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FERC Order Puts DER at the Center of the Future Power System

Roberto Rodriguez Labastida
Oct 13, 2020

Guidehouse Insights

The Federal Energy Regulatory Commission (FERC) issued a breakthrough order on September 17, 2020. This order adopted rules aimed at removing barriers to the participation of distributed energy resources (DER) in organized markets for electric energy, capacity, and ancillary services operated by regional transmission organizations (RTOs) and independent system operators. Order No. 2222 builds on reforms previously undertaken by the FERC and, once fully implemented, should be a significant step toward opening up RTO markets to competition, facilitating the new entry of resources and fostering business model innovation.

In the order, the FERC put forward a vision in which swarms of small DER will be put into an aggregation such as a virtual power plant, allowing DER to provide a variety of products and services and compete with more conventional resources in RTO markets. The FERC is fairly open to individual DER and DER aggregations that can take advantage of the new rules. Order No. 2222 and the FERC’s new regulations define DER broadly as “any resource located on the distribution system, any subsystem thereof or behind a customer meter.” There is no minimum size for specific DER; still, aggregations should be at least 100 kW.

The FERC also avoided restricting DER aggregation locations, requiring RTOs to fulfill locational requirements that are “as geographically broad as technically feasible.” The FERC is interested in the participation of DER in wholesale markets. Therefore, such conditions should address transmission system features like congestion, and markets will enable aggregators to identify locations where DER can provide the most value when integrating into existing planning practices and avoid reliability issues.

Order No. 2222 Will Take Time to Trickle Down

Order No. 2222 has the potential to provide the foundation for energy players to develop and deploy new technologies, products, services, and business models. But, as with most regulatory processes, the easiest part is coming up with the strategy. For Order No. 2222 to be successful, it needs to be implemented. If all goes well, it take at least 1-2 years for the first RTO to become compliant.

Nevertheless, utilities should start planning now to ensure that they are ready when this regulation becomes operational within their RTO. Just before the FERC announcement, Guidehouse published its white paper, Integrated DER: Orchestrating the Grid’s Last Mile, a guide to navigating the integration of DER in distribution grids.