PJM Releases FERC Order 2222 Compliance Proposal
FERC Order 2222, issued in 2020, allows distributed energy resources (DERs) such as solar and wind farms to participate in America’s wholesale electric market.
The order aims to modernize the nation’s electric grid while keeping energy costs down for consumers.
PJM, which operates the electric grid in Virginia and other states, released this year its plan to comply with Order 2222. DERs could be participating on the PJM grid as soon as 2026.
In September 2020, FERC issued a new, groundbreaking rule known as Order 2222, allowing distributed energy resources to compete alongside traditional resources in America’s regional wholesale electric markets. Prior to Order 2222, only electricity generated from traditional resources such as coal and natural gas was able to enter electric markets, which are regulated by FERC. Order 2222 modernizes the nation’s electric grid by allowing distributed energy resources, or DERs, to participate in wholesale markets. DERs, which are defined by FERC as “small-scale power generation or storage technologies (typically from 1 kW to 10,000 kW) that can provide an alternative to or an enhancement of the traditional electric power system,” can include solar panels and wind farms.
Allowing DERs to participate in wholesale electric markets comes at a time when components of DERs, such as solar panels, are seeing declining costs and supportive state policy. In Virginia, for example, the 2020 Clean Economy Act declared the development of solar energy throughout the state to be in the public interest. This led to Virginia becoming a leader in new solar capacity development in 2021. These facts explain in part the rationale behind Order 2222: by allowing DERs to participate in the electric market, the electric grid will be more diverse and resilient, and consumers will see decreased costs on account of greater competition.
Because DERs are often small components (for example, a DER might consist of a single solar panel) market participation will require multiple DERs to be aggregated into virtual power plants. These aggregated DERs will be large enough to effectively compete in wholesale electric markets.
Ever since FERC issued the order in 2020, grid operators across the country have been developing proposals outlining how they plan to comply with Order 2222. While these compliance proposals were initially due in the summer of 2021, several extensions were granted. In February of this year, PJM, which operates the grid in Virginia as well as 12 other states and D.C., submitted its compliance proposal to FERC. The proposal establishes parameters for defining DER aggregators, outlines how DER-generated electricity will be priced, and sets a timeline for allowing DERRs to participate in PJM markets.
PJM’s proposal defines a DER aggregator as consisting of at least one DER component. The aggregator must provide at least 100 kW of energy or storage. No single component within the aggregation may exceed 5 MW.
The PJM proposal only allows for electricity from DER aggregators to be priced at a single node. Pricing nodes are specific locations along the transmission system at which grid operators determine electric prices. This limits the number of components that can be aggregated, despite the fact that there are thousands of pricing nodes throughout PJM territory. Advocates have criticized this aspect of PJM’s proposal, noting that grid operators in New York, New England, and California have been able to come up with ways for DER aggregators to be priced at several nodes.
The proposal allows for DER aggregators to begin participating in the electric market as soon as 2026. The extra time will allow for DERs to be integrated into the grid to a greater extent. While 2026 may seem far off, PJM will be ahead of other grid operators, some of which will not be in full compliance with Order 2222 until 2030.