FERC Order 2222 Filings Will Advance US VPP and DERMS Markets

In September 2020, the US Federal Energy Regulatory Commission (FERC) issued Order 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. In other words, the order enables aggregated DER to compete alongside traditional resources in organized wholesale markets. Under this order, regional markets in the US are required to set up new market structures to incorporate DER flexibility. 

California Independent System Operator and the New York Independent System Operator (NYISO) already had DER participation models in place that only required minor adjustments for compliance. NYISO also enacted additional regulations in September 2020 that allow energy storage resources to fully participate in energy markets through dual participation. Dual participation allows energy storage resources in the state to earn money as a wholesale and a retail energy resource. For virtual power plants (VPPs), this regulation means that a VPP provider using storage in its portfolio could earn additional revenue by bidding capacity directly into the NYISO wholesale market when not providing services for a utility. The other major regional transmission organizations (RTOs) and independent system operators (ISOs) in the US filed extensions for compliance with FERC Order 2222. They cited additional time needed to converse with stakeholders on how to best implement DER participation and to update their market software programs.

Two More US Regional Grid Operators File Compliance Proposals

In February 2022, PJM Interconnection and ISO New England filed proposals outlining the new market structures and regulations they developed to comply with FERC Order 2222. While FERC Order 2222 outlines certain requirements for compliance, each regional grid operator is permitted to develop frameworks that will best suit their needs so long as those minimum requirements are met. As a result, the specific elements in PJM Interconnection's compliance proposal and ISO New England's proposed framework differ from each other. The remaining RTOs and ISOs under FERC jurisdiction, Midcontinent ISO and Southwest Power Pool, plan to file their proposals for compliance with the order in April 2022. While these proposed frameworks will likely not be fully implemented for several years, these filings mark another important step in the US energy transition. As grid operators in the US continue to file and eventually implement their new DER aggregation participation frameworks, these filings will facilitate the grid’s transition from the one-way, centralized fossil fuel generation model to the two-way, distributed generation model fueled by renewable sources. 

The VPP market is trending toward the mixed-asset model because of its ability to use renewable generation sources, controllable flexible loads, and energy storage assets to better serve and balance the grid. As the adoption of DER, such as rooftop solar, home batteries, EVs, grid-interactive water heaters, and smart thermostats, increases throughout the country, grid operators and utilities will need to utilize dedicated software platforms, such as VPPs or DER management systems (DERMSs), to manage, control, and dispatch them so they can maintain grid stability. With proper market frameworks in place, the full value proposition of VPPs and DERMSs can be realized, encouraging wider implementation.