In the USA, FERC Order 2222 came into play in 2020, to help make better use of flexible DER capacity. However, implementation has been slow, with various barriers to overcome.
Flexibility markets can offer new ways to integrate more DERs with incentivising price signals – as outlined in our recent webinar, “FERC Order 2222: What does it mean and how can grid operators make it a reality“.
Here’s a breakdown of some of the key points raised in the webinar, from Shane Touhey, Commercial Analyst, and Nick Huntbatch, CPO.
This Q&A covers:
- What is FERC 2222?
- What does FERC 2222 aim to achieve?
- What are the challenges utilities face to implement FERC 2222?
- How can market-based flexibility help implement FERC 2222?
What is FERC 2222?
Shane Touhey: FERC is the Federal Energy Regulatory Commission responsible for transmission wholesale markets in the US. It has jurisdiction over the regional transmission operators. FERC Order 2222 mandates that DER aggregators over 100KWs are able to participate in wholesale markets.
So, it’s not just anybody with solar panels on their roofs – they will need to go through an aggregator. And it requires utilities to give them access to the wholesale markets, which allows for better coordination. The order states how that can be implemented and put some things in place for safety and payments and coordination between state and local levels.
Nick Huntbatch: While FERC 2222 is quite broad – ranging in ambition and the activities that are being undertaken – the UK has already enacted something similar, which comes under the code modification P415.
What it means is that, in the UK, smaller-scale flexible resources can access and provide flexibility in the wholesale market. So, they can do things like demand turn down and use that volume as what they call a deviation volume but actually get paid to do that in the wholesale energy market, rather than specifically in a flexibility or utility-driven market.
It’s relevant to the 2222 conversation because it provides another access route for flexibility to play in the market and get rewarded for being flexible.
What does FERC 2222 aim to achieve?
Nick: Ultimately, FERC order 2222 is about how smaller DERs can access markets. Other markets – wholesale or RTO – are designed for more traditional resources, power plants, etc, rather than those smaller scale DERs.
So, how can we roll up these smaller, distributed resources into big enough buckets to be able to participate? Those DERs can be located where you need them to be. The question is then: how do your tap that large and growing resource pool of flexibility, and how do we get those into the markets that aren’t set up to receive them?
Flexible resources are growing. We need to allow them into the market to provide flexibility. That can lower the cost of energy – and also help manage the grid to ensure reliability.
Shane: We also shouldn’t overlook the societal benefits too. Those distributed assets are bringing clean energy onto the grid. Additionally, as they’re distributed, it puts those resources into the community, and that allows for a more resilient grid during severe weather events like those in California. That obviously helps those communities in those dire situations – and it allows energy communities to be more profitable.
And the last thing to touch on is the jobs in the local community. People in the community need to build the resources, and that means growing the skilled jobs in the area.
What are the challenges utilities face to implement FERC 2222?
Nick: A lot of it is about the existing barriers to entry. There’s a minimum size requirement to enter most markets. That includes telemetry requirements to be able to perform in those markets.
There are also challenges regarding the level of aggregation required locationally. Are we looking at a node level or other types of geographic aggregation?
What are the rules for simultaneous participation by DERs and programs offered by distribution utilities e.g. utility demand response programs or community solar. Those need to coordinate with wholesale markets by an aggregator to avoid duplicating compensation for the same services.
RTOs need to learn the metering and communication requirements – and need to capture them accurately so they know how much flexibility has been delivered, to fairly compensate for that. But also, RTOs need to build trust in the services delivered by more distributed flexibility and the challenges that go around that.
There’s a lot there about visibility: where are the DERs connected? What are they doing in what market on the DER side? How do I gain access? A lot of it is about data flows and sharing, but there are also rules around simultaneous participation or otherwise, across those utility programs and the wholesale market.
How can market-based flexibility help implement FERC 2222?
Nick: Electron develops flexibility market software, supporting different types of utility type markets. Whether it’s a non-wire alternative, or a demand response program, we support those trading arrangements on our platform. We design and set the markets up so that the barriers to entry are as low as possible. That means making sure that there are many different types of market running for different use cases.
This gives aggregators different routes and ways to get involved and rewarded for being flexible. And there are different use cases for that flexibility, for the utility or the buyer of flexibility.
When you bring the wholesale market into play – as is needed to implement FERC order 2222 – we need to know who is participating in that market. We then need to ensure coordination between the flex market software and the surrounding systems. For example, where the assets are connected, what they’re doing, etc. This includes the power exchanges, but also the grid and utility software, like grid-edge DERMS.
The market software extends visibility over smaller scale DERs: where they’re participating, when they’re participating, and what services they’re delivering.
From that visibility flows data that can be used for orchestration as well as insights and analytics, such as about how much flexibility is being provided, its cost, its impact.
The key to scaling up these markets is to capture and understand the participation across those different programs and markets – and to build on the learnings that they share.
Responses have been edited for clarity and conciseness. For the full conversation, watch the on-demand webinar.
