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Assimilating Distributed Energy Resources into Competitive Power Markets

January 10, 2018


Imagine a friendly Borg that, instead of forcing assimilation, says, “Come join our Collective, and let us profit together.” That’s essentially what the New York Public Service Commission (NY PSC) is saying through its Reforming the Energy Vision (REV) process. Distributed Energy Resources (DERs), such as on-site solar and combined heat and power (CHP) plants, would participate in local grids to produce and trade power.

REV is being pursued by the NY PSC, DER providers, and other energy service stakeholders. It is based on the transformation of electric utilities into distribution-level system operators (DSOs) analogous to the New York Independent System Operator (NYISO), which operates the wholesale transmission system across the State. However, instead of giant power plants and other utilities, a DSO would enlist end-users and localized small power producers (e.g., community solar).

Through a DSO, DERs and retail power customers will generate on-site power for export to the grid, making resources such as solar, CHP, and power storage systems more economically viable and competitive with electricity from large power stations. Since more power would be generated and consumed locally, less investment and construction of centralized generation and transmission would be required.

The key to making this concept into a viable reality has been compiling a report of the customer and distribution system interval data needed to support a real-time local power market. That system is not simply a group of interconnected wires. Instead, it is a complex set of nodes running at multiple voltages within each zone, involving many of the substations, transformers, relays, feeders, etc. At this time, access to that level of data is available only through utilities, and not in the real-time that may be needed by participants.

A former chairman of the Federal Energy Regulatory Commission (FERC), Jon Wellinghoff, stated, “The sharing of distribution-level data by New York utilities can fundamentally change the way utilities and third-parties operate not just in New York, but throughout the whole country…[and could offer] market-based solutions” to problems that are presently confronting power markets and utilities.

What might this mean to commercial and industrial power customers?

Those producing and/or storing power could join in the potentially lucrative market for ancillary services, which is, at present, typically populated by wholesale power traders, producers, and utilities. Such services include frequency regulation, synchronized reserves, and black start, each of which has its own monetary value. However, participation may involve a high level of technical sophistication, metering, telemetry, software, and automation: reaction times are measured in seconds, rather than hours.

Present wholesale power pricing is passed through to customers based on the zone in which each is located. New York State’s grid has 11 zones, 3 of which are in Con Edison territory. As power flow data becomes more granular (i.e., shorter time intervals), localized pricing based on nodes (e.g., at substation transformers, of which there are hundreds) becomes feasible. A customer’s location near a node may then impact its supply (and perhaps its delivery) pricing, just as its zonal location does now.

The market value of a customer’s power generation and/or storage may also rise. Instead of it reducing merely the customer’s own electric bill, a DSO would allow it to send power out to the grid to other customers unrelated to it. At times when wholesale pricing is high, a customer could choose to sell some (or all) of its on-site power to profit from such market movements.

A customer’s physical location on the local grid might also have a tradeable value. A customer may rent space to a developer’s power system based on wholesale pricing at the nearest node. Many existing rooftop photovoltaic (PV) systems are located on leased space but are presently limited as to size, distribution, and the pricing of the power they produce. Rules being developed now would allow systems that are geographically separate to aggregate into larger groups to facilitate participation in markets.

Luthin Associates closely follows developments in REV as well as the DSO and stands ready to assist customers in their efforts to participate in this new frontier of energy services.

For further discussion on this topic, please click on the link for the related article: How utility data sharing is helping the New York REV build the grid of the future

Luthin Associates

Written by Luthin Associates

Founded in 1994, Luthin Associates provides energy advisory services to all industry sectors in the New York Tri-state region and beyond. In 2019, Luthin Associates joined forces with 5, an innovative energy advisory firm comprised of energy innovators, commodity traders, analysts, engineers, and former energy supplier executives. As part of the 5 family of companies, Luthin Associates provides strategic advice on energy-related matters including procurement, demand-side management, rate optimization, regulatory intervention, benchmarking, bill auditing, RFP management, sustainability planning services, renewable power, and distributed generation.