Navigant Research Blog

FERC Releases Latest DRAM Report

— January 11, 2017

ControlsIn December 2016, the Federal Energy Regulatory Commission released its 11th annual Assessment of Demand Response and Advanced Metering (DRAM) report. The report is meant to provide an update on national, regional, state, and utility progress in these two interconnected fields. Much of the report focuses on data and growth trends, but it also delves into regulatory and policy drivers and barriers in the markets to explain the trends. Publicly available data sources such as the US Department of Energy, regional transmission operators (RTOs), and state public service commissions were used for the analysis.

Expanding Markets

Starting on the metering side, the DRAM report states that an additional 6.6 million advanced meters were installed and operational in the United States between 2013 and 2014, for a total of 58.5 million meters. The penetration of advanced meters is also up from approximately 9% in 2009 to 41% in 2014. Regionally, Texas has the highest penetration at 80%, the Western Electricity Coordinating Council (including California) sits at 60%, and Florida is at 57%. After that, there is a large drop-off, with no other region above 35%; the Northeast Power Coordinating Council (New York and New England) is the lowest at 10% as of 2014. The report notes regulatory activities in numerous states that point to continued deployment of advanced metering infrastructure (AMI) across the country.

Regarding demand response (DR), potential peak reduction in the RTOs, independent system operators (ISOs), and Electric Reliability Council of Texas (ERCOT) markets increased to 31,754 MW, a 10% increase from the previous year, outpacing peak demand growth of 4%. The contribution of potential peak reduction to meeting peak demand increased to 6.6% in 2015, up from 6.2% in 2014. This increase can be explained to some degree by changes in the ISO-NE and PJM markets, which display the largest increases. The ISO-NE data includes energy efficiency, which continues to grow in the region while DR has remained flat. In PJM, the capacity price increased significantly in 2015, leading to a rise in DR in the market. However, in 2016, the price went back down and DR participation dropped.

Utilizing New Resources

The report also notes that the North American bulk power system is integrating an increasing level of DR, variable energy resources, and distributed energy resources. As a result, the North American Electric Reliability Corporation (NERC) is considering how these resources can be reliably integrated into the operation and planning of the bulk power system, as well as how these resources affect generation and load resources. To better understand and measure the performance of DR, NERC developed and approved four new DR metrics in 2015. These new metrics measure enrollment and event information to determine actual performance, including the resource’s contribution to improved reliability. Future efforts intend to focus on improving data collection, maintaining data quality, and providing observations of possible DR contributions to reliability.

The report closes by highlighting three barriers to DR growth: implementing time-based pricing, lack of additional market opportunities beyond emergency/capacity type programs, and coordination of federal and state policies. Those should all be easy to overcome by the next DRAM report in a year, right?

 

The FERC Looks to Bring Down Barriers to Storage and DER

— December 7, 2016

AnalyticsLauren Callaway coauthored this post.

This November, the US Federal Energy Regulatory Commission (FERC) released a notice of proposed rulemaking (NOPR) that could elicit a fundamental step forward for storage and distributed energy resources (DER). The NOPR includes two proposals—one establishing a participation model and market rules for storage resources in wholesale markets, and the other defining DER aggregators as participants in wholesale markets.

Developing a Pathway for Storage

For the first proposal, regional transmission operators (RTOs) would be required to develop participation models for grid-tied storage, which take into account storage’s unique physical and operational qualities. The NOPR requires that participation models include the following five criteria:

  • Storage resources are eligible to provide all capacity, energy, and ancillary services that they are technically able to perform
  • Bidding parameters that account for the above services are established
  • Storage resources are allowed to act as both buyers and sellers, included in establishing the clearing price for electricity
  • RTOs must establish a minimum size requirement for storage that cannot exceed 100 kW
  • Services sold from storage resources to the wholesale market be sold at the wholesale locational marginal price

These criteria are driven by a need to properly recognize the unique operational characteristics of storage systems, enabling storage to act as either load or generation depending on system needs. Essentially, the NOPR proposes to develop a more level playing field within the wholesale markets that will better reflect the cost-effectiveness of storage. Additionally, grid operators will be able to capitalize on storage’s unique abilities to provide black-start service, spinning reserves, renewable ramp control, and output smoothing.

