On September 17, 2020, the Federal Energy Regulatory Commission issued a new ruling regarding distributed energy resources. And it’s laying the groundwork for transforming the energy market and the grid. The order, called FERC 2222, aims to break down barriers to entry for distributed energy resources (DERs) and could accelerate competition in the electricity market. Now, DERs can participate through aggregation and can band together to meet minimum size and performance requirements. As the U.S. wholesale market becomes more open and accessible, it could also drive technological innovation. As the general manager and vice president of a company that offers a virtual power plant (VPP) solution, I expect FERC 2222 to increase demand for VPP solutions to manage the barrage of new resources, which could create a cleaner, greener and more sustainable future.
Breaking Down Barriers And Driving Innovation
In the past, regional transmission organizations (RTOs) and independent system operators (ISOs) haven’t made it easy for DERs to enter the electricity market. The tariff-based structure imposed minimum size and performance requirements, which I found effectively left most DERs out in the cold. A prior ruling, FERC 841, directed RTOs and ISOs to remove these barriers by revising tariff schedules, rules and regulations for electrical storage, but FERC 841 didn’t specifically address DERs. FERC 2222 eases the pain and should afford DERs the same opportunities as energy storage resources.
While FERC 2222 doesn’t take over jurisdiction in the energy market, it puts an aggressive framework in place to enable DERs to participate more easily. With the influx of DERs and mixed assets, I believe new business models will emerge. This could cause rapid market transformation — and animation — within the next six months. VPPs could become the backbone of this sector by ensuring the market can follow through on FERC 2222’s promise while driving critical innovation to capitalize on new market opportunities.
The Rise Of The VPP
The opportunity for DERs to capture electricity market share and transform the grid is massive, but the associated complexities create a new set of challenges. That’s where VPPs can answer the call. VPPs move value from behind-the-meter assets to wholesale markets and orchestrate diverse DER assets, often with multiple owners. In addition, VPPs typically support a broad range of assets, creating a scalable, sustainable solution for today’s grid challenges. These VPPs are often backed by dynamic, self-learning optimization engines that enable renewable energy trading while balancing grid distribution and transmission.
Criteria For Evaluating A VPP Solution
While VPPs have been on the market for years, many operators and providers have not yet adopted these tools. On the surface, VPPs appear to be incredibly complex and challenging. However, with some clear criteria for evaluation, it’s possible to zero in on a solution that will accommodate an ever-changing grid long into the future. There are several best practices any operator, project developer or utility looking to adopt VPP solutions should follow.
It’s important to design an automated process for onboarding the broadest type of assets. The number and type of DERs will likely continue to grow and change, so it’s imperative to think about future scalability and how to expand asset aggregation now. A critical part of project success will be ensuring you have the capability to monitor all assets to improve situational awareness, but those monitoring abilities will come with a large influx of data that will require you to implement a scalable architecture. Any VPP solution should have the ability to leverage historical data to forecast future performance. In addition, operators, project developers and utilities should also ascertain how precise and flexible the delivery is, if necessary, through tight controls. Lastly, cybersecurity should be at the forefront of any deployment strategy. It’s imperative to have a secure network and assets to ensure the grid is not vulnerable to attack.
FERC 2222 is an incredible milestone for DERs and the overall electricity market. Now, as DER proliferation becomes more of a certainty, VPPs will offer the option of multiple monetization pathways. FERC 2222 could accelerate DER participation in the wholesale energy markets, ultimately leading to a cleaner, cheaper and more sustainable grid.