March 19, 2020: Over the next decade, traditional fuel-based generation will shrink as a proportion of the power mix. This will increase the flexibility needs of utility and power markets, according to Wood Mackenzie.
Additional capabilities will be needed to solve the increasing number of grid-balancing challenges associated with a more intermittent and renewable generation fleet.
The imperative to identify and implement these solutions will lead the industry to continue to experiment with innovative market reforms to unlock the growing and as-yet-unrealised flexibility potential of distributed energy resources (DERs).
Efforts to integrate these resources will lead to the creation of new revenue opportunities via wholesale and distribution value streams during the decade.
According to Ben Kellison, Wood Mackenzie research director, and Elta Kolo, research manager says the biggest trends to watch in the global grid edge in 2020 and beyond are these:
• Regulatory reform
• Evolution of market models
• Grid edge investment to compliment electrification
• Grid-balancing will increasingly rely on flexible resources
• De-risking investments so the DER market can scale
Kolo said: “Today, the US power system alone has more than 50 gigawatts of behind-the-meter flexible resources at its disposal from DERs enrolled in demand response programs.
“Initially, flexible volume will be attained by dynamically leveraging what is already integrated into the grid. Resources already enrolled in existing demand response programs will be the lowest-hanging fruit. Flexibility portfolios will scale with resources situated on either side of the meter.”
Regulations governing how DERs are compensated for capacity and energy services are trending away from simple, fixed, time-agnostic rates, such as net energy metering and volumetric charges.
According to Wood Mackenzie, this shift will increase the exposure of DERs to local power market and emerging distribution grid market constructs that dynamically determine the value of energy, capacity and ancillary services.
“In the US, the Federal Energy Regulatory Commission (FERC) is pushing regional market operators to formalise market designs that are inclusive of DERs. FERC has mandated operators under its jurisdiction to survey interconnection practices within their footprints and assess the economic benefits of ensuring individual resources and aggregations are on an equal footing with traditional system-balancing resources.
“This FERC order will shape DER participation in markets in the 2020s and will join Orders 745 and 841 as the most significant DER regulations of the last decade,” said Kolo.