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FERC Order 2222-B Affects VPP Market in the US

Nov 12, 2021

GHI Blog

In September 2020, the Federal Energy Regulatory Commission (FERC) issued a landmark ruling with Order No. 2222. The order allows aggregated distributed energy resources (DER) that provide value to the grid through flexibility to be compensated for the value they create. The order essentially allowed aggregated DER to compete alongside traditional resources in organized wholesale markets. In its initial state, Order No. 2222 ruled that heterogeneous DER aggregations created under the order were subject to individual state demand response (DR) opt outs.

Follow Up Orders Create Confusion

In March 2021, FERC reversed course on the state level DR opt out decision and issued Order No. 2222-A. Order No. 2222-A allowed heterogeneous DER aggregations that include DR to participate regardless of whether the individual state prohibits DR participation. This decision drew scrutiny from groups that stated Order No. 2222-A undermined the authority of individual states to oversee demand response within their borders. The groups also believed that FERC did not provide sufficient notice for effectively eliminating the existing rule in Order No. 719, which allowed states to establish the DR opt out.

FERC subsequently issued Order No. 2222-B in June 2021, which reverts to subjecting heterogeneous DER aggregations that contain DR to individual state opt out rules and issued a Notice of Inquiry for further investigation into whether the DR opt out established by Order No. 719 can or should be removed.

DR Is Critical to Mixed Asset Virtual Power Plants

DER aggregations that contain DR in addition to other technology types such as rooftop solar or energy storage can be thought of as mixed asset virtual power plants (VPPs) because of the use of supply and demand side resources. As this decade progresses, mixed asset VPPs are expected to increase their already majority share of the overall VPP market in the US and North America as a whole. DR is a powerful resource that can work with other DER technologies when aggregated to amplify their impact and serve the grid in increasingly significant ways.

As the electric grid shifts to a more decentralized model powered by variable renewable energy sources, mixed asset VPPs will play an enormous role in maintaining grid reliability because of their ability to continuously balance supply and demand. Customer participation is essential in VPP development and DR represents an opportunity to increase the number of customers enrolled in a VPP without requiring them to finance DER such as rooftop solar, home batteries, or EVs. Determining how state level restrictions on DR will affect the ability of heterogeneous DER aggregations to participate in US wholesale markets will play a large role in the further development of mixed asset VPPs in the US.