Hiding in plain sight: Aggregated DERs in wholesale power markets
Distributed resources can't yet compete like traditional generators in US power markets, but demand response products allow them a foot in the door
Aggregated distributed energy resources (DER) are beginning to compete in wholesale markets, they just aren’t always recognized as such.
Two California energy storage providers successfully bid aggregations of automated load reductions into the California wholesale market multiple times during a June heat wave this year. Even so, the California Independent System Operator (CAISO) told Utility Dive that "at this time, we don't have any DER aggregations that are bidding into the market.”
The discrepancy is simply a "question of terminology, said Ted Ko, policy director at storage company Stem, one of the two bidders in the CAISO market. “DERs include traditional demand response, energy efficiency, behind-the-meter (BTM) storage, and distributed generation like rooftop solar.”
There are two CAISO wholesale market products that could fit the bill of aggregated DERs, said Manal Yamout, markets and policy vice president for Advanced Microgrid Systems (AMS), the other CAISO heat wave bidder. The proxy demand response (PDR) product is for demand response and there is another product for DER providers (DERP).
“Stem and AMS are participating in the wholesale market through the PDR product for demand response resources,” Yamout said. “The CAISO is probably looking narrowly at the DERP tariff.”
Their suppositions are confirmed by the CAISO website and by Matthew Tisdale, a former staffer at the California Public Utilities Commission.
“Demand response falls under the California statutory definition of DER,” said Tisdale, now executive director of the think tank More Than Smart. “Demand response falls under the California statutory definition of DERs.”
Providing demand response “is one path to the wholesale market for DERs,” Tisdale said. “But it can be used only for DERs like storage that do not inject power into the grid.”
The other path is for aggregators of distributed resources to use the DERP tariff approved by regulators last year. But that introduces “the more complicated issue of power delivered back into the grid,” Tisdale said.
“For power to come from behind the meter into the distribution grid and serve the wholesale market, communications and operational issues have to be settled,” he said.
Across the nation, DER providers and grid operators are facing similar issues that prevent aggregated resources from offering their full suite of benefits to the grid. New work to resolve the communications and operational issues from Tisdale’s think tank could provide way forward, but in the meantime the resources are getting a foot in the door through the well-established role of demand response providers.
Aggregated DERs today
Recent reports confirm the rising wave of distributed energy resources. The record 2.5 GW of new distributed solar installed last year was a 39% increase on 2015. The record 159,000 electric vehicles sold in 2016 represented 37% year-on-year growth. The annual U.S. energy storage market grew by 221 MW in 2016 and is expected to be at 1.7 GW annually by 2020.
Data compiled by More Than Smart through 2014 show California already had 8,387 MW of installed DER capacity and it has continued to grow. Though the DERP tariff and market rules approved in 2016 have not been used by aggregators, CAISO Senior Public Information Officer Steven Greenlee said there is some interest from market participants.
The CAISO is not the only market that is consuming aggregated DER under another name.
The PJM Interconnection and the Electric Reliability Council of Texas (ERCOT) both reported the same lack of visibility into DER that prevents using aggregations that inject power as a system resource.
Despite the lack of visibility, the use of aggregated DER for DR is growing in the PJM system, according to its 2016 annual report. “Behind the meter battery storage technology experienced the largest growth in demand response,” the report said.
That is “a subset of DER resources” that is used for load reduction, Spokesperson Paula DuPont confirmed.
Ongoing PJM stakeholder workshops are aimed at determining “a framework for distributed resources to participate when both reducing load and injecting power past the load meter,” the PJM website reports.
ERCOT Spokesperson Leslie Sopko said DR participates in its market as Emergency Response Service (ERS) capacity. The most recent data show an ERS load of between 480 MW and 640 MW between June and September. Sopko could offer no estimate for how much of that, if any, was aggregated DERs.
ISO-New England and the Southwest Power Pool said they have no aggregated DERs in their wholesale markets. The Midcontinent ISO and New York ISO did not respond to requests for comment.
What California’s utilities are doing
California’s three investor-owned utilities, Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E) were on the firing line during the recent heat wave. All called on aggregated DERs as DR.
The DERs came largely from acquisitions of automated aggregated battery energy storage through California’s Demand Response Auction Mechanism (DRAM) program. SCE accepted bids for more than 20 MW, PG&E took 17.7 MW, and SDG&E, a smaller system, took just under 3 MW. Stem was among the winning bidders.
SCE also acquired 75 MW of DR and 261 MW of energy storage in its competitively bid Local Capacity Requirements (LCR) auction. Stem and AMS were among those selected. Some of those resources were called on during June’s heat wave.
SCE Spokesperson Robert Laffoon-Villegas said the utility’s LCR DR resources were dispatched to reduce demand in response to “factors such as high temperatures and high market prices.” There were, he added, “no reported issues with dispatch.”
Laffoon-Villegas added that “the LCR DR resource that was dispatched is not yet integrated into the CAISO market.” He declined further explanation.
“PG&E has 126 solar PV and four battery storage projects totaling 424 MW of capacity interconnected to its distribution system and eligible to participate in CAISO markets,” Spokesperson Paul Doherty said.
PG&E’s 4 MW Yerba Buena sodium-sulfur battery and its 2 MW Vaca-Dixon sodium-sulfur battery both provide energy and ancillary services to the CAISO market, Doherty said.
