Wholesale Markets Opened to Small Energy Producers
On September 17, 2020, the Federal Energy Regulatory Commission (FERC) made it possible through aggregation for small solar, bio-mass, wind, storage, demand response and other distributed energy resources to bid competitively against large-scale utility power plants in regional power markets. FERC’s Order No. 2222 requires Regional Transmission Organizations (RTO) and Independent System Operators (ISO) to allow aggregators to assemble distributed energy resources no matter how small into resource portfolios that they can bid into regional capacity, energy and ancillary services markets. The portfolios can be as small as 100 kW.
The order represents a comprehensive and clearly defined road map for distributed energy resources to access new markets through aggregation. In support of this new right to aggregate, FERC cleared a path around tariff and regulatory barriers posed by interconnection and wholesale tariff requirements that have historically hindered small generators from participating in these market. Each ISO or RTO is required to file tariff changes implement the terms of the new order within 270 days of publication.
In its order, FERC acknowledged that the current tariffs governing access to regional markets were designed for the large-scale generation resources that defined the electricity industry in past decades. Most distributed energy resources are too small to meet minimum size requirements of current market tariffs on their own and lack the scale needed to support the metering and telemetry equipment required to function as stand-alone participants in the market.
In addition, some distributed energy resources have been excluded from the market by performance requirements formulated with traditional generating stations in mind. To remove those barriers, the order requires regional grid operators to establish aggregated distributed energy resources as a designated categories of market participant with rules and standards that accommodate the physical and operational characteristics of those resources.
Regional grid operators must also revise their tariffs to address technical considerations such as locational requirements for distributed energy resources aggregations, information and data requirements, and coordination among the regional grid operator, the distributed energy resources aggregator, the distribution utility and the relevant retail regulatory authority.
The order further allows, distributed energy resources to bid their capacity in multiple wholesale markets and, in some instances, in both wholesale and retail markets.
The FERC rule is technology neutral and applies in theory to all distributed energy resources. A partial list of distributed energy resources impacted by FERC’s rule change is broad but includes:
- small scale solar,
- rooftop solar,
- battery, flow and EV based electric storage,
- small hydro, and
- demand response.
While states cannot opt out of the program, they can control whether distributed energy resources that participate in retail programs can bid into an RTO or ISO market. Small utilities, those suppling 4 million MWh or less of energy per year, must affirmatively opt into the program.
Owners of distributed energy resources are advised to follow the development of the new RTO and ISO tariffs closely to determine that business opportunities that they created for them. We expect multiple firms operating in the renewable energy space to organize businesses as aggregators and to begin approaching prospective participants to whom they will market aggregation services. These aggregation documents will be complex and nuanced agreements. Potential participants in these markets, whether aggregators or distributed energy resources owners, will do well to seek competent legal advice as these matter unfold.