Federal Policy Could Unlock New Value From Rooftop Solar and Home Batteries

A clean energy group’s report says distributed energy resources need better access to wholesale markets.

Rooftop solar panels and home battery systems could play a significant role in balancing the nation’s electric grid, but federal regulators need to adopt policies to help make that happen, according to a clean energy group’s recent report.

So-called distributed energy resources — customer-managed generation and storage systems spread across the grid — are often too small to participate in the regional wholesale markets where utilities buy most of the electricity they sell to customers.

These markets, facilitated by grid operators like PJM and MISO, were designed for big, centralized power plants to sell power to utilities. Each day, generators bid their prices to provide power so utilities can sell electricity to customers at lower costs. While some grid operators allow for limited participation of distributed energy resources, most operators either haven’t outlined clear procedures for participation or their policies inadvertently discourage resources from participating.

Industry stakeholders say regulators can set a clear path for resources like solar panels and batteries to be grouped together by organizations known as “aggregators.” Grouped together, they could compete with larger generators and earn revenue so developers can lower prices for customers, accelerating the adoption of clean energy on the grid, according to the authors of the new report from Advanced Energy Economy.

The report describes how policy guidance from the Federal Energy Regulatory Commission, which oversees the wholesale markets, could open the door for more participation of aggregated distributed energy resources in the markets.

Right now, customer-managed storage, and storage paired with generation like solar, are the resources developers seem most interested in aggregating for wholesale participation, said Jeff Dennis, managing director and general counsel at Advanced Energy Economy.

But “what we have found is that wholesale markets often contain barriers” to distributed energy resource participation “that are either explicit or implicit,” he said. “And most often they’re implicit.” Participation isn’t necessarily prohibited, but it’s often limited to demand response.

It’s not clear under current policy how aggregated distributed resources “can provide services that they’re capable of providing,” Dennis said.

While regional grid operators have been examining the issue and clarifying interconnection requirements for distributed energy resources, they’re missing overall direction from the federal commission, he said. An overarching directive from the commission could set a clear path forward for operators and speed up their policy developments, but so far, the process at the federal level has been slow.

The commission currently has at least two major opportunities to make the wholesale markets more accessible for distributed resources. One is a docket proceeding, which has been open since 2016, looking at resource aggregation. The other is an order to grid operators to allow storage resources to participate in their markets.

A final order on the docket won’t come until at least November. And while grid operators’ storage policies are supposed to go into effect in early December, that timeline could be delayed. In the meantime, several developers have pursued projects they said allowed them to provide at least some value to the grid while serving their customers.

In early 2019, California-based developer Sunrun bid 20 megawatts of residential solar-plus-storage assets across four states in the ISO New England forward capacity market. These resources are set to be online in 2022. According to Sunrun and Advanced Energy Economy, this is the first time a solar-plus-storage developer has successfully cleared a forward capacity auction, which incentivizes resource development to ensure the grid can meet electricity demand in the future.

“The more value stacking you can do with a battery, the lower you can make the ultimate price for the customer,” said Chris Rauscher, a Northeast-focused director of public policy and storage market strategy at Sunrun. For example, customers could pay lower monthly payments on leasing agreements thanks to the capacity market payments Sunrun receives.

“Once a program is started, once you know there is this capacity market that you’re participating in, you can provide those savings up front,” said Amy Heart, a Midwest director of public policy at Sunrun. Company officials didn’t say how much New England customers might save, noting that individual savings depend on specific systems. However, Sunrun says that on average its customers save 10% to 40% on their electricity bills with typical 20- or 25-year contracts.

Heart noted that the sort of aggregation Sunrun is planning in New England isn’t available in the PJM capacity market, which in the Midwest covers parts of Illinois, Indiana and Michigan. Those barriers are “something we would like to make sure we eliminate,” she said. MISO, the other major Midwest grid operator, doesn’t have a capacity market like PJM but could implement something like a “bring your own device” program, Heart said, in which customers sign up their assets with developers like Sunrun, who aggregate those resources for demand response.

Wholesale market participation elsewhere has consisted mostly of demand response. In California, for example, solar and storage developer Stem has aggregated commercial systems to participate in the California ISO demand response program.

The Advanced Energy Economy report notes that technically, Stem’s resources could participate in other California markets. But unlike the state’s demand response program, that participation would require resources to be on call all the time, meaning they couldn’t participate in outside revenue-gaining programs. Additionally, the rules require customer-managed storage assets participating in the markets to pay twice for the energy they use to charge: once at the retail price and once at the wholesale price. This makes demand response more appealing and financially viable, the report says.

In New York, developer Enel X combines storage and load curtailment to participate in the state independent system operator’s demand response program. “It’s important for ISOs to be technology-neutral and allow any technology that enables the demand response, whether it be shutting off lights, a Building Management System, or storage, to participate,” Greg Geller, senior director of regulatory and government affairs at Enel X, wrote in an email. New York ISO allows for that neutrality, Geller said.

Even though clear direction from the federal commission would be useful, developers said the wholesale markets are only one possible revenue source. States and utilities also have important roles to play in incentivizing customer investment in distributed resources, they said.

Having more distributed resources on the grid will keep customer costs down overall, Heart and Rauscher said, because it will help defer utility investments in larger, more costly equipment like power plants and distribution lines.

“Every state and every utility and every market operator are going to move at different speeds,” Rauscher said. “But if you don’t have a pathway for residential solar and storage to provide its full value … you’re going to have unnecessarily high system costs.”


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