Doherty did not comment on PG&E’s market participation during the recent heat wave, but Stem reported it provided load reductions on the PG&E, SCE, and SDG&E systems.
SDG&E Spokesperson Colleen Windsor acknowledged that it bid into the CAISO day-ahead Capacity Bidding Program (CBP) daily during the heat wave. CAISO called on SDG&E’s once-a-day load reduction resources when the system saw the CBP economic triggers of “a 15 heat rate and a CAISO hourly price of $75 [per MWh],” she said.
Stem is not listed among the SDG&E capacity bidders. Yet Stem’s press release stated that at “5:15 pm on June 20, while already dispatching in four areas within the PG&E and SCE service territories, additional Stem offers to provide energy with less than five minutes notice were accepted further south in three parts of SDG&E’s service territory.”
Distributed DR in California
In that June 20 hour, Stem reported serving “seven strained areas of the California grid simultaneously.” In “as little as five minutes,” it dispatched “1.6 MW of targeted relief, 21% more than committed.”
During the following week, it reported dispatching “fast, on-demand power 10 more times across the three utilities’ service territories.”
Stem has used the PDR mechanism for three years, it added. Because CAISO 2017 clearing prices have been high, Stem's aggregated DERs responded to 150 five-minute events for SDG&E from January to May.
While aggregations of load reduction as DR is not new, the services offered by companies like Stem, AMS, and Green Charge Networks is new, said Stem’s Ko.
Traditional DR providers typically use manual methods to call on commercial and industrial (C&I) customers to reduce load for day-ahead needs.
Providers of automated aggregated energy storage respond to a wholesale market signal “through software and communications to our aggregation cloud platform,” Ko said. “Our network then dispatches resources through software. Customers don’t even have to know it’s going on.”
The DR capabilities, bid into the day-ahead market, can be dispatched in real time. All the DR delivered for SDG&E during the heat wave was through the five-minute market, according to Ko.
Stem’s participation is largely through its DRAM contracts with the California IOUs, though some of its SCE LCR resources were also during the heat wave, he said. Price information is not disclosed, but Ko pointed out that its prices were competitive enough to clear.
The CAISO allows aggregations of as little as 100 kW to bid if they are not injecting energy into the system. That is key, because most system operators require aggregations to be at least 1 MW.
AMS Product Manager Kate Knox said her company has two SCE DRAM contracts totaling 1.2 MW of battery system capacity deployed across Southern California. The contracts include an obligation to participate in the CAISO market.
“Every day in June we have bid in the day-ahead market and we’ve been trying different bidding strategies,” Knox said. “We’ve been dispatched ten times. The next step is submitting meter data and going through the settlement process.”
AMS’s Yamout said the company is building a 90 MW, 360 MWh fleet for SCE through DRAM and LCR contracts and through the utility’s Preferred Resource Plan program.
“The key to success is scale,” she said.
Most of AMS’s capacity today is for demand charge management, which provides demand charge reductions to C&I electricity users. “We just took a small subset of those and bid them into the DRAM to get market experience,” Yamout said.
“For any behind the meter storage system, you need at least two value streams,” she added. AMS expects opportunities through the PDR and DERP tariffs and the value streams from retail customer demand charge management and services to utilities to significantly change the economics of BTM storage.
Traditional DR and DERs
EnerNOC is a leading provider of traditional DR in U.S. wholesale markets. Its portfolio is “about 25% fully automated and 75% executed load reduction based on pre-arranged curtailment plans,” Mona Tierney-Llloyd, western regulatory affairs senior director said.
EnerNOC has the biggest DR market share in PJM, which is the biggest U.S. DR market, added Greg Geller, the regulatory and government affairs director. EnerNOC also provides DR to the ISO-NE and NYISO markets and provides ERCOT with ERS capacity. And it has DRAM contracts in the CAISO market.
DERs are “where the DR market is going” because of what is happening on the grid, Tierney-Llloyd said. “Aggregated DER can effectively mitigate reliability issues either on the distribution or the transmission grids.”
A big reason the CAISO’s DERP tariff is not being used is “we are still figuring out where the economics make it work,” she said. And while other DR programs have significant limitations and remain uncertain, “the PDR tariff may offer opportunity,” she added. “We need the CPUC to demonstrate there is a commitment.”
Geller said he sees indications of system operators “trying to over-plan the emerging DER market opportunities.” That could end up creating “barriers to entry” and “limit growth of aggregated DER in wholesale markets,” he said. “There are suggestions of early market designs that are concerning.”
‘The next frontier’
California policymakers are working to understand why DER aggregators are not using the DERP tariff, Tisdale said.
“Value may be a factor but there are certainly others,” he said. “It may be operational uncertainties, unworkable technical requirements, or it may be that compensation is insufficient.”
Federal and state regulators took the important first step by approving rules and conditions under which DER aggregators can participate, Tisdale said. New markets create opportunities but “it remains to be seen if DER aggregators can meet market needs in a commercially viable way.”
Stem’s Ko is looking to a Federal Energy Regulatory Commission (FERC) proceeding that will likely order each wholesale market operator to address barriers to aggregated DER participation. He also wants the CAISO to move ahead.
“We are pushing the CAISO for a product that lets storage, especially behind-the-meter storage and EVs, be paid to absorb the rapidly growing midday overgeneration the ISO calls the Duck Curve’s belly,” Ko said. “That’s the next frontier for DER aggregation in the wholesale markets."