Is FERC's New Rule on Energy Storage & DER Aggregators a Game Changer?

Dec. 14, 2016

I’m impressed by the potential for energy storage to play a more decisive role in our power markets, but I am floored by the potential for broad-scale change when distributed energy resources can be aggregated and participate in the market as a single virtual resource.

David Shadle

Maybe you missed it. It happened right before Thanksgiving. FERC announced a proposed rulemaking that will allow energy storage and distributed energy resource (DER) aggregators with resources on both sides of the meter to participate in the wholesale electric market as fully interactive grid resources. Referencing the nearby holiday, is FERC’s new rule a game changer or a turkey?

FERC claims storage resources and distributed energy resources (DERs) functioning under aggregators may not be able to fully participate in wholesale markets. FERC’s solution with the proposed rulemaking is to require each Regional Transmission Organization (RTO) and Independent System Operator (ISO) to revise its tariff to:

1) Establish rules that accommodate participation of storage resources in the organized wholesale electric markets; and

2) Define DER aggregators as a type of market participant that can participate in the organized wholesale electric markets under the rules and protocols that best accommodates the resources being aggregated.

The FERC announcement and the full notice of proposed rulemaking (NOPR) are available at this link.

Some parts of this proposed rule may seem ho-hum or unnecessary. For example, pumped storage has participated in wholesale markets for a long time. Why are new rules needed to accommodate storage resources? The answer is that each RTO and ISO has its own rules for the participation of different resource types and without a specific set of tariffs and rules for each one, the resource may have been unable to fully participate in the capacity, energy and ancillary service wholesale markets. Rules developed specifically for storage may make it more profitable for this resource category to participate in the market and thereby increase supply, innovation and competition. Not so ho-hum is the point that the proposed rules would allow storage resources to set the wholesale market clearing price (the price that all suppliers are paid). The ISOs/RTOs also will be required to set a minimum size storage resource not greater than 100 kW for participants in the storage market. Industry pundits claim that whoever can master energy storage will revolutionize the power industry. Will this proposed rule help storage providers move in that direction?

I’m impressed by the potential for energy storage to play a more decisive role in our power markets, but I am floored by the potential for broad scale change when distributed energy resources (energy sources and sinks of all types on the distribution system and behind the meter) can be aggregated and participate in the market as a single virtual resource. There will be rules for eligibility, local parameters for aggregation, bidding parameters, data requirements, metering and telemetry requirements, market participation agreements and requirements for coordination among ISOs/RTOs, aggregators and distribution utilities. Just the breadth of the undertaking needed to put all the necessary rules and procedures in place is mind-blowing.

Now think about the immensity of the market changes that could result. Every hot water heater, home PV system and EV battery could conceivably participate in the wholesale electric market. Okay, to be fair, some ISOs/RTOs already allow aggregation and participation of DERs in the wholesale market on a limited basis; and, the sky has not fallen or the entire earth turned a beautiful shamrock green as a result. Point of fact is that a close inspection of more than a few storage projects and DERs reveals that they are not particularly profitable and could never be a permanent substitute for grid power. Rather, they serve a beneficial role under a unique set of circumstances.

So, does that make this proposed rule a turkey? Not necessarily. If one aggregates many small resources using market rules designed to optimize their benefits, then just maybe economies of scale and the inherent diversity of supply and demand in the wholesale market will transform those individually uncompetitive resources into a new genre of virtual resource that is very profitable. We might call what could happen the “Walmart effect” and one has to admit it would be a game changer.

Don’t agree? Email or Twitter your comments to me at T&D World. If you think the proposed rule is the problem, it is your right to comment during FERC’s 60 day comment period. FERC evaluates all the comments submitted during the review period and then issues a final rule.

About the Author

David Shadle | Grid Optimization Editor

Dave joined the T&D World team as the editor of the Grid Optimization Center of Excellence website in January 2016.

Dave is a power industry veteran with a history of leading environmental and development organizations, championing crucial projects, managing major acquisitions and implementing change. Dave is currently a principal at Power Advance, LLC, an independent consulting firm specializing in power project development, research and analysis, due diligence and valuation support. Dave is also a contributing consultant for Transmission & Distribution World. Prior to Power Advance, Dave held business and power project development positions with The Louis Berger Group, Iberdrola Renewables, FPL Energy and General Public Utilities. He is a graduate of Pennsylvania State University, the New Jersey Institute of Technology and Purdue University.