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To Unlock More Corporate Advanced Energy Procurement, Look to RTOs and ISOs

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Advanced Energy Perspectives is AEE's blog presenting news, analysis, and commentary on creating an advanced energy economy. 

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  • Feb 3, 2021
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To Unlock More Corporate Advanced Energy Procurement, Look to RTOs and ISOs

It’s no secret that Fortune 500 companies want more advanced energy. Over the past five years, these companies have signed contracts for more than 24 GW of large-scale renewable energy, pursued thousands of onsite solar installations, and embraced newer technologies like battery storage. The role of organized competitive wholesale markets as enablers of advanced energy procurement by large buyers is, however, a bit of a trade secret. Which is too bad, because policymakers could meet the needs of businesses and accelerate the transition to a cleaner economy all at once by expanding and reforming these markets. Here’s how.

A report from the Advanced Energy Buyers Group lifts the curtain on how and why companies choose to pursue a range of advanced energy technologies within organized competitive wholesale markets operated by Regional Transmission Organizations and Independent System Operators (RTOs/ISOs). The report also offers policymakers and regulators ways to increase opportunities for corporate advanced energy procurement, including expanding RTOs/ISOs into regions like the West and Southeast that don’t currently have them and reforming existing RTOs/ISOs to remove barriers and create new opportunities.

Large buyers pursue a range of different technologies—renewable energy, demand response, energy storage, and more—through a variety of procurement approaches, including power purchase agreements, onsite installations, and broader efforts to “green the grid” that serves their facilities. For some of these transactions, the presence of an RTO/ISO market is a foundational enabler, while for others the increased transparency and competitiveness of an organized wholesale market makes the transaction easier.

For example, the vast majority of large-scale renewable energy purchases by large buyers rely on virtual power purchase agreements (VPPAs), which in turn rely on RTO/ISO markets. While the signer of a VPPA can be located anywhere, the renewable energy project developer must be able to deliver the power into a competitive, liquid market, which has effectively limited VPPAs to RTO/ISO regions. Organized wholesale markets also offer more flexibility for electricity suppliers—whether vertically integrated utilities or competitive retail suppliers—to deliver transparent and competitive renewable energy products to their customers. These markets also create more opportunities for customer-driven distributed energy resources (DERs) by allowing technologies like demand response, battery storage, and distributed generation to provide value at both the retail and wholesale level, making these technologies more competitive and reducing costs to the customers who install these devices. More broadly, RTO/ISO markets foster competition of supply and demand resources, facilitate coordinated regional transmission planning, provide access to transmission at a single rate, and better enforce open access to the transmission system, all of which serve to enable market entry for cost-competitive advanced energy resources.

What’s the takeaway for policymakers who view corporate procurement of advanced energy as an important pillar of the transition to a cleaner economy? The first would be to expand RTO/ISO markets into regions like the West and Southeast that don’t currently have them. This would bring all the benefits of these markets to advanced energy buyers in those regions while also delivering cost savings to all customers due to more efficient buildout and operation of generation resources and transmission infrastructure. These regions are already actively considering deeper regional coordination; accelerating those discussions with a focus on full RTO/ISO formation is key to unlocking the potential benefits.

In regions that already participate in an RTO/ISO, there are ways to reform existing markets to improve customer access to advanced energy. These include building additional cost-effective transmission and increasing the capacity of existing transmission infrastructure, clarifying and simplifying interconnection and operational requirements for emerging resource types and configurations to remove barriers to entry for new technologies, ensuring that markets accurately value the capacity and ancillary services benefits of advanced energy technologies, and increasing price transparency in wholesale markets. All these steps will ensure that the resources customers are seeking have opportunities to enter the market and compete on a level playing field, which will help customers pursue these resources. The report also recommends consideration of broader reforms to organized wholesale markets that will enable these markets to support a grid dominated by advanced energy resources – an effort that is already underway in some markets. Finally, the report highlights the importance of ensuring that advanced energy buyers have a sufficient voice in the decision-making process, a recommendation that will require action not only by RTOs/ISOs but by buyers themselves.

The ins and outs of RTO/ISO market rules get very complex very quickly, so here’s the bottom line: Anyone serious about getting to 100% clean energy as quickly as possible knows that voluntary purchases by large buyers can and must continue to play an important role in getting there. Removing barriers and increasing opportunities for voluntary buyers will expand their ability to move the needle, and one of the best ways to do that is to expand and reform organized competitive wholesale markets. Doing so will enable customers to follow through on the sustainability commitments they’ve made, benefitting these companies while delivering a cleaner, more affordable, and more reliable grid to all customers.

To download the Advanced Energy Buyers Group Report, "Organized Wholesale Markets and Corporate Advanced Energy Procurement," click below. 

Download the Report

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