Removing state opt-out for demand response is favorable for Renewable developers

Removing state opt-out for demand response program participation in wholesale energy markets would benefit renewable project developers because aggregators of solar and energy storage technologies can leverage their experience with demand response products.

If we are keen on avoiding blackout situations recently experienced in California and Texas, we should incentivize distributed energy resource market participation in wholesale markets. And distributed solar is a big slice of the distributed energy pie.

Allowing states to opt-out of their demand response programs leaves a key tool out of the toolbox to manage grid reliability. Hence, state opt-outs must go.

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Background on state opt-out for demand response

State opt-out is an issue for vertically integrated states in wholesale energy markets such as MISO and SPP. FERC removed state opt-out in FERC Order 2222 on Distributed Energy Resources Aggregation (DERA) proceeding and later clarified in Order 2222-A that state opt-out is removed for demand response programs if they are part of “heterogeneous aggregations.” Aggregations that include more than one technology, i.e., mixing solar with storage, are heterogeneous.

Recently, FERC in Order 2222-B clarified that they would issue a Notice of Information (NOI) to open the proceeding on whether this state opt-out should be removed for demand response. State opt-out is a legacy of decade-old FERC Order 719.

FERC NOI

As the Google comments in the FERC NOI docket # RM21-14 clearly state, “The Demand Response Opt-Out allows states within an RTO/ISO market to prevent distributed energy resources (DERs) already on the grid from participating in the wholesale energy markets.”

Advanced Energy Economy (AEE) said something similar in their comments, “The opt-out provisions are serving to prevent cost-effective demand response resources that can provide a range of wholesale services from entering the markets, robbing consumers and the grid of significant benefits.”

Voltus comments, including testimony, are the largest in volume at 429 pages. Voltus, the largest aggregator in demand response space, shows a real-life example of how renewable developers benefit by aggregating renewable resources with demand response resources.

Figure 1: Source, Voltus Comments in FERC NOI docket # RM21-14

Advanced Energy Management Alliance (AEMA), another trade organization, also states that it is time for state opt-outs to go in this statement, “the Demand Response Opt-Out is no longer just and reasonable and should be removed to unleash the latent demand flexibility currently hidden in these markets.”

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Who opposes state opt-out? And why?

Edison Electric Institute (EEI), Midcontinent Independent System Operator (MISO), and Indiana Utility Regulatory Commission (IURC) don’t want FERC to remove State Opt-out for DR. But another MISO state commission Illinois Commerce Commission (ICC) wants removal of the state opt-out given their experience with Aggregators of Retail Customers (ARCs).

Most commentators opposed to the concept of removing state opt-out want to preserve the status quo. States like Indiana do not want FERC to upset the apple cart on their current oversight of utility DR programs.

Arkansas commissioner’s comments in the NOI stand out

Chairman Ted Thomas of Arkansas Public Service Commission, citing a Supreme Court decision in the Federal Energy Regulatory Commission v. Electric Power Supply Association, states that the Supreme Court of the United States (SCOTUS) ruled that FERC has the authority to set compensation for demand response programs participating in wholesale energy markets.

To address the double-counting issue when a DER is providing both retail and wholesale services, Chair Thomas proposes:

1) FERC re-establish a “bright line” of distinguishing wholesale market transactions versus retail market transactions instead of distinguishing transmission and distribution,

2) FERC defer to states that have retail programs, and

3) FERC establish an analytical framework to limit and clarify what is and what is not considered “practice…affecting” within the FERC jurisdiction as granted in the Federal Power Act.

Meanwhile, in California and Texas

Relevant for illustrating the reliable role distributed renewables such as solar and storage can provide during blackout events — on the mind of industry observers in a state like California that has a high percentage of distributed solar –California Gov. Gavin Newsom just issued an emergency proclamation to incorporate more DERs in the California electric grid.

The new slate of Public Utility Commission of Texas (PUCT) commissioners has opened a docket to enter into the record the opportunities for DERs. Distributed renewables and other DERs provide grid services such as voltage support and frequency regulation during blackouts, if allowed to do, which is one of the questions PUCT is asking in Project No. 52373. The last date to comment in this PUCT docket is Aug 16, 2021.

The conclusion is that FERC Order 2222 provides opportunities for distributed RE developers

California Independent System Operator (CAISO) and New York ISO (NYISO) already filed their compliance plans for FERC Order 2222. The next tranche of compliance filings would be PJM and ISO-NE in February 2022. Finally, MISO and SPP will file their compliance plans by April.

Hence this opportunity for renewable developers to aggregate distributed resources is real and happening now.

Now would be the time for RE developers to start establishing relationships with aggregators with experience settling market transactions in wholesale energy markets because distributed renewables can play in energy, capacity, and ancillary services markets thanks to FERC Order 2222.