ADER Task Force reports on developments leading to first VPPs

Commissioner McAdams and Glotfelty’s Memo

On August 23, 2023, Commissioners McAdams and Glotfelty filed a joint memo requesting an update from the chair and vice chair of the Aggregated Distributed Energy Resources (ADER) Task Force and a representative from ERCOT on major milestones achieved, lessons learned, and hurdles that have been identified.

The commissioners requested the Task Force and ERCOT begin creating a plan for the second year to address the policy principles laid out in the memo from Commissioners McAdams and Glotfelty filed in Project No. 51603 on July 13, 2022, and the questions outlined in the governing document in order to understand what performance metrics would need to be met to unlock expansion of grid services or size caps.

Open Meeting Discussion

At the August 24, 2023 PUCT Open Meeting, Commissioner McAdams shared “great news,” that the first Aggregated Distributed Energy Resources (ADERs) had been approved to participate in the ERCOT energy market and can now provide Non-Spinning Reserve Service (NSRS). The two ADERs are aggregations of Tesla Electric residential customers located in Oncor’s service territory (ERCOT North load zone) and CenterPoint’s territory (Houston load zone). He noted it has been almost exactly one year since the ADER Task Force was formed.

Jason Ryan, Executive Vice President, CenterPoint Energy, and chair of the ADER Task Force, stated that Texas is a leader in virtual power plant (VPP) implementation, not just in Texas but in the world. He stated that this project changes how customers use the distribution grid.

Mr. Ryan noted that when this began one year ago there was no answer to the question of how to do this or a clear path forward. However, on August 12, 2022, the PUCT provided its vision and expectations, including affected timeline. The Commission demanded accountability and transparency so every task force meeting was posted in this project and every meeting that was not held in the Commissioners Hearing Room was posted on YouTube, often with more than 100 people participating online.

Mr. Ryan explained that after the governing document was approved by ERCOT and the PUCT, the task force allowed the market to work on implementation, while the task force worked on business processes. He stated that the work the Commission and Staff are doing to implement the resilience plan legislation is incredibly important as the next step, as customers rely on generation coming from the distribution grid, it is incredibly important to have greater resilience in the distribution grid.

Arushi Sharma Frank, U.S. Energy Markets Policy Lead, Tesla, vice chair of the ADER Task Force, suggested that, as the Commission and ERCOT look at the creation of a reliability standard, the most important piece of the ADER pilot for reliability is the fact that every single customer that participates is a customer that arrived to the pilot as an expression of the Value of Lost Load and a private investment that they already made for themselves, by investing in whole home backup, providing additional reliability service from a private investment and taking off the socialized value of the reliability standard.

Ms. Sharma Frank stated that as ERCOT’s study progresses, it is a very important data point. She noted that the resource has to be visible to the system, to ERCOT and distribution service providers, to be understood, but also a part of wholesale price formation.

Ms. Sharma Frank suggested that the most important part of the pilot project has been the sharing of information between three entities that never shared information before regarding the scale, scope, and system capacities of distributed energy resources (DERs) in the state. The pilot project enabled the exchange of extremely granular information concerning every device participating in the project between Qualified Scheduling Entities (QSEs), Distribution Service Providers (DSPs) and ERCOT staff.

Ms. Sharma Frank reported that the pilot began by focusing on quantity but the focus now needs to move to quality. While it started as “a crowd-sourced investment, it now needs to become investment grade,” driving companies to enter into commercial agreements, federal funding for low-income housing, and investments from Non Opt-In Entities (NOIEs) that need to build not only ADER capacity but everything that comes before it, including building storage time-of-use tariffs.

Ms. Sharma Frank noted that to achieve this objective, some quality control things need to be fixed, such as the caps that get allocated across load zones. The caps were put in place under the assumption that there would be so much competition to get the front of the line that there would need to be some type of anti-monopoly provision. However, it earned out that ADERs are the smallest segment of the retail market and there is not a competition problem but an innovation problem and a need to drive investment to show up.

