2018 Articles

Distributed Energy Resource Participation in Wholesale Markets: Lessons from the California ISO

Gundlach, Justin M.; Webb, Romany M.

The California Independent System Operator (CAISO) aims to “support” and “facilitate” wholesale market participation by aggregations of distributed energy resources (DERs)—solar panels, batteries, and other energy technologies installed in small quantities at scattered locations. This reflect CAISO’s recognition that “[t]he number and diversity of these resources are growing and represent an increasingly important part of the future grid.” However, CAISO has also recognized that system operators can only draw on DERs if they perform reliably, their operation is predictable and transparent, and their contributions are large enough to be economical both to their owners and the grid as a whole. While the aggregation of multiple DERs can support each of these conditions, providing for such aggregation will require adjustments to existing wholesale market rules. CAISO is not alone in recognizing the potential contributions to market performance of aggregated DERs, but it was the first wholesale market operator to begin exploring how to make the adjustments necessary to enable their participation. Similar programs for the aggregation of demand response have existed in markets operated by CAISO and other independent system operators and regional transmission organizations (ISO/RTOs) for several years. Those programs do not, however, allow energy exports to the bulk power grid. To address this limitation, CAISO adopted a new program, which allows DERs to provide energy and ancillary services to the grid. At the time of writing, CAISO’s program had attracted just four participants—DER providers or “DERPs”—none of which had yet begun operating in the energy or ancillary services markets. Meanwhile, the other ISO/RTOs and the Federal Energy Regulatory Commission (FERC or the Commission) that oversees them are following CAISO into the fray. The FERC is considering requiring all ISO/RTOs to adopt their own programs for DER aggregation, which may be modeled on the one currently used by CAISO.4 Despite this, however, there has been no comprehensive review of how the CAISO program is operating and why it has attracted so few participants. This article is intended to fill that gap. This article examines CAISO’s DER program after its first year of operation. It draws on written comments submitted to CAISO in the course of program development and on interviews the authors conducted with stakeholders—including active and potential DERPs, investor-owned utilities, and customer groups—to identify “barriers” to program participation. Irrespective of whether these barriers are appropriate—e.g., to ensure continued wholesale system reliability as DER penetration increases—they have clearly prevented the DER program fulfilling CAISO’s stated goal. The barriers should, therefore, be considered by other ISO/RTOs in developing programs with similar goals. The authors identify six key lessons that other ISO/RTOs and regulatory authorities can learn from CAISO’s experience.