CAISO Takes Step to Allow Distributed Energy Resources to Compete in Wholesale Energy Markets
On June 10, 2015, the California Independent System Operator (“CAISO”) released a draft final proposal (the “Expanded Metering and Telemetry Options Phase 2, Distributed Energy Resource Provider”) that, if finalized, would represent an initial step towards a regulatory structure that would result in distributed energy resources (“DERs”) competing in California wholesale energy markets. DERs are resources that are physically connected to the distribution grid of an electric utility (e.g., rooftop solar, energy storage, plug-in electric vehicles, and demand response). In order for DERs to sell into the CAISO wholesale markets, they would use the distribution grid of the electric utility to deliver power to or to take power from the transmission grid. Currently, the vast majority of existing renewable resources sell their power to California’s electric utilities. Those distributed resources are compensated by electric utilities for the electricity they generate at a rate far in excess of current CAISO market prices. In addition, those resources do not have the right or the ability to sell power directly into the wholesale market. Absent the California Public Utilities Commission (“CPUC”) adopting a substantially revised regulatory structure that sorts out the thorny jurisdictional, economic and technical issues (e.g., metering and compensation for resources located behind the retail meter), the immediate impact of CAISO’s proposal may be modest at best.
Under the proposal, CAISO would create a new classification for distributed energy companies, designating them Distributed Energy Resource Providers (“DERPs”). DERPs would be allowed to aggregate resources behind certain load aggregation points in order to reach a 0.5 megawatt (“MW”) minimum threshold required to enter the CAISO market. An agreement between a DERP and CAISO, termed a “DERP Agreement,” would establish the terms and conditions under which an individual DERP would operate. Multiple aggregations could fall under the umbrella of a single DERP Agreement and the proposal also would allow the managing DERP to communicate with CAISO via a single point of contact. DERPs would be classified as scheduling coordinator metered entities for metering purposes. The CAISO has not yet proposed how the independent scheduling coordinators would meter the DERP’s aggregation of resources or how this information would be reported back to CAISO. CAISO has indicated that demand response participating in the proxy demand resource (“PDR”) and reliability demand response resource (“RDRR”) frameworks, which already allow aggregation, would continue that participation and would not be part of DERP aggregations.