Dive Brief:

• Grid operators and utilities are considering what reforms wholesale energy and ancillary services markets may need in order to effectively manage intermittent resources and maintain reliability, according to a September white paper presented by staff of the Federal Energy Regulatory Commission.
• FERC on Tuesday held the third in a series of technical conferences focused on modernizing electricity market design. "We're obviously in the middle of a dramatic transformation," said Chairman Richard Glick. The grid is increasingly reliant on intermittent generation resources like wind and solar, which "present some challenges" and create a need for flexible resources.
• Demand response can help provide that flexibility, Susan Bruce, counsel to the PJM Industrial Customer Coalition, said at the conference. However, she cautioned regional transmission organizations (RTO) and independent system operators (ISO) "should engage with customers to ensure program design is not too esoteric to prevent meaningful participation."

Dive Insight:

Balancing an increasingly-intermittent grid requires flexibility, and FERC's conference convened on Tuesday to discuss what resources can provide that flexibility and how their services should be valued.

The day-long event aimed to delineate a variety of issues in RTO and ISO markets, and tee up a more detailed discussion in October. 

"The different regions of the country, some are further along than others in terms of resources they have on the grid. And they've tried to address this growing need for flexibility to address intermittency," said Glick. While there are ongoing debates over how the capacity market can solve these issues, he noted that "the majority of the payments in our organized markets come in the energy and ancillary markets."

Glick said he is focused on three prime issues: how system needs are changing, how those changes impact services being procured in organized markets, and the best way to price products and services. Another technical conference on Oct. 12 will focus on these and similar topics, said Glick. Two previous conferences primarily focused on capacity markets.

Tuesday's discussion "will serve as the foundation of next month's follow-up conference that will dig deeper into possible market changes to incentivize value and ultimately deliver the operational flexibility that our electric system will increasingly depend on in the coming years," Commissioner Allison Clements said in opening remarks.

Diversifying energy technologies and market participants "can result in smarter, more cost-effective reliability and resilience, and our markets must and can evolve to do both," she said.

In New York, as in other places, technology advances, environmental considerations and public policies are transforming the grid and resource mix, said Mike DeSocio, director of market design for the state's ISO. As those changes are incorporated, operating reserves will continue to provide a key capability to the grid.

"However, changes to the grid and operational risk require we consider both flexibility and energy security. We will also need resources that can quickly respond in seconds and minutes to unforeseen liability risks," DeSocio said. "We will also need resources that can provide energy output for hours and days to manage lengthy grid risks such as renewable output lulls, system restoration needs and storm watches."

The New York ISO also sees correlated outage risks growing, in part due to a future resource mix "reliant heavily on weather dependent resources, and partly due to the age of existing infrastructure," including transmission, DeSocio said.

Demand response can help meet the need for system flexibility, said Bruce, the attorney for the PJM Industrial Customer Coalition.

"As has been proven time and time again, demand response is a tool that goes beyond emergency conditions. Demand response can provide needed flexibility for operators," said Bruce. And "technology innovation and modeling that better reflects customer behaviors, also would help to minimize the risk faced by operators and should be part of the conversation and solution."

In PJM, reserves are a product with many different uses, said Adam Keech, vice president of market design and economics for the grid operator. The operator in 2019 proposed changes to the way reserve markets were designed, looking to increase flexibility and address uncertainty.

"We're really trying to get that net load uncertainty to inform the reserve requirement because we deploy reserves for a number of different reasons," said Keech. "For us, the most important things coming out of the reserve markets are the ability to commit units and get megawatts onto the system and ramp them up quickly."

Keech also said market products need to address specific problems rather than a general desire for flexibility in order to be effective. "It's important from our perspective that the services focus on clearly-defined problems," he said. "Where we separate products and make them differentiated. The problem they solve needs to be clearly differential."

PJM stakeholders spend a lot of time focused on the grid's capacity market, Keech said, but spot-market operational products are "fundamental to market design."

It is important that "we get the incentives in the real-time timeframe correct, we articulate the demand correctly and we articulate the products clearly, and we address clearly-defined issues," he said. "And that starts with the real-time markets."