Energy Market Participation for DER Continues Taking Shape

Distributed energy resources (DER) are often touted as having the potential to disrupt traditional energy markets by providing both reserve capacity and ancillary services. However, to date, there have been limited actual opportunities for this diverse set of technologies to provide these services. Regulatory efforts and collaborations between utilities and technology providers are actively working to change this dynamic in global markets. Likely one of the more innovative programs to bring DER into wholesale energy markets has been California’s Demand Response Auction Mechanism (DRAM).

DRAM is a pay-as-bid solicitation program through which utilities are seeking monthly demand response (DR) system capacity, local capacity, and flexibility capacity from DER. This innovative program aims to allow multiple DER technologies to compete on a relatively level playing field providing load reduction services on-demand for utilities. Contracts for load reduction through the DRAM have been awarded to companies providing DR from both commercial and industrial and residential customers, EV charging providers, and distributed energy storage/solar PV providers. Last month, the DRAM program closed its latest round of awards, with utilities requesting approval for 200 MW worth of contracts.

Tip of the Iceberg

DR is emerging as the primary entry point for DER to participate in competitive energy markets. Many DER, namely distributed energy storage systems, are highly flexible resources capable of providing a range of services, including DR/load reduction, ancillary services, and the ability to absorb excess energy during periods of low demand. Despite the variety of benefits DER can offer, the markets for providing and being compensated for these services are not yet in place in many areas. While existing DR markets only utilize one of the services that DER can provide, they are likely the most viable point of entry into competitive markets. The required integration with utility systems has been effective for decades, and grid operators are comfortable with these programs.

For most DER providers, a DR-type program is not the end goal for grid integration and energy market participation. However, it is a great opportunity to prove both the value and reliability of DER to help solve grid challenges. With California pioneering new programs, and other opportunities taking shape around the world, the evolution of DER participating in energy markets will evolve quickly.