The FERC has previously made efforts to allow for the integration of storage by recognizing its unique value, but those have had limited impact so far. Under FERC Order 755 (2011), RTOs are required to create a fast-regulation service in wholesale power markets, compensating resources for speed and accuracy using a mileage payment—storage is uniquely capable of providing these services. Yet to date, only the PJM region has a well-developed market with fast-regulation prices high enough to make a solid business case for storage. Despite the fact that over 250 MW of storage has been deployed and PJM has decreased the total need for regulation due to the greater accuracy and responsiveness of storage systems, other RTOs have remained slow to adopt the rule. The current NOPR takes into account lessons learned by PJM’s enablement of storage participation.

DER Aggregator Participation

The FERC also proposed to require each RTO/independent system operator (ISO) to revise its tariffs to allow DER aggregators to participate directly in markets by permitting such aggregators to register under the participation model in the RTO/ISO tariff that best accommodates the physical and operational characteristics of their resources. While the specific details and timeline for implementing these proposals are still unclear, this could have a major impact on the national DER market.

To date, only California has allowed aggregated DER (aside from traditional demand response and load control) to bid into an organized statewide capacity market. Furthermore, outside of pilot programs, there have been no aggregated DER allowed to provide ancillary services such as frequency regulation. DER can be a much more effective source of frequency and voltage regulation compared to centralized assets, as the systems are dispersed throughout distribution networks where issues may originate, particularly areas with high penetrations of solar PV generation.

DER providers have been pushing RTOs and the FERC to implement these rules, which can provide new sources of revenue for aggregated storage systems, thereby greatly reducing costs to customers and increasing the value of these systems to grid operators. Additionally, allowing DER to provide these types of services can be part of a post-net metering solution that fairly compensates DER owners based on specific grid needs in a given location at any time. The upholding of FERC Order 745 earlier this year has also set a powerful precedent in terms of allowing participation of behind-the-meter resources into wholesale markets.

 

National Town Meeting on Demand Response Confronts Key Industry Issues

— August 3, 2016

Power PlantIn the heat of the summer demand response (DR) season, industry thought leaders met in Washington, D.C. for the 13th annual National Town Meeting on Demand Response and Smart Grid. This was the first year that the Smart Electric Power Alliance (SEPA) took over responsibility for the event since subsuming the Association of Demand Response and Smart Grid. The transition appeared to be smooth, as the program included all of the successful ingredients from the past town meetings.

The event kicked off with a greeting from Julia Hamm, the president of SEPA, who expressed her excitement at being involved. She moderated a panel of industry experts on SEPA’s 51st State Initiative, which is intended to envision an ideal state regulatory and market structure for clean energy starting from a clean slate. That session was followed by an intimate discussion with Phil Moeller, former commissioner at the Federal Energy Regulatory Commission (FERC) and current senior vice president at the Edison Electric Institute. Phil opined on many industry issues, including the FERC Order 745 saga, about which he said that FERC jurisdiction was just a distraction from the more relevant concern about DR compensation levels.

Changing Utility Landscape

Next, a group of state public utility commissioners (PUCs) from across the country provided thoughts on the changing landscape in the energy industry and what it means for regulators. Willie Phillips, Commissioner on the Washington, D.C. PUC, noted three P’s that should be the focus: policy, prices, and people. He also commented that industry restructuring promotes competition and competition promotes innovation. Utility executives had an opportunity to respond on their own panel and talk about new business models and revenue drivers. Paul Lau, Chief Grid Strategy Officer for the Sacramento Municipal Utility District (SMUD), highlighted that SMUD’s peak load occurred 10 years ago and has been flat or declining since then, a trend that is affecting many utilities.

