Today’s post is heavily inspired by Vinay Konuru, a sophomore at Princeton who is a rising mind in electric grids and runs the blog Electric Grid Gossip.
Problem: As described by Vinay in his most recent blog post, “At the end of last year, the Federal Energy Regulatory Commission(FERC) released Order 2222. It allows distributed energy resources, which encompasses any form of small scale energy generation like solar and wind energy, to compete for contracts in wholesale energy markets. This release has gone under the radar in the news, but will have far reaching impacts on the way our grid is powered.” Let’s use his writing as a guide to understand the future of our electrical infrastructure. Unless otherwise noted, the text below was written by Vinay, read more of his blog here.
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To understand Order 2222, it’s important to first understand what a wholesale energy market is and how it functions.
So far, we’ve been abstracting away the relationship between power generators and power suppliers. Prior to 1996, utilities were vertically integrated, with one local company controlling the generation, transmission, and distribution of electricity. For clarity, transmission refers to carrying high voltage direct current (HVDC) from generators to substations. Distribution refers to carrying lower voltage wires from substations to individual homes and businesses. This system changed in 1996 when FERC broke apart these monopolies through Orders 888 and 889, separating them into energy generation, transmission, and distribution businesses. Today, the majority of power generation is controlled by private and independent entities, generating 38% and 40% of the US’s energy respectively. Private entities also control 80% of transmission, and public entities control 50% of distribution. To stabilize the cost of electricity and promote fair trade between energy generators, transmitters and distributors, the FERC created regional transmission organizations(RTO) and recommended the implementation of independent system operators(ISO). These organizations regulate the sale of electricity between energy generators, transmitters, and distributors through contracts that can be won.
ISOs and RTOs release contracts in two categories: power and energy. Power contracts focus on the long term power needs of the grid, modeling how energy demands will increase in the future. For example, if the ISO in New Jersey believes that an increase in electric vehicles will result in a 3% increase in energy loads in three years, it will release a contract for a power generator to meet these demands by a certain deadline so that the grid is prepared to meet future load requirements. Energy contracts deal with real time markets, finding producers to meet current energy demands.
Order 2222 forces wholesale energy markets to allow DERs like solar and wind energy generators to compete for energy contracts. But why wasn’t this already possible?
How our Grid is Powered Today
To understand why renewables haven’t been allowed to power the grid so far, we have to understand the basic economics of energy grids. Energy producers ideally want to produce the exact supply of power as demanded at any given moment. Any excess power produced can’t be stored, so it’s just wasted. The current grid has worked well because power generators have had direct control over how much power they can produce. Because natural gas and coal release a predictable amount of energy when burned, power plants can change their burn rates to meet the demand for electricity. Demand, on the other hand, is not stable. Instead, it’s constantly fluctuating. Power needs are higher during the day than at night, greater during the summer than the spring, and generally increasing over time as more of our devices plug into the grid. These patterns can be modeled relatively well, and thus the required amount of power can be met by power generators. When there are unexpected spikes in electricity demand, less efficient power plants known as peaking power plants or “peakers” are run, often for just a few hours, to meet the demand. These plants are more expensive to run than traditional power plants, but it doesn’t make economic sense to build better power plants because they are only needed for short durations. This seems like it would be a great place for renewable energy to be used because it would reduce both the costs of operating peaker plants and make the grid more sustainable.
The Effect of Renewables on the Grid
But what actually happens when we try to phase out these inefficient, unsustainable peaker plants with more renewable options? Big problems. Solar and wind energy are both intermittent, varying in the power they produce based on the time of day and weather. So far, power suppliers were using their control over supply to directly meet load demands. If suppliers don’t have complete control over supply because of the unpredictable voltages of renewable resources, they may not be able to meet power demands, causing blackouts.
This is where DERs come in. As explained earlier, distributed energy resources are any form of small-scale power generation or storage, typically between 1kW-10,000kW. They typically fall into five categories: energy storage, distributed generation(solar, wind, etc), demand response, energy efficiency, and electric vehicles. Demand response and energy efficiency are the most unconventional “sources” of power in this list. Demand response is the concept that, when there is a spike in power demand on the grid, a load can turn off for a few minutes so that a power supplier can prevent a blackout. For example, a steel mill might be paid to turn of their furnaces for a few minutes when energy demand is at its peak. Energy efficiency is when a load increases its efficiency so it requires less power from the grid. For example, if a large restaurant installed more efficient lightbulbs, it could be compensated for reducing the strain its energy demands put on the grid. Although neither of these ideas produce power directly, they rely on the concept that finding ways to not use something is equivalent to producing that something ie. A penny saved is a penny earned.
DERs give utilities the ability to vary the supply of energy from renewable resources to meet grid demand in a consistent and reliable way – something that is not possible with intermittent power sources alone For example, when there is a spike in demand on the grid, a utility can meet the grid’s requirements by both supplying electricity generated from a local solar farm and cut power to the local steel mill that agreed they’d be willing to sell their demand at a set price. This avoids the need to turn on expensive, inefficient peaker plants to meet power demand.
We covered earlier that wholesale energy markets have two categories of contracts: power contracts and energy contracts. DERs are more suited for power contracts because they can find businesses that can respond to demand, increase their efficiency by the contract deadline, or temporarily pull from renewable sources to meet the grid’s needs specified by the ISO. Many new DER companies like Enbala and Voltus have opened up in the last few years, predicting the importance of this resource for the future stability of the grid and the impact it would have on energy wholesale markets. They function by accepting power contracts to reduce grid demand by a certain deadline, and then finding different DERs that will help meet the requirements of the contract. This includes talking with local businesses about improving their energy efficiency to remove loads from the grid, helping intermittent power generators find a market for their energy, and identifying facilities that may agree to be partners in demand response.
The ability for DER’s to now participate in these markets is a significant milestone towards a future distributed energy grid. The flexibility they provide to renewable energy sources enables them to be used in a much more meaningful way. The impacts of Order 2222 will be far reaching, and I believe the role of DERs will only grow. I’m excited for where this road will lead. This is truly the beginning of a major change in way our grid is powered.
Sources:
https://www.energy.gov/oe/information-center/educational-resources/electricity-101
https://en.wikipedia.org/wiki/Regional_transmission_organization_(North_America)
https://learn.pjm.com/electricity-basics/market-for-electricity.aspx
Contributed by: Vinay Konuru