By Amanda Durish Cook

Nearly 1,000 days have passed since FERC issued a Notice of Proposed Rulemaking to remove barriers to entry from aggregated distributed energy resources participating in the country’s wholesale energy markets.

And since then, potential participants in a major grid modernization have been waiting for their cue, top executives with Advanced Energy Economy told RTO Insider in an interview.

“It’s a long time,” AEE Director Dylan Reed said. The NOPR was issued Nov. 17, 2016. The commission also proposed the same treatment for energy storage resources, which eventually led to Order 841 in February 2018, but it said it needed more information on the DER portion before it could take action, opening a separate docket (RM18-9). (See FERC Rules to Boost Storage Role in Markets.)

“We’ve had members that say, ‘We’d love to participate in these markets, but we can’t or are not going to because we don’t know what the rules will be.’ … It’s regulatory uncertainty that harms investment.”

AEE is a D.C.-based trade association representing a gamut of industry players, including those involved in energy efficiency, demand response, solar, wind, electric storage, electric vehicles, fuel cells, combined heat and power and enabling software — as well as large corporate buyers of clean energy (Microsoft, Amazon, Nest and Tesla are among its members).

The group is on a mission to identify and eliminate structural barriers to participation in U.S. wholesale energy markets, which it estimates would allow the country’s high-tech energy market to expand by $65 billion.

AEE argues that many wholesale market rules are not technology-neutral and have become too outdated to be inclusive. A FERC ruling on aggregated DER participation could jumpstart a more inclusive wholesale market, it says.

Jeff Dennis, the group’s managing director and general counsel, contends RTO market rules are still generally rooted in the past and designed with older generation in mind.

“These barriers to participation come in various different forms today,” Dennis said.

“Some are explicit barriers, but a lot of them are implicit barriers,” Reed added.

Reed pointed to MISO’s Tariff, which explicitly prohibits wind and solar generation from providing frequency regulation, spinning reserves and supplemental reserves — one of the 21 case studies AEE reviewed in a May report on real-world barriers to wholesale market participation by clean energy resources.

“It sounds like a small thing, but if you’re undercutting that, it can put financing for projects at risk,” Reed said.

Dennis also pointed to emerging proposals that could create barriers to participation, such as PJM’s proposal as part of its Order 841 compliance filing that storage resources meet a minimum 10-hour discharge requirement to participate in its capacity market. Dennis said the requirement is based on an outdated measure used for pumped hydropower when it was the dominant storage resource. Recent analysis funded by the Energy Storage Association and Natural Resources Defense Council also criticized the plan. (See Study Challenges PJM Energy Storage Rule.)

“You can get a lot of capacity value out of two or four hours of discharge during that peak day. It would unfairly devalue that resource,” Dennis said.

No Risk to Cooperative Federalism

For wholesale markets to foster true competition on a technology-neutral basis, all resources should be allowed to compete on price and performance, AEE argues.

“One of the things we point out is that the markets are designed for large resources to provide lots of a product, but in the future, you’re going to have collections of smaller resources providing smaller but high-performing chunks of services,” Dennis said.

Reed added that such a grid transformation is dependent on a change in RTO market structures.

“That’s when we’re going to see a shift,” Reed said. “We’ve created these rules for all these existing resources, but the resources are changing.”

Dennis said good participation frameworks will give RTOs visibility into DER behavior and generation. He also stressed that no one is expecting perfection in early participation plans.

“There will certainly be a learning curve. I don’t want to be too hard on the RTOs,” Dennis said. But he is adamant that resources on the distribution system will be useful in providing wholesale services.

“It’s going to certainly require coordination between state and wholesale operators. FERC can play a role in ensuring that the RTOs set up frameworks for that communication and coordination,” he said.

Dennis also said distribution utilities can ask FERC to approve tariffs that allow them to recover any verifiable costs they incur from DERs participating in the wholesale markets.

“It’s not an insurmountable barrier,” he said, adding that FERC has already taken this approach with regard to distributed storage, adopting a brand of “cooperative federalism” that ensures greater utilization of those resources.

“I do worry that we’re hearing some utilities claim that FERC setting up this framework is somehow destructive to cooperative federalism,” Dennis said. “FERC has long respected state authority when it comes to wholesale participation by resources connected to distribution, and it continued to do that with storage.”

Dennis noted that, under their retail ratemaking authority, states can restrict DERs participating in retail programs from also participating in wholesale markets, which would still provide DER owners a choice of where to participate. He expects that as states gain experience with DERs, they will see the benefit in allowing wholesale DER transactions.

Despite that vision, Dennis expects the distribution system will still fundamentally serve the purpose of delivering energy to customers and not become like federally regulated transmission.

“We don’t think we’re going to see so many distributed resources participating at wholesale that it swamps the distribution system and creates a situation where [distribution and transmission] perform the same function,” he said.

In the Meantime

AEE says RTOs can take effective steps now while they wait on a FERC order, particularly in alleviating the need for DERs to undertake separate processes to interconnect with both the distribution and transmission systems.

Dennis praised PJM’s examination into how it can streamline its interconnection process for distributed resources and NYISO’s pre-emptive FERC filing to integrate DERs. AEE, however, did take issue with parts of the proposal, including proposed metering practices, buyer-side mitigation measures, a capacity value derate provision and a strict, six-second telemetry requirement (ER19-2276).

“I certainly appreciate that New York has gone ahead with something knowing that it’s needed, particularly in response to New York state policy,” Dennis said.

The AEE leaders say they will be pleased if FERC’s final DER rules come close to Order 841.

“I think it will look a lot like Order 841,” Dennis predicted. “We’re hoping for a rule that allows distributed energy resources to provide all the services that they’re technically capable of providing.”

AEE says that while not perfect, RTO compliance plans for storage resources are thorough and well thought out. “All of them have taken the potential of energy storage very seriously,” Dennis said.

He also expects the RTOs’ compliance with a DER rule will be as varied as their responses to Order 841. Importantly, he said, RTOs will begin that work under a FERC deadline and with commission guidance on a workable framework for participation.

“They’ll comply in their own unique way, but we’ll have markets thinking about how they can include these DERs.”