Aggregating the future in the US

In September 2020, the US Federal Energy Regulatory Commission issued Order 2222, which removed barriers to the participation of distributed energy resources (DERs) in wholesale electricity markets for energy, capacity, and ancillary services.

DERs including roof-top solar PV systems, battery energy storage systems, and load control have been part of the energy system for some time. They are generally installed behind-the-meter at a customers’ premise or within an embedded network, but can be connected directly to the distribution network, such as is the case with a community battery.

These resources traditionally capture benefit via ‘retail’ contracting arrangements, for example by reducing energy imported from the distribution network, thus reducing electricity costs, or by receiving payment for energy exported back to the network or participation in demand response programs.

The new order provides the potential for these resources to participate in wholesale electricity markets on the same footing as large-scale transmission-connected generators, like solar farms, gas peaking plants, and coal fired power stations. The intention under the new order is that participation within wholesale markets is facilitated by ‘aggregators’.

The role of aggregators is to contract with customers and third-party owners of DERs and to ‘aggregate’ their resources into portfolios and to be a single-point of interaction with the system operator and relevant markets. Sometimes this is popularly characterised as a ‘virtual power plant’: a power plant made up of small distributed resources that are centrally orchestrated by the aggregator to provide the same kinds of services to the electricity system as traditional centralised power plants.

This is an exciting and important development for the US. While the US doesn’t have the same levels of penetration of DER as Australia, this new regulation could help change that. As part of announcing the new order, FERC Chairman Neil Chatterjee said that “projections indicate that from 65 gigawatts to more than 380 gigawatts of DERs could be added to the country’s power grids over the next four years.”

One of the things we have found in Australia is that optimising the commercial benefit of DER can be extremely complex. While participation in wholesale markets for energy, capacity, and ancillary services could be lucrative, there are other value streams to consider including arbitraging retail time-of-use rates, managing network demand charges, providing network support services, participating in traditional demand response programs, or providing direct benefits that the customer needs, such as back up power.

Not only can there be choices to make between value streams, in some cases DER owners can have two ways of capturing benefit from the same value stream. For example, the Western Australian Wholesale Energy Market (WEM) has a capacity market like many US jurisdictions. DER can potentially be aggregated to obtain capacity credits (the revenue side of the capacity market) or it can be used to mitigate capacity requirements individually at the sites where DER is deployed (the cost side of the market). Which option should you choose?

This is one of the reasons we built Gridcognition: to help optimise planning and operations for DER to maximise commercial benefit for the resource owner.