One of the objectives is making the aggregations big enough to achieve other objectives of the pilot, for example, figuring out the impact on the distribution system, which is not possible under the existing caps and which the task force recommends should be reconsidered.

Ms. Sharma Frank noted that another issue involves standards in the governing document that work well for validating information provided by a large resource, with a large margin of error, but in trying to validate telemetry for small resources, tiny deviations appear much larger than they actually are, effectively penalizing their success rather than performance.

Other technical issues that have shown up include having to register ADERs by Transmission and Distribution Service Provider (TDSP), rather than load zone, resulting in aggregations being smaller, increasing the fixed costs and making it difficult to reach the breakeven point where the cost of operating the resources is lower than the revenue opportunity.

Ms. Sharma Frank explained that many years ago load growth was “anemic” and utilities were not looking at DERs as a value proposition for their system but VPPs are now a concept that is everywhere. The reason for that was that a lot of time this spent thinking about the supply-side of the system as divested from the demand-side but that is changing very quickly. Texas is now ahead by putting both pieces together in wholesale price formation.

Ms. Sharma Frank suggested that the other piece is understanding the payback structure, optimizing the value of storage paired with solar through a time-of-use tariff and ensuring there are incentives for adopting those technologies.

Ms. Sharma Frank’s recommendation for Phase 2 of the Task Force’s work is to add an additional goal, helping NOIEs explore storage and DER tariffs that propose sensible revenue models for how Load Serving Entities (LSEs) manage and value load reduction on their systems.

Kenan Ögelman, ERCOT’s Vice President of Commercial Operations, added that to be able to have an aggregation follow base points to provide Non-Spinning Reserve Service is an accomplishment to celebrate, it is not easy and has not been done anywhere else.

The biggest lesson learned was that, when ERCOT was trying to validate data, they discovered that the 24-hour standard began capturing behavior that was on a “single watt level” and they found things failing on that basis, for example, cell phone charging. Mr. Ögelman explained that moving away from that was one of the keys to getting customers qualified. He noted that this will require a change in the governing document and they have already started drafting that change.

Commissioner McAdams asked how this program will evolve now that this energy resource has been operationalized. He noted that ERCOT Contingency Reserve Service (ECRS) is live and is proving to be an invaluable tool for managing through a difficult day. The aggregated load response program has been repurposed to house demand response capabilities but now that is being harnessed for virtual power plant purposes. He asked, as we start looking toward the next step, allowing resources like this to participate in services like ECRS to provide flexibility, how far out in the future is that?

Mr. Ögelman replied that they need to start talking about what is feasible around ECRS but they are just now accumulating data on how this is performed but believed that conversation should begin. He noted that ERCOT will be pushing back on whether they are comfortable with it being able to achieve its reliability objectives.

Mr. Ögelman noted that, so far, only one entity is qualified and he would like to see many more. While Tesla has achieved being able to move the data around, this isn’t easy, and he wants to make sure other entities have an understanding of how that works, what is a good practice and what doesn’t work, in order to increase participation and add additional entities.

Commissioner Glotfelty appreciated ERCOT’s ability to say “yes” to this project at the beginning, even though it wasn’t a big amount, adding that many system operators have said they can’t do it.

Commissioner McAdams wants the task force to start collecting and systematically providing solutions to incentivize competition and attract broad participation. He hoped that ERCOT will outline how the program could evolve and what steps and metrics need to have been met to unlock other services that ADERs could theoretically participate in. He noted that this is the goal and believed the market will respond with new innovations and technologies to satisfy ERCOT’s concerns but ERCOT needs to be able to articulate its concerns.

Commissioner McAdams noted that some have commented that the concentration of these devices are not “at scale” and believe they would cause noticeable impacts to the transmission and distribution systems. The commissioner requested that Transmission & Distribution Utility (TDU), policy and research segments of the task force along with ERCOT consider what information could be extracted from the pilot or the systems used to support the ADER program. He noted the need to identify the critical mass threshold, to provide the lessons to start incorporating them into the infrastructure programs at the PUCT, especially in light of the ongoing projects concerning cost allocation and interconnection standards.