On September 17, 2020, the Federal Energy Regulatory Commission (FERC) issued a rule, Order 2222, calling for tariff changes to permit the aggregation of distributed energy resources (DERs) in wholesale markets. In a unique agreement between former Chairman Neil Chatterjee and Commissioner Richard Glick, the order requires grid operators to revise their tariffs to ensure DER aggregations can participate in the markets, while exempting utilities with a load of 4 million MWh or less from the rule, and providing those entities an option to opt-in.
DERs are typically small-scale, behind-the-meter energy resources — such as rooftop solar panels, battery storage installations, electric vehicles and charging equipment, and energy efficiency assets including home appliances — that have generally not yet had access or opportunity to provide services beyond their immediate proximity.
The numbers and types of DERs are rapidly expanding and will continue to grow in 2022 and beyond. In fact, utility analysts and reports state that the global annual investments in DERs are expected to increase by 75% by 2030. The continued falling prices of DERs, ambitious new state and federal policies, and customer demand are contributing factors to the growth of the renewable energy market. These trends are likely here to stay, and with FERC carving out space in wholesale markets for the aggregation of DERs, a more competitive playing field is expected to create lower prices and more diversity of participation models, ultimately bolstering grid resilience and reliability.
Below is an overview of what FERC’s aggregation rule in Order 2222 means and the current status of Regional Transmission Organization (RTO) and Independent System Operator (ISO) efforts to implement the Order 2222 framework. All of the RTOs and ISOs are in the process of developing their implementation plans, but the timelines they are proposing may present a speedbump in enacting the competitive market required by Order 2222.
Overview of FERC Order 2222
The issuance of Order 2222 marked an important moment for DERs and empowers the acceptance of new technologies. Once the Order 2222 framework is fully implemented, DER aggregators will be able to compete in all regional wholesale electric markets, on the same footing as traditional power plants and other grid resources, which opens the door for distributed energy resource management systems to derive more value from these flexible resources.
Until this point, wholesale energy markets needed to work through operational and technical constraints prior to establishing a framework for DER aggregations. Order 2222 prompted the implementation of proactive steps to open wholesale markets and instructed RTOs and ISOs to establish provisions in their tariffs to allow DER aggregations to sufficiently engage as market participants. Since the issuance of Order 2222, grid operators have been developing plans to meet the order’s requirements.
Current Landscape and Positions of the RTOs and ISOs
Historically, DERs were too small to meet the minimum size requirements to participate in the RTO and ISO markets on a stand-alone basis. According a presentation by FERC staff on the final order, DERs may have been unable to meet certain qualification and performance requirements because of the operational constraints they may have as small resources.
RTOs and ISOs were required to submit compliance filings within 270 days of the publication of Order 2222 in the Federal Register. These compliance filings are to delineate each grid operator’s approach to incorporating DER aggregations into the wholesale markets they administer and a timeframe for various stages of implementation, as is appropriate for the region. Further, to accommodate DER size, tariff revisions must establish a minimum size requirement for DER aggregations that does not exceed 100 kW, and must address technical and operational issues. In support of these requirements, FERC instructed the RTOs and ISOs to address the following technical considerations in their tariff filings:
- Locational requirements
- Bidding parameters and distribution factors
- Metering and telemetry requirements
- Communication coordination among the regional grid operator, DER aggregator, the distribution utility, and relevant retail regulatory authority
- Information and data requirement
Thus far, the New York Independent System Operator (NYISO), California Independent System Operator (CAISO), New England Independent System Operator (ISO-NE), and PJM Interconnection (PJM) have filed their plans to support the aggregation of DERs. Notably, NYISO and CAISO already had DER aggregation programs, but proposed changes to ensure that their programs are in compliance with all of Order No. 2222’s directives. The Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP) have not yet filed. Their compliance filings are due on April 18, 2022 (MISO) and April 26, 2022 (SPP). Below is a general overview of the various proposals filed thus far.
PJM: On February 1, 2022, PJM filed a proposal outlining how it will comply with Order 2222. Unlike CAISO and NYISO, participation by DER aggregation in PJM markets breaks new ground in several areas, including interactions between distribution and transmission systems, emerging technology integration, grid modernization, and operational flexibility. The proposed PJM framework provides a foundation for DER aggregation participation in wholesale markets that will evolve over time as experience is gained by all parties.
