Understanding the True Impact of FERC Order 2222 on America’s Energy Grid
On September 17, 2020, the Federal Energy Regulatory Commission (FERC) approved Order 2222 – allowing aggregators of solar, wind, electric vehicles, battery storage, and other distributed energy resources (DER’s) to compete in regional wholesale electricity markets. When it officially goes into effect in February 2022, Order 2222 has the potential to revolutionize the US energy grid, making power delivery greener, cheaper, and more reliable as the nation transitions to a decarbonized future.
In this blog, we aim to explain what Order 2222 is, how it will impact the wholesale energy market, and why FERC Chairman, Neil Chatterjee, describes it as a “landmark, foundational rule that paves the way for the grid of tomorrow.”i We also explore some of the key challenges this new rule will likely face – and how growing reliance on artificial intelligence, machine learning, and automation can help Order 2222 achieve its full potential.
What Is FERC Order 2222?
The Federal Energy Regulatory Commission is responsible for ensuring competition, transparency, and fair pricing within the US electricity market. Because the Commission officially regulates the interstate transmission of electricity, it has historically let regional utility markets and individual states create their own interconnection rules for privately owned distributed energy resources like photovoltaic (PV) panels, EV-charging, wind energy, and on-site storage systems.
With Order 2222, however, aggregators of these DER’s will soon be allowed to compete alongside traditional utility-scale resources in regional wholesale energy markets. Individually, most distributed energy resources would fail to satisfy the requisite sizing and performance thresholds to compete in these markets. But when grouped together in aggregate, they will soon qualify as “market participants” once independent system operators (ISOs) rewrite their tariff rules under the new Order 2222 framework.
How Will Order 2222 Impact Utilities and Wholesale Energy Markets?
According to the Federal Energy Regulatory Commission, Order 2222 will,ii
“[H]elp usher in the electric grid of the future and promote competition in electric markets by removing the barriers preventing distributed energy resources (DER’s) from competing on a level playing field in the organized capacity, energy, and ancillary services markets run by regional grid operators.”
FERC cites 3 distinct ways in which Order 2222 will help achieve these goals – namely by lowering energy prices, improving grid reliability, and increasing innovation.
- Lower Energy Prices for Consumers
Because of their modular flexibility, distributed energy resources like rooftop solar and battery storage systems can respond more quickly to market demands. This speed and agility allow for energy delivery at a lower cost to end-users.According to the Federal Energy Regulatory Commission, distributed energy resources,iii
“[C]an locate where price signals indicate they’re most needed. This can, for instance, help reduce congestion costs, driving down prices for customers. That means smaller energy bills for hardworking families and businesses of all shapes and sizes.”
- Improved Grid Reliability and Delivery
Due to their fast response times, DER’s can quickly meet demand needs – even as grid conditions rapidly evolve in real-time. This is in sharp contrast to centralized power generation in which utility operators often need long lead times to satisfy changing grid conditions. These delays are especially pronounced when using legacy energy sources like coal, natural gas, or nuclear – all of which have relatively long lag times.
- Increased Investment and Innovation
Competition is the engine of innovation. And by leveling the playing field, Order 2222 will attract what FERC calls the best and brightest minds to “pool their talents and bring new ideas to the table.”iv In effect, Order 2222 will help drive innovation as edge device manufacturers, asset managers, and DER aggregators all begin competing in a more open and transparent market.
While these goals are realistic, achieving them will not be automatic. In fact, several key obstacles remain. And left unresolved, these hurdles could severely hamper the nation’s larger decarbonization efforts.
Potential Hurdles Hindering Order 2222’s Success
In addition to monitoring their own power generation, utilities are also tasked with managing all the privately owned distributed energy resources connected to the grid. From rooftop solar to on-site batteries, however, many of these DER’s are behind-the-meter and outside each utility operator’s direct control.
To manage this growing complexity, the Department of Energy’s Electricity Advisory Committee (EAC) cites technologies like distributed energy resource management systems (DERMS’s) as critical to the long-term success of Order 2222. It goes on to explain that such platforms are essential for,v
“Ensuring systems and standards exist for two-way power flow, dispatch, load and voltage management, multiple DER co-development, and integration of platforms and tools….”
While DERMS technology can indeed help grid operators more effectively manage both internal and external energy assets, there’s more to the puzzle.
As more end-users connect their PV panels, solar batteries, and electric vehicles to the grid, utilities are becoming increasingly overwhelmed by the sheer amount of real-time data they must manage when optimizing network-wide energy delivery. In fact, analyzing all this generation, consumption, storage, and weather data is beyond the scope of human decision-making. This is especially true given that many DER’s rely on intermittent power sources like solar and wind – both of which are unpredictable.
Even before Order 2222 was officially introduced, experts predicted the US would bring on an additional 65GW of distributed energy resource capacity over the next 4 years, with some estimates pushing it closer to 380GW.vi Allowing DER aggregators to compete in wholesale energy markets will only accelerate this growth – placing even greater strain on an already burdened system.
Ironically, the rush to decarbonize could lead to more overall waste, higher prices, and less reliable delivery once Order 2222 allows distributed renewable power sources to compete.
How Artificial Intelligence and Machine Learning Can Help
Faced with the challenges of analyzing large data sets in real time, many utility providers have started turning to a range of IT tools to automate complex decision-making. While human actors are poorly equipped to manage this much real-time information, computers are purpose-built for this very task. And when combined with artificial intelligence (AI) and machine learning capabilities, computers are also able to:
- Make accurate predictions about where energy supply, demand, and prices are headed – based on both historic data and real-time information
- Generate and execute instructions about the optimal mix of energy generation, storage, and delivery – based on current and anticipated demand
- Benefit from adaptive learning as the AI algorithm continues to refine its predictions – becoming increasingly more accurate over time
Better still, machines can do this automatically and at scale – even as the number of grid-connected distributed energy resources grows exponentially.
This shift to automation is already happening as more utilities, edge device manufacturers, and asset managers embrace the power of artificial intelligence to optimize real-time grid management decisions. According to some estimates, AI-enabled DER integration is expected to grow 10% annually over the next decade to become a nearly $500 million market.vii
Order 2222 will likely accelerate this timeline as utility operators increasingly embrace AI as more DERs come online in unprecedented numbers. Similarly, wholesale energy buyers and sellers will likely turn to artificial intelligence to help with price forecasting – initially as a competitive advantage and eventually out of competitive necessity.
Grid operators and independent power producers already face a host of challenges when managing intermittent renewables like solar and wind – resulting in:
- Network congestion
- Energy fluctuations
- Price volatility
- Equipment burnouts
- Grid blackouts
Allowing DER’s to compete in the open market will only amplify these challenges as even more behind-the-meter energy assets connect to the grid.
Being able to accurately predict and reliably deliver energy from these sources is crucial to the health of the entire electricity grid. And to satisfy their mission of delivering safe, reliable, and affordable power to their customers, utility operators will have to integrate intelligent distributed energy resource management systems (DERMS) that leverage the power of artificial intelligence.
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If you’d like to get more details about the FERC 2222 order and what the future holds, be sure to read the resources below.