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Energy Currents
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FERC Order 2222 Prepares the Industry for the Future of the Electric Grid

by Bob Shively, Enerdynamics President and Lead Facilitator

On Sept. 17, 2020, the Federal Energy Regulatory Commission (FERC) issued Order 2222, which requires operators of regional organized wholesale markets to establish rules to allow aggregated distributed energy resources (DERs) to compete in capacity, energy, and ancillary services markets on a levelized manner with traditional supply resources. The Order has the potential to result in radical restructuring of the electricity industry.

FERC describes a DER as “any resource located on the distribution system, any subsystem thereof or behind a customer meter. These resources may include, but are not limited to, resources that are in front of and behind the customer meter, electric storage resources, intermittent generation, distributed generation, demand response, energy efficiency, thermal storage, and electric vehicles and their supply equipment.[ 1] 

The order applies to regions with FERC-jurisdictional Independent System Operators (ISOs) or Regional Transmission Organizations (RTOs) and covers over half the power used in the U.S.:

The Order 2222 Fact Sheet prepared by FERC does an excellent job of summarizing what the order says, so rather than repeating that we will focus here on the implications of the order. First let’s take a look at some quotes:


“DERs can hide in plain sight in our homes, businesses, and communities across the nation. But their power is mighty.” 

~ FERC Chairman Neil Chatterjee [2]

“Some studies have projected that the United States will see 65 gigawatts of DER capacity come online over the next four years, while others have even projected upwards of 380 gigawatts by 2025. While these estimates and analytical frameworks vary, there’s no doubt that investments in these advanced technologies will only accelerate in the years to come, continuing the seismic shifts we’re seeing in our energy landscape.”

~ FERC Chairman Chatterjee
 

“FERC voted to approve the most significant order the Commission ever issued! DER aggregation is essential to meeting the existential climate threat impacting us all.”

~ Former FERC Chairman Jon Wellinghoff 

Why are these quotes so over the top? Prior to the order, DERs had limited options to find revenue streams to support their cost. Since most DERs are small (typically 1 kW to 10 MW), and since their ability to interconnect to and put electricity onto the grid is controlled by their distribution utility, the economic benefits derived from DERs were mostly limited to customer bill management. For example, a homeowner can use a rooftop solar system to reduce her utility bill but the value she is paid for any benefits provided to the utility grid is determined by state level regulations. In most cases, homeowners are compensated for energy and nothing else. But DERs have the potential to provide numerous other grid services such as capacity, frequency response, voltage support, and fast ramp reserves. These can generally only be made useful by aggregating groups of DERs into blocks that are large enough to be reasonably managed by grid operators.

Order 2222 will require all ISOs to develop rules that allow aggregated blocks of DERs to access wholesale revenue streams associated with the variety of services the DERs can provide. These rules must allow the DERs to participate in both utility programs as well as ISO markets. And while the Order was careful to not impose on areas subject to state regulation such as interconnection rules, it makes it clear that state regulators cannot broadly prohibit DERs from participating in wholesale markets. Lastly, it requires the ISOs to coordinate with state regulators, DER aggregators, and distribution utilities.

Although it won’t happen overnight since ISOs have approximately 12 months to make their compliance filings and then may have additional time for implementation, the Order ultimately will help push electric grids in the direction of becoming two-way energy networks with supply resources located throughout both transmission and distribution systems:

While this has long been the vision of many in the industry, the Order now sets in motion the creation of specific procedures and market mechanisms to drive the vision to reality.

Does your staff have the necessary understanding of how DERs impact customers, markets, and grid operations? Enerdynamics’ newest learning path Distributed Energy Resources presents an in-depth exploration of DERs. The same information can also be presented in an interactive live virtual seminar. For more information, email John Ferrare at jferrare@enerdynamics.com or 866-765-5432 ext. 700.


Footnotes:

[1] FERC Order No. 2222, p91.

[2] Both quotes from Chairman Chatterjee are from his September 17, 2020 Remarks on Order 2222

[3] Twitter post, Sept. 17, 2020

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