October 10, 2022
Andrew Hoffman, Chief Development Officer
Distributed energy resources (DERs) can provide a wide range of capabilities to the power grid - and a wide range of value streams for their owners and operators. The amount of economically-feasible flexible load is growing rapidly, as homes and businesses buy more cloud-connected technologies, market regulations adapt to recognize the unique capabilities of DERs, utilities deploy more AMI and renewable energy and our need for grid flexibility continues to grow.
And, the value of demand flexibility to customers will increase dramatically in coming years as homes and businesses adopt multiple DER technologies. As market reforms start allowing for exports from multiple energy technologies, the per-customer earning opportunity of participating in grid flexibility will grow by multiples. Investments following the Inflation Reduction Act will further push electrification into the market and amplify these trends.
However, energy markets are still not completely set up to enable and incentivize DERs to fully participate in grid flexibility revenue streams. Here are several of the most salient market obstacles we see preventing DERs from fulfilling their full potential as flexible grid resources:
Inadequate participation models
Energy markets today have limited (and often zero) export compensation. This means that technologies like electric vehicles (EVs) and battery storage systems cannot provide their full capabilities to the grid, as they are only allowed to curtail load and aren’t compensated for pushing their stored energy to the grid. In the face of extreme weather, giving batteries zero credit for pushing critically-needed energy to the grid overlooks a crucial (and growing) asset.
Resource size minimums
Aggregations of smart devices often must meet a certain MW requirement in their given zone in order to qualify, which limits the participation potential of smaller loads.
Onerous metering and telemetry
In many areas throughout the country, energy customers don’t have meters capable of capturing the granularity required for participation in grid services. Once AMI or submetering is installed, it’s also key to enable customers and their service providers easy and scalable access to the data.
Dual participation restrictions
Many markets don’t allow flexible loads to participate in multiple programs, limiting their ability to perform multiple functions for the grid - such as providing support during grid emergencies while also transacting in the wholesale market on a day-to-day basis to balance the grid. We need to move to a model in which DERs are transacting day-in and day-out - as well as during emergencies - to achieve a zero-carbon, reliable grid.
Despite these challenges, there are some hopeful trends in the market as well. A few changes go a long way towards unlocking more flexible load to participate in energy markets. Those include:
Enabling heterogenous DER aggregation
Markets should allow all types of flexible loads to aggregate and deliver grid services. Different technology types may be able to provide the same service, and aggregating them can help reach a critical mass to deliver meaningful grid support in a given area.
Leveraging the state-of-the-art
Enabling market settlement using AMI or device-level submetering for all customer classes is key. In addition, data access should be simplified by accelerating statewide data platform development and standards-based implementation.
Embracing the “value stack” approach
DERs should be allowed to participate in multiple programs for unique services offered, empowering their owners and operators to capture revenue from different grid support products. These include capacity, energy, curtailment, export, emergency response, day-ahead and real-time participation, ancillary services, economic hedging and more.
Making aggregation zones as broad as technically feasible
A DER aggregation should be relative to the service provided - aggregating DERs at a wider level enables greater participation. Subnodal aggregation isn’t needed for a systemwide capacity product, but too often market models require it.
Market and regulatory reforms - such as the landmark FERC Order No. 2222 - have made significant strides towards enabling DER participation in wholesale energy markets over the last few years. In order to accelerate the energy transition, maximize flexibility revenue and unlock a cleaner, more resilient grid, market design decisions must prioritize dismantling the remaining barriers to realizing the full potential of DER flexibility solutions. Abundant renewables coupled with demand flexibility chart the fastest path to a zero-carbon, reliable grid.
