The Federal Energy Regulatory Commission (FERC) released a report Sept. 7 on potential market design reforms to improve the operational flexibility of independent system operators and regional transmission organizations (ISOs and RTOs) as they adapt to changes in the resource mix and changes to loads brought about by the transition to renewable energy and the electrification of the economy.
Image courtesy of FERC
The rapid growth of generation from variable resources like wind and solar, along with the shift to more consumer-owned generation like rooftop solar and the changes that bring to demand, along with the political push to greater electrification of the economy, is prompting RTOs and ISOs to look at ways to improve their flexibility to maintain reliability.
The resource fleet is changing to include higher penetrations of variable energy resources, storage, and co-located and hybrid resources. However, far more storage is needed to make variable generating sources available on-demand – or dispatchable – for system operators to fully rely on them for reliability purposes.
Customers’ electric loads are expected to change in the future, too, due to the increased deployment of distributed energy resources, electrification, and more price responsive demand. Together, these developments are expected to introduce new uncertainties in the energy market for operators.
Currently, ISOs and RTOs have markets for four ancillary services that provide price signals for the entry and retention of resources with flexible capabilities to help ensure the reliability of the grid. These include energy imbalance, regulation, spinning reserves, and supplemental reserves. However, those ancillary services may no longer be sufficient to maintain reliability given the growing variability of the electricity system.
Areas with high penetration of solar like California are already experiencing what’s known as the Duck Curve effect, which refers to the impact of peak solar generation on-demand in the middle of the day. While solar and wind forecasting is improving, it’s still challenging to predict their generation patterns. As a result, there can be discrepancies between the day-ahead and real-time energy markets, which determine the wholesale price and which generation resources get dispatched to what extent at any given time.
Regional system operators need greater flexibility to balance the changing characteristics of the generating mix with the equally challenging changes on the consumer demand side. As a result, ISOs and RTOs are focusing on meeting “net load” or the total load minus non-dispatchable generation from wind and solar. The net load is calculated by taking the forecasted load and subtracting the forecasted electricity production from variable wind and solar generating resources.
The good news is that there are several ways to mitigate these challenges. One approach is to incentivize greater flexibility in dispatchable generation. Natural gas-fired generators are more flexible than coal and nuclear generators, for example. Another option is to increase the flexibility of the regional system by expanding its geographic footprint to give operators a larger pool of renewable generating facilities to draw power from – thereby decreasing the chance that generation will be offline due to time-of-day or weather issues.
New ancillary service products are also needed. California Independent System Operator Corporation and the Midcontinent Independent System Operator, Inc. (CAISO and MISO) have introduced a ramp product to address short-term changes in net load. CAISO is also proposing an imbalance reserve product that would provide “flexible capacity to cover real-time ramping needs not covered by hourly day-ahead market schedules and to cover real-time net load uncertainty,” according to the FERC report.
New York’s NYISO has proposed a reserve procurement for resilience to incentivize producers to invest in greater resource and demand flexibility to support grid resilience.
While not covered in this report, there is also substantial opportunity to improve the integration of new wind and solar generation through advances in technology, including storage and efficiency sources like electric vehicles, smart thermostats, electric heat pumps and water heaters. As these home-based systems become smarter and heating and transportation are increasingly electrified, managing their ability to put energy back onto the grid when needed will become increasingly important to the functioning of the grid. With FERC Order 2222, these dispatchable resources will need access to the ISOs’ and RTOs’ energy markets to provide those ancillary services and capacity to the grid, though.
FERC is set to hold a second technical conference in mid-October to consider potential market reforms to improve ancillary services.