept out of the wholesale market, can now receive payment for being a capacity resource or providing ancillary services, despite being connected to the distribution system instead of the wholesale system.  In states where RPS incentives such as net metering may be losing traction among legislators and regulators such participation could be crucial to the financial viability of new projects.  Capacity markets or ancillaries will be revenue generators for project developers as they roll out DER resources.

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