The second day of the conference was broken into three distinct tracks reflecting the diversity and broad scope that DR and smart grid are touching upon. The Grid Integration track covered technology trends such as distributed energy resource management systems, solar and storage partnerships, microgrids, automated DR, and electric vehicle integration. The Emerging Models and Markets track included panels on time varying rates, cost-benefit analysis for grid modernization, policy and regulatory evolution, the future of regional transmission organization markets, and distribution planning tools. Finally, the Consumer Engagement track looked at modernizing communications and outreach, advanced customer engagement, consumer-driven technology adoption, data analytics for customer engagement, and innovative commercial and industrial DR programs.

The breadth of this year’s National Town Meeting represents the growing importance and integration of all types of resources on the electric grid. By the time of the 2017 meeting, we might have entirely new terminology to describe these trends on a system level, rather than talking about individual technologies and policies.

 

FERC vs. EPSA Ruling: A Win for Demand Response and Energy Storage

— February 1, 2016

Control panelWhen independent system operators (ISOs) and regional transmission organizations (RTOs) were structured over a decade ago, rate structures were primarily based on participation by conventional energy generation methods. During that time, new technologies and services like energy storage were not contemplated. The Federal Energy Regulatory Commission (FERC) Order 745, approved in 2012, called for grid operators to pay the full market price (known as the locational marginal price) to economic demand resources in the real-time and day-ahead markets, so long that it is cost-effective.

In short, Order 745 allows third parties (i.e., customers) to circumvent utility prices and provide flexibility via demand-side management. The United States Supreme Court (SCOTUS) made headlines on January 25 by upholding the FERC’s authority to regulate demand response (DR) programs in wholesale markets. Known as FERC vs. Electric Power Supply Association (EPSA), the Court reaffirmed in a 6-2 decision that FERC acted within its authority under the Federal Power Act when it issued Order 745, setting standards for DR measures and pricing in wholesale markets. This ruling is a big win for energy conservation service providers like EnerNOC, which saw its stock shares jump 65% midday after the ruling.

Battery Storage

The decision is not only big for DR, but has huge implications for resources at the edge of the grid like energy storage. Battery storage is gaining popularity among commercial and residential sectors as a cost-effective solution to reduce peaks, manage demand charges, and integrate renewables; Navigant Research forecasts that 102.4 GW of new distributed battery storage will be deployed from 2016 to 2025. As the new ruling could catalyze a sharp growth in the distributed storage industry, utilities and their customers have a unique opportunity to leverage it in a variety of ways to provide value on both sides of the spectrum.

Battery storage offers enriched DR options in a number of ways, one being the speed at which storage can be deployed. With storage, utilities are able to instantaneously declare DR events, rather than hours or a day ahead. Additionally, with advanced battery management systems, atypical events that occur on the grid can be responded to autonomously. Distributed storage as a resource is dependable in terms of its performance, power capabilities, and location, which further enhances DR. Batteries have a finite amount of energy they can provide, allowing grid operators to schedule other energy resources with increased certainty. Conventional DR is prone to under or overestimating customer behavior, which can lead to decreased system efficiency.

Rise of Variable Generation

DR and energy storage have significant implications when compounded with increasing penetration of variable generation (VG). A study conducted by the National Renewable Energy Laboratory found that the grid can accommodate approximately 30% of annual electricity demand from VG with “flexibility options” (namely changes in operational practices) that increase the penetration of renewable energy resources. As renewable penetration exceeds the 30% threshold, integration becomes increasingly difficult because conventional generators cannot readily moderate output, causing assets like wind and solar to be curtailed, which could raise system costs. Even with increased curtailment of conventional generation, renewables offset less fossil fuel generation, effectively decreasing their overall value. This creates a huge market opportunity for DR and energy storage with their ability to shift load patterns, solidify capacity, and increase grid flexibility.

SCOTUS made a monumental ruling for the cleantech industry, and there will be increased DR participation to come as a result. The market has already seen several DR/storage systems like Schneider Electric and Johnson Controls (both leaders in DR), and even partnerships like that of EnerNOC and Tesla. The nexus of energy storage and DR provides efficient, economical solutions for utilities and their customers. As a result, how energy is produced and consumed will drastically change, requiring rate-makers to be more versatile with evolving regulations.

 

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