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Q&A with Arun Majumdar: New rule lets people sell energy flexibility into power market

Sep 30, 2020
Precourt Institute

By Kara Glenwright

With intermittent solar and wind power now an increasingly important part of the U.S. electricity landscape, a key to enabling more intermittent renewable energy lies in flexibility and coordination of the electric grid.  One untapped option is to leverage millions of digitally connected distributed energy resources (DERs) of loads, storage, generation and electric vehicles and enable them to provide this flexibility. On Sept. 17, the Federal Energy Regulatory Commission approved Order 2222, which allows consumers to aggregate DERs to sell their flexibility services in wholesale energy markets.

EV charging port

Many consumers have programmable thermostats that can reduce air conditioning use when supplies get tight. Batteries or EVs can charge from the grid when solar generation exceeds demand and discharge that energy at a later time to provide power to the grid when needed.  Homeowners and businesses with rooftop solar panels can use that power, put it on the grid or, increasingly, store it for later use or sale. Harnessing the combination of such devices and flexibility of DERs is the heart of the new federal order.

Arun Majumdar, director of Stanford University’s Precourt Institute for Energy and professor of mechanical engineering, provided insights on how the new regulation could transform the one-way, utility-to-consumer electricity system into a dynamic network that remains stable with heavy reliance on intermittent renewable energy.

What is exciting about this new order?

Arun Majumdar headshot

Arun Majumdar: This really opens up competition with the possibility of a new host of millions of appliances and devices that could be leveraged. This is a big deal. It opens up new services for grid flexibility which will be in demand more and more as we introduce more renewables in the grid.

The whole idea that enabled this to happen was that we have volatility on the grid from the generation side because of large-scale wind and solar. We are seeing the trends of more and more integration of intermittent renewable power, and so this problem is only going to get worse. And then we have distributed resources, like solar and storage and EVs, coming on board on the other side of the grid, on the demand side, which could also introduce volatility.

At Stanford in 2016, we launched a cross-campus initiative called Bits & Watts to help create the technology, policy, and markets to address this. Our vision was to connect the dots because we know that cloud services allow us to digitally connect all these devices, aggregate them, and provide services not just to utilities’ distribution grids but to the wholesale market as well.

How does the order aim to create more competition in the electricity market?

As the sun goes down, solar electricity goes down around 5:30 or 6. And people go home and turn on their stoves and other energy needs. What we find is in the early evening there’s a huge ramp up in electricity use. Today that is provided by natural gas, for example in California. Natural gas has emissions and there is no carbon price in the U.S. today. But we must recognize that we are living in a carbon-constrained world, now and more so in the future.

You need other options to provide this kind of flexibility. Opening up the market for other options where the incremental cost is really low – because these assets may already exist – provides competition and thereby reduces the price, and hopefully reduces emissions as well.

Will this new order enhance grid reliability?

It could go both ways. Certainly, if you have distributed energy resources and if this order encourages more such resources, you could potentially think about resilience through formation of microgrids. Let’s imagine there’s a failure in the main grid, or some parts of the grid. You can isolate some other parts and still have them running. In that sense, it provides resilience. The whole grid doesn’t come down.

solar panels on roof

But, there is a risk associated with this. Let’s say I have networked thermostats in my neighborhood and I see a market signal that if you reduce the load, you will get paid by the wholesale market. If I have access to all the thermostats in my neighborhood, I suddenly say ‘I’m going to raise the setpoint temperature from 68 degrees to 70 degrees.’ What happens then? All the air conditioning has stopped working all of a sudden, and while I’m trying to sell that service to the wholesale market and make some money, I may destabilize the local network when that part of the distribution grid needs increase demand to alleviate excess solar PV production.

How will it affect consumer costs?

Let’s say I’m a third-party entity. I want to get access to your storage in your home or, for that matter, your thermostat. If you opt in to my offer, I can take your service and a thousand other homes and provide that service to the grid. I can make some money from the wholesale market and share some of the benefits with you. That could be a business model that could leverage this FERC order. On the other hand, I think it’s very important that when you have a market mechanism that provides competition, it's efficient to reduce the price.

How much do you think this order will be about residential customers versus commercial or industrial consumers?

The FERC order kept the minimum size requirement of DERs at 100KW. It is expected to drive a strong growth in residential DERs. Of course, initially it’s going to be commercial and industrial because they already have scale. The incremental cost of doing the aggregation is cheaper because they have less to deal with.

But, let’s say you look at a network thermostat company like Nest. It certainly has the ability to do it because it has scale already, but location and timing matters. If there’s a lot of them in one neighborhood and not in the other, then when turning off the thermostats, one has to worry about the stability of the local grid. Perhaps they could dynamically randomize when they are turned off and on.

Is this order going into action only during extreme periods of demand response?

It’s way more than that. The FERC 745 issued in 2011 was for demand response, which allows “opt-out” for states who don’t want their ratepayer funded DR programs to participate in the wholesale market.  The FERC 2222 is built upon the great success of FERC 841 issued in 2018 and defines DERs as “any resource located on the distribution system, any subsystem thereof or behind a customer meter”. More importantly, FERC order 2222 doesn’t provide an “opt-out” for states.