The implementation of FERC Order 2222, and the participation of aggregated distributed energy resources in wholesale markets, presents a myriad of challenges for distribution utilities. A DISTRIBUTECH International 2023 Mega Session focused on how two distribution utilities and two grid operators are approaching implementation of the policy.
When Order 2222 was first issued by the Federal Energy Regulatory Commission (FERC) in 2020, a couple of markets — California and New York — were a bit ahead of the game.
The California ISO issued a distributed energy resource aggregation policy framework four years earlier that was nearly compliant with Order 2222. With minor changes to its initial proposal, CAISO expects FERC to approve its compliance plan, setting up a fully implemented policy by 2025.
New York, to its credit, received approval from FERC for its DER roadmap design in 2020, which preceded Order 2222. That plan is expected to be implemented this summer.
But even regions that anticipated DER participation in wholesale electricity markets face challenges and uncertainty in the months and years ahead as Order 2222 takes effect. These challenges were the subject of a Mega Session at DISTRIBUTECH International 2023 in San Diego, California.
Otherwise siloed organizations — distribution system operators and transmission operators — will have to interact in entirely new ways when Order 2222 takes full effect. System planning will need to factor in the proliferation of aggregated DERs to meet resource adequacy needs. And what will a system-level aggregator study look like?
Michael DeSocio, the NYISO’s director of market design, welcomes the entrance of aggregators, though he knows the transition won’t be easy.
“We’re looking for an aggregator because, frankly, we can’t manage DER,” DeSocio said to the DISTRIBUTECH audience, especially when those DER include smart appliances like washing machines and hot water heaters. “I can’t manage the toaster. We need to figure out how to get from turbine to toaster.”
One developing dynamic that DeSocio noted is that aggregators are “walking a fine line” to becoming much like a regulated utility.
Key to successful implementation of FERC Order 2222 will be effective coordination between all stakeholders involved in aggregated DER participation in wholesale markets, he said.
A ‘scaleable approach’
Early in the process in New York, utilities formed the Joint Utilities of New York coalition to discuss the issues.
“That was hugely helpful getting us started,” DeSocio said.
New York utilities, like Con Edison, are preparing for the program to take effect this summer.
John Romano, section manager of Con Ed’s Utility of the Future division, supports a “measured approach” to implementing the policy, which he said will cost the utility tens of millions of dollars over the next three years.
Ramono frequently thinks about the potential gaps that FERC Order 2222 could create between transmission and distribution teams.
Moreover, Ramono said it’s best for distribution and transmission professionals to “stay in their lane,” and instead leave cross-coordination to a separate entity that can manage interactions between NYISO, aggregators, transmission operators, and distribution system operators.
The last thing utilities need is aggregators calling control centers to troubleshoot an individual asset that tripped offline, he added.
“Our approach was to keep it simple,” Ramono said on the panel. “Let’s not try to conquer everything at once and (instead) come away with something that is scalable.”
Capacity planning in a DER-heavy system
In California, CAISO awaits response to its second compliance filing for FERC Order 2222 implementation, which allows aggregated DER of 100 kW or more to consist of energy injecting DERs, demand response, or both. The proposed implementation deadline was extended to 2025 in order to adjust to FERC’s initial response.
FERC Order 2222 represents a potential shift in the California market, which has yet to see DER provider bringing aggregations to capacity markets, even though the state’s policy framework was first issued in 2016. That is due to the high level of retail competition in the California market, which includes net metering tariffs.
One of the challenges facing distribution utilities in California, like Southern California Edison, is developing a sophisticated mechanism that can guarantee control over DERs years into the future to meet reliability and grid constraint needs, while also compensating asset owners for the capacity.
Around 2016, SCE began modeling what would occur with mass penetration of DERs under the Electric Access System Enhancement Project. The Integrated Distributed Energy Resource Partnership Pilot, meanwhile, examined how DER aggregations could be used to defer distribution system infrastructure upgrades.
“We look at all of our capacity projects going forward on an annual basis, and we see if there are any non-wire alternatives, new DER, to supplement that capacity,” said Andrew Ioan, an electrical engineer within SCE’s Grid Edge Analytics and Control division.
While SCE has a process for deploying DERs instead of poles and wires, the utility hasn’t “had many opportunities” execute because of cost challenges that surround a resource capacity obligation of often ten years.
Ioan said SCE is “looking into” building on existing processes within the distribution planning process.
The time is now
Compliance with FERC Order 2222 will take investment from all parties, utilities and aggregators included. But there are significant funds available to help facilitate the transition.
David Nemtzow, a senior advisor within the U.S. Dept. of Energy’s Loan Programs Office who works on virtual power plants, called the current era the first time in his career when “money has not been a constraint.”
The Inflation Reduction Act appropriates approximately $11.7 billion in total for LPO to support issuing new loans. These amounts increase LPO’s existing loan programs by approximately $100 billion in new loan authority.
Nemtzow urged utility leaders to “hyper accelerate” the implementation of DERs into markets.
“Measured and thoughtful, but at a different pace than ever before,” he said.
