FERC Opens Wholesale Electricity Markets to Distributed Energy Resources

The Federal Energy Regulatory Commission on Sept. 17 approved a long-awaited rule, directing regional grid operators to open their markets to distributed energy resource aggregations. The order removes barriers preventing these resources from competing on a level playing field in the wholesale capacity, energy, and ancillary services markets. The rule requires regional grid operators to revise their tariffs to establish distributed resource aggregators as a category of market participant. Clean energy interests hailed the rule, which is expected to lower costs for consumers by enhancing competition, increasing grid flexibility and resilience, and spurring innovation.

Under the rule, multiple sources of distributed electricity can aggregate to meet minimum size and performance requirements that cannot be met individually. Establishing the type of market participant for these resources would allow aggregators to register them under one or more participation models that recognize or accommodate the physical and operational characteristics of these small-scale resources.

Chairman Neil Chatterjee lauded the order saying that “FERC broke new ground towards creating the grid of the future by knocking down barriers to entry for emerging technologies.” Commissioner Rich Glick also praised the rule citing its ability to enhance grid reliability, expand market competition and lower consumer electric costs. Commissioner James Danly dissented, saying the order interferes on state jurisdiction.

The rule bans retail regulatory authorities from broadly excluding distributed resource from taking part in regional markets. At the same time, regional grid operators are prohibited from accepting bids from customer aggregations of a small utility unless the relevant authority allows participation. Further, the order allows retail regulators to continue to prohibit aggregators bidding the retail customers’ demand response into the regional markets.

The Solar Energy Industries Association commended the rule noting that it “embraces the trend of increasing use of distributed resources and provides much-needed clarity to grid operators on how to harness the energy and ancillary services they provide.”

The American Council on Renewable Energy said that the order appears to recognize the principle that any resource capable of providing a defined service should have access to compete in the market. However, the group noted that “FERC is working against this principle in the nation’s capacity markets by continuing to erect barriers to the entry of new technologies in PJM and NYISO through the use of minimum offer price rules.”

The commission issued a notice of proposed rulemaking in November 2016 to remove barriers to the participation of electric storage resources and distributed resource aggregations in wholesale electricity markets. In a landmark order in 2018, the commission directed grid operators to establish a market model for storage, but decided to hold a technical conferment on distributed resources to gather more information.

The rule will take effect 90 days after publication in the Federal Register. Grid operators are required to file an implementation plan within 270 days of the effective date.