Guest blog: Matt Brown, Founder & Managing Partner of Twyman & Co
The US has set a goal of Net Zero greenhouse gas emissions by 2050, pushing the nation to rapidly decarbonise its power systems. Accelerating deployment of Distributed Energy Resources (DERs) and demand-side flexibility tools is critical to cost-effectively achieving this transition.
A fragmented US energy market
The US includes regional wholesale markets and many state-specific distribution utility markets. Each has its own dynamics, regulatory drivers, and economic incentives. Scaling energy flexibility nationwide means aggregators and customers must accommodate variation in regional markets and utility service territory requirements.
Added to this, US utilities and market operators face key challenges in maintaining grid resilience while integrating forecasted capacity additions and managing increased volatility, in both supply and demand.
According to Brattle, DER adoption will accelerate through 2030:
- Homes with Smart Thermostats – 10% to 34% (3x)
- Residential rooftop solar – 27GW to 83GW (3x)
- Behind the Meter (BTM) batteries – 2GW to 27GW (13x)
- Light duty EVs – 3M to 26M (8x)
As the growing DER deployment is realised over the coming decade, stakeholders must interconnect and coordinate thousands of small renewable generators and enable millions of demand side devices and assets – while maintaining grid resilience.
The value of flexibility and capacity resources is poised to grow in the face of this challenge. Enabling the efficient participation of these resources as the numbers grow requires new tools for utilities and market operators to scale the procurement of flexibility.
Virtual Power Plants are emerging to coordinate and manage these DERs
Third parties such as Virtual Power Plants (VPPs) are increasingly managing aggregations of those customer-sited/behind-the-meter resources.
These VPP aggregators will be key stakeholders in the dispatch and optimisation of significant flex capacity in the US as the resource base grows. Utilities face significant integration challenges to coordinate an ever- broadening range of such aggregators and VPP providers.
For DERs to provide value to the grid, utilities, suppliers, third parties, and market operators need sufficient visibility. This is largely a data challenge – collecting, securing and enabling access to high fidelity and granular data.
Improving shared data access and visibility will therefore help facilitate commercial pathways for these assets and the emergent aggregator class. More dynamic, automated pricing for flexibility services from utilities and market operators can deliver cost-effective grid benefits. Such data-enabled automation and pricing can further help aggregators abstract the complexity of “the grid” and “the market” from customers – a key hurdle to DER participation at scale.
How VPPs currently deploy flexibility for grid resilience in the US
Demand-side flexibility is not a new concept in the United States. Traditional demand response products came to market nearly 20 years ago.
Demand flexibility is already used to overcome a wide range of operational challenges on the US system. These include:
- Accommodating transmission capacity constraints
- Limiting RE curtailment
- Substation deferral
- Managing resource adequacy (RA) at the distribution level
Many of the underlying technologies and products have matured significantly. Today, flexibility resources are poised to capture substantial value in US markets going forward.
However, much of the US lags behind the United Kingdom (UK) and Europe in commercial and regulatory readiness and risks not realising the full potential of these resources. Flexibility in the US is typically deployed through individual programs, with long lead times and hands-on management.
VPP aggregations often involve a single technology type or OEM brand and dispatch against a specific product or utility incentive. Many customer compensation models are simple, basic “per-call” approaches, with only more recent approaches actually reflecting individual asset performance as part of the larger portfolio.
The introduction of flexibility markets can help VPPs capture their full potential across the value stack. Multiple asset types and resources can access multiple products and incentives through these markets. Flexibility marketplaces would therefore serve as a single interface for utilities and market operators to interact with and procure flexible capacity at different times and locations, and across multiple markets.
Conclusion
The UK and Europe have a head start in deploying flexibility. Market technologies have benefited from supportive regulations and enabling market signals. Flexibility platforms now have over five years of operation and technology improvement under their belts and early commercial rollouts are showing promise.
While a few US state and utility-specific ecosystems have nurtured those nascent VPP capabilities and scalable demand response, the US overall lacks a clear commercial framework for these resources to effectively support the grid, its operators, and associated markets.
Market principles have been at play at the wholesale level in the US for years. Participants can efficiently plan and dispatch against clear, automated pricing functions. As VPPs continue to mature and scale, the US would be well-served to extend commercial market signals to the flexibility value stack down to the distribution level, too.
Read Electron’s whitepaper for lessons from the UK and Europe on how flexibility contributes to energy resilience.
