Defining the rules of DER aggregation

The North American Energy Standards Board will work with the Department of Energy to develop a standardized contract for distributed energy resource aggregation, the organization said Monday.

• The top line: The development of a standard contract is happening at the request of DOE, in an effort to “provide clarity and enhance the scalability of DER projects,” NAESB said. While the rules aren’t specific to virtual power plants, they would likely simplify deployment, in part because contracts vary widely between states and utilities when it comes to specific services and performance expectations from aggregators.
• The nuts and bolts: NAESB will develop terms and conditions for a standard distribution services contract via a consensus-based process, the organization said. Those terms will account for state policies while also being adaptable to the specific circumstances of regulators and trading partners.
• The market grounding: The Federal Energy Regulatory Commission's Order 2222, issued in 2020, instructs grid operators to enable DER aggregators to participate in wholesale markets. A standard contract serves that purpose by “enabling more seamless participation” for aggregators, NAESB said in a statement.

According to a DOE report on the commercialization of virtual power plants, they have the capacity to address up to 20% of peak demand by 2030, avoiding around $10 billion in annual grid costs.

But despite that call to action — and the enthusiastic support of Loan Programs Office director Jigar Shah — the VPP market in the United States is still relatively small, and highly concentrated. The country would need to install 160 gigawatts of VPP capacity by 2030 to meet emissions reduction goals, but isn’t yet on track to do so.

That said, there’s general agreement that the market is maturing, even if it has yet to land on a single business model that will drive scale. Doing so will require stakeholders to settle on a business model blueprint that takes what works from the many pilots underway across the U.S. common elements, AutoGrid CEO Ruben Llanes told Latitude Media in November.

One of the largest outstanding challenges to VPP proliferation, he said, is the slow development of market rules and cost structures, he said, adding that the success of VPPs is ultimately reliant upon a viable regulatory framework.

“That framework in the United States varies significantly, depending on which part of the country that you're in,” Llanes said. “And so those ultimate market rules and regulations, I think, are something else that will need to be refined.”

Even as NAESB works to refine the rules of engagement for DER aggregation, the still-evolving VPP market seems to be consolidating, with a flurry of acquisitions late last year signaling increased awareness of utility needs.