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Can Net Energy Metered (NEM) Solar participate in wholesale markets?

Rao Konidena's picture
Independent Consultant Rakon Energy LLC

Rao Konidena found Rakon Energy LLC because Rao is passionate about connecting clients to cost-effective solutions in energy consulting, storage, distributed energy resources, and electricity...

  • Member since 2014
  • 189 items added with 40,120 views
  • May 5, 2022

A key question that energy aggregators and distributed energy resource providers are wrestling with is: Can Net Energy Metered (NEM) solar participate in wholesale markets as FERC envisioned in Order 2222? Since all the grid operators have filed their compliance plans for FERC Order 2222.

This question is important because NEM solar is a retail program approved by state utility commissions. But wholesale energy markets fall under Federal Energy Regulatory Commission (FERC) jurisdiction. Demand response programs can participate under both retail and wholesale market constructs. That DR program participation was enabled by FERC Order 719, but states were allowed to either “opt out” or “opt-in” their retail demand response program participation in the wholesale markets. States in the Midcontinent ISO (MISO) except for Illinois opted out. States in PJM have opted in, and as a result, we see many demand responses participating in PJM’s capacity auction.

So, can NEM Solar participate in the MISO and SPP markets?

The answer need not be complicated, but it is. MISO does not mention NEM Solar in its compliance filing for Order 2222. MISO mentions it is up to States and Distribution Utilities to allow programs like NEM Solar to participate in the wholesale market. This issue is also known as “double-counting,” FERC does not want the grid operator to pay NEM Solar twice for the same service.

It would not be paying for the same service if NEM Solar participates in the wholesale energy market from 9 am to 1 pm, for example, and receives retail compensation from 1 pm to 7 pm. Different hour blocks and different revenue streams - what is wrong with that?

And in the case of demand response, MISO conducts a net benefits test that shows DR was beneficial to the grid and would pay DR the prevailing Locational Marginal Price (LMP).

NEM Solar could be compensated similar to demand response. Unfortunately, MISO and Southwest Power Pool (SPP) filings at FERC in dockets ER22-1640 (MISO) and ER22-1697 (SPP) do not shed enough light on this important double counting issue.

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No resource can get compensated twice for the same service per FERC 2222. 

So if the solar is net metered (energy service), it can not be in the wholesale market at the same time for the same energy service that it is being paid for by someone else. 

If the ISO defined a different service that the solar could participate in, that did not roll up into energy services, then yes you could try to aggregate that solar resource and bid it for only that service this is not energy.

The last comment is tempered by the fact that to date, there are no defined services that solar can also participate in (based on the latest draft rules from each ISO). That the distribution utility has the right to review and deny participation (with good reason) for any resource attached to their grid, and that states may decide to end Net metering if enough DER participates in 2222 activities. 

None of the ISO /RTO documents are really "finished" yet, there are many questions that still need to be detailed in the rules. Expect it to take at least 5 years to iron out the issues with these rules, and that updates will appear regularly from now until likely 2026. Market monitors will find lots of holes/issues/problems that will have to be resolved. 

My favorites right now include:

- How to properly define and compensate energy efficiency

- How to deal with baselines for demand response

- Can I wheel an aggregation to another ISO/RTO (e.g. an aggregation from Chicago (PJM) into MISO (right next door)

- Can my 2222 aggregation participate in Capacity auctions?

No set of rules that I have read has good answers to these questions.

Richard Brooks's picture
Richard Brooks on May 20, 2022

I generally agree with Doug's answer and the questions he raised, except for the question about DERA and capacity auctions. It's my understanding FERC Order 2222 allows DERA to participate in capacity auctions.

FYI: NAESB has received a standards request from DOE to create a "Grid Services Standard" to smooth the integration of DER into wholesale markets. I hope Doug, Rao and others reading this will participate in this important initiative.

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