The New York ISO’s recently proposed limitation on the use of distributed energy resources (DERs) to compete on its wholesale power markets is raising the ire of retail suppliers and clean efficiency advocates who argue the plan’s “minimum capability requirement” for DERs violates the Federal Energy Regulatory Commission’s Order 2222.
The proposed limitation — which was not mentioned in NYISO’s 2019 DER and Aggregation participation model accepted by FERC in January 2020, or in its Order 2222 compliance filing — would exclude all DERs that generate less than 10 kW of power from participating in DER aggregations, and from competing in the independent system operator’s (ISO) wholesale markets. NYISO argues that the requirement is needed to reduce the amount of DER reliability inspections that it must conduct, given the ISO’s limited manpower.
But NYISO’s proposal undercuts the central purpose of FERC’s Order 2222 — i.e., to allow small-scale DERs to participate through aggregation with large energy generation facilities in wholesale markets.
As FERC wrote when it introduced Order 2222 in September 2020, “Order No. 2222 will help usher in the electric grid of the future and promote competition in electric markets by removing the barriers preventing distributed energy resources from competing on a level playing field in the organized capacity, energy, and ancillary services markets run by regional grid operators.”
Order 2222 requires grid operators under FERC jurisdiction to reduce market barriers to aggregations of distributed energy resources such as rooftop solar, residential batteries, and electric vehicles.
FERC’s definition of DERs was broad:
“DERS are small-scale power generation or storage technologies (typically from 1 kW to 10,000 kW) that can provide an alternative to or an enhancement of the traditional electric power system. These can be located on an electric utility’s distribution system, a subsystem of the utility’s distribution system, or behind a customer meter. …. They may include electric storage, intermittent generation, distributed generation, demand response, energy efficiency, thermal storage or electric vehicles and their charging equipment.”
FERC reasoned that combining behind-the-meter resources would provide reliability benefits and other services to the grid as New York and other states integrate more variable renewable energy into their systems to meet clean energy requirements.
According to then-FERC Chairman Neal Chatterjee, this definition specifically included technologies like rooftop solar, electric vehicles, and smart appliances, like advanced water heaters:
“These smaller assets should be able to join together through the power of technology and compete on our wholesale electric markets, just like the large power plant down the street,” Chatterjee said on the introduction of Order 2222 in the fall of 2020.
Broad inclusivity of all types and sizes of DERs in wholesale markets is necessary to achieve Order 2222’s goals — i.e., having a modern electric grid that incorporates new technologies, enhancing the reliability of that grid, and allowing states like New York to integrate more variable renewable energy into their systems to meet clean energy requirements.
New York has a state mandate to produce 70 percent of its power from renewable sources by 2030 and achieve a 100 percent carbon-free grid by 2040. Meeting such an ambitious environmental goal will require a substantial build-out of behind-the-meter solar installations and other distributed generation assets, including a meaningful role for demand response.
FERC clearly intended that distributed energy resources have equal opportunity to compete with those entering the market as traditional generating resources like coal and natural gas. The critical phrase in Order 2222 instructs regional grid operators to “remove barriers” preventing DERs from competing on this level playing field. NYISO’s is proposing to do just the opposite.
NYISO’s 10kW threshold is too high for most rooftop solar and other consumer-owned, behind-the-meter generating assets to meet. The average rooftop solar system is 5kW, so NYISO’s aggregation plan would prohibit most home-based generation from participating.
Worse, by erecting additional barriers to the aggregated participation of small-scale clean energy resources, the independent system operator appears to be trying to solve a problem it has yet to identify. How many DERs does NYISO anticipate coming online in its aggregation markets? And on how many of those does NYISO anticipate conducting a reliability inspection? Without answers to these questions, it is unclear the ISO has a manpower problem that would necessitate a 10-kW DER threshold. But even if there were a problem, it’s one of NYISO’s own making. If an EV or home battery storage can’t participate in aggregation, what’s the point of Order 2222?
As consumer preferences continue to drive the deployment of distributed energy resources, independent system operators will have to evolve to keep up and integrate their unique attributes into the grid. To do that effectively, the power sector must understand this new flexibility well enough to rethink its approach to resource adequacy and reliability.
DER aggregations have long been used as demand response tools to reduce loads, but under Order 2222, they can also become important generation assets. Grid operators who master the flexibility of these new variable resources will be able to reduce their reliance on capacity markets and big reserve margins.
When FERC adopted Order 2222, it purposely did not require system operators to adopt specific minimum capacity requirements for individual DERs to participate in their markets because aggregators are already required to meet performance requirements, including minimum size requirements.
Order 2222 should increase the new technologies and cleaner energy resources being integrated onto the grid through aggregation, making New York’s wholesale markets more competitive and reducing consumer costs.