Key elements of the compliance filing include:
- A new market participation model called the “DER Aggregator Participation Model”.
- Pre-registration coordination activities between DER aggregators and distribution utilities to determine locational and data components needed for the DER aggregators’ registration with PJM.
- A 60-day review period whereby distribution utilities can analyze a proposed registration for distribution system reliability impacts.
- Locational requirements that support reliable operations and energy price formation, and are as geographically broad as technically feasible.
- Enabling of retail and wholesale participation while at the same time preventing double counting of the same product.
- A coordination framework that balances market access with safe and reliable distribution system operations.
- The filing requests an effective date of February 2, 2026 for the tariff changes.
Comments on the PJM proposal are due at FERC by April 1, 2022.
ISO-NE: On February 2, 2022, ISO-NE filed its Order 2222 compliance proposal which creates two new market participation models and amends several existing models to allow the participation of distributed energy resource aggregations (DERAs) in the region’s energy and ancillary services markets.
To comply with enumerated FERC directives, the proposal:
- sets a minimum size of 100 kilowatts (kW) for DERAs;
- includes an opt-in provision for small electric distribution companies;
- creates a registration process to allow electric distribution companies to determine whether DERA participation in wholesale markets may pose risks to the safe and reliable operation of the distribution system; and
- creates a framework to coordinate the real-time operation of DERAs and DERs with electric distribution companies and aggregators.
ISO-NE proposed two different effective dates for its Order 2222 compliance proposal. The first is that forward capacity market-related changes go into effect in the fourth quarter of 2022, to allow the ISO-NE to complete changes necessary for DERAs to participate. Second, the energy and ancillary services market changes would be effective in the fourth quarter of 2026.
Comments on the ISO-NE proposal are due at FERC by February 23, 2022.1
CAISO: The CAISO had submitted its amended tariff in compliance with Order 2222 in July 2021. For the proposed tariff sections that pertain to DERs, the CAISO requested an effective date no later than November 1, 2022. However, CAISO stated that the software enhancements required to enable heterogeneous DERAs are substantial, and that it plans to implement them as part of the CAISO’s 2022 Fall software release, but the CAISO has not established the precise date. The CAISO requests authority to provide market participants with advance notice of the actual effective date, and to provide the Commission notice of the actual effective date of the tariff revisions within five business days of their implementation. For all other proposed tariff revisions, the CAISO requested “an effective date contemporaneous with the Commission’s approval of those tariff revisions.”
NYISO: Similar to CAISO, NYISO submitted its compliance filing July 2021, detailing its plan for revising its existing DER program to align with Order 2222's requirements. The NYISO was unable to propose a precise effective date for the tariff revisions described in this filing due to ongoing software development, testing, and deployment that must be completed prior to the revisions becoming effective. Consistent with previous matters in which it has requested a flexible effective date contingent upon the completion of software upgrades, the NYISO proposed to submit a compliance filing at least two weeks prior to the proposed effective date that will specify the date on which the revisions will take effect.
Timing as a Possible Implementation Hurdle
FERC required each RTO/ISO to propose a reasonable implementation date with adequate support explaining how the proposal is appropriately tailored for its region, and implement this final rule in a timely manner. Considering the already submitted compliance filings, the timing for implementation across the RTOs/ISOs is varied and may pose an added hurdle in establishing a timely DER market, particularly in the RTOs and ISOs that have not previously permitted DER participation. The implementation of a workable DER market that aligns with the boom in popularity and diversification of DERs is likely to be years away in most areas of the country. For instance, PJM proposed 2026 for integrating DERs whereas CAISO and NYISO are still developing the software necessary for successful integration and did not propose a specific implementation date. Additionally, given the fact that MISO and SPP have not yet submitted their compliance filings, it would is likely that they will propose implementation dates at or even beyond the dates proposed by PJM and ISO-NE.
Authored by John Lilyestrom, Neil Chatterjee, and Stephanie Fishman.
