4Q 2023

Alternative Aggregated DER Participation Methods for US Grids Are Still Needed

FERC Order 2222 Is a Good First Step, but Additional Work Remains

Customers across multiple business segments are continuing to adopt distributed energy resources (DER) in the US to achieve cost savings, enhanced resilience, and lower emissions. When aggregated, and intelligently managed and dispatched, these DER can be valuable sources of flexibility for grid operators. Federal Energy Regulatory Commission (FERC) Order Number 2222, issued in September 2020, requires the six regional wholesale market operators under FERC jurisdiction to develop new market frameworks to incorporate aggregated DER. The order’s intent was to induce wholesale market participation for aggregated DER portfolios such that they would be compensated for providing grid services, essentially allowing them to compete alongside traditional generation sources.

In the years since the order’s issuance, however, challenges have remained for aggregated DER looking to participate in wholesale markets. These challenges stem from regional variations in market operator compliance plans and existing state-level regulations. To unlock the full value of aggregated DER, alternative methods of providing grid services are still required. However, FERC Order 2222 represents a good first step for advancing wholesale electricity markets in the US, as it has gotten the conversation started around incorporating aggregated DER into bulk power grid operations.

This Guidehouse Insights thought leadership paper discusses DER adoption in the US as well as the grid service potential of aggregated DER portfolios. It also outlines the goal of FERC Order 2222 along with some of the barriers for aggregated DER wholesale market participation created by current market operator compliance plans. The report then provides commentary on alternative grid participation methods for aggregated DER and recommendations for key stakeholders moving forward.

Pages 25
Tables | Charts | Figures 5
  • What is driving DER adoption in the US?
  • What is preventing further growth of the DER market in the US?
  • How can aggregated DER portfolios benefit the power grid?
  • What is FERC Order Number 2222?
  • What are some of the challenges in current market operator compliance plans that may hinder the ability of aggregated DER to participate in wholesale markets?
  • What alternative methods can portfolios of aggregated DER use to provide grid services?
  • What is a local flexibility market?
  • DER aggregators
  • Distribution utilities
  • Wholesale market operators
  • Regulators
  • DER hardware providers
  • DER software providers
  • Investor community

Executive Summary 


DER Adoption and Grid Service Potential

US Wholesale Electricity Markets

Regional Variance in Implementation Plans

Alternative Aggregated DER Participation Methods 

Conclusions and Recommendations

Abbreviations, Resources, and Contact

  • Demand Response Opt-Out
  • US DER Market Drivers and Barriers
  • Restrictive Dual Participation Regulations
  • Potentially Restrictive Dual Participation Regulations
  • Examples of Implementation Challenges for DER