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PJM proposal limits net metered DERs

Net metering provisions on the retail side should not become a barrier for distributed energy resources to participate in the wholesale energy, capacity, and ancillary services markets.

Commentators replying in FERC docket #ER22-962 realize that by imposing a must-offer requirement on net energy metered distributed energy resources, PJM is restricting a significant portion of DERs from participating in wholesale markets even though FERC allows resources to participate in both wholesale and retail programs.

PJM’s restrictions are too narrow compared to what NYISO and ISO-NE have for FERC Order 2222. While the focus is on net energy metered solar and storage, other DER technologies wouldn’t be able to participate in PJM markets without FERC’s intervention.

Comments are due by April 1, 2022.

What are “must-offer” requirements?

There is both an energy and a capacity market at most grid operators in addition to operating reserves in the ancillary services market. PJM runs a day-ahead and real-time energy market in addition to the 3-year ahead capacity market. When a resource is cleared in the capacity market, it is obligated (capacity obligation) to offer that capacity (must-offer) in the day-ahead energy market. This must-offer requirement is true for all ISOs with a capacity market. SPP, CAISO, and ERCOT do not have capacity markets.

PJM’s DER Capacity Aggregation Resource has a must-offer requirement

To comply with FERC Order 2222, PJM proposed a new resource called DER Capacity Aggregation Resource.

PJM says this in the FERC filing, “‘DER Capacity Aggregation Resource’ shall mean one or more DER Aggregation Resource that participates in the Reliability Pricing Model, capable of satisfying a minimum capacity market offer of 100 kW, or is otherwise treated as capacity in PJM’s markets, such as through a Fixed Resource Requirement Capacity Plan, for the 2026/2027 Delivery Year and all subsequent Delivery Years.”

And PJM confirms that these DER Capacity Aggregation Resources have the “must-offer” requirement in this sentence, “DER Capacity Aggregation Resources that have a capacity commitment in PJM will be subject to the following requirements: (1) Day-ahead Energy Market must-offer requirement,” which is the issue that most DER providers have.

Why is the must-offer requirement an issue for DERs?

If DERs offer into the capacity market auction and are selected, they must offer in the day-ahead energy market – that is the issue for DERs. This requirement is the problem for Net Energy Metering (NEM) DERs and non-NEM resources.

PJM effectively blocks aggregation of these NEM DER resources to participate in the capacity market for their “injecting” energy because of this must-offer requirement in the day-ahead energy market. Consider a rooftop solar owner selling excess energy to the grid before FERC Order 2222 under their state NEM policy. Order 2222 allows aggregation of these small rooftop solar projects if they meet the minimum size requirement of 100 kW.

The NEM DER will only be able to participate in PJM’s ancillary services market because if it clears in PJM’s capacity market, it must offer into the day-ahead energy market, leading to double compensation. That could be an issue for solar, which is only an injecting resource, but that’s not an issue for energy storage which can inject and curtail in discharging and charging modes of operation.

PJM’s reasoning for the must-offer requirement for NEM DERs

PJM says that NEM DERs are compensated twice without a must-offer requirement. First, NEM DERs can sell their excess wholesale energy to the grid and receive compensation. Second, NEM DERs can offer that same energy as capacity in the RPM auction and receive double compensation. Hence PJM proposed, “Component DER that participate in a net energy metering retail program may only participate with grid injections in the PJM ancillary services markets, and may not participate in PJM energy or capacity markets.”

Unlike NYISO aggregator self-attestation, PJM proposed that the electric distribution company confirm to PJM that the DER will not violate any state-set retail tariff provisions and lead to duplicative compensation.

What does FERC Order 2222 say?

The Federal Energy Regulatory Commission (FERC) anticipated this double-counting issue in Order 2222 in paragraphs 159-164. In paragraph 161, FERC states that “it is appropriate for RTOs/ISOs to place restrictions on the RTO/ISO market participation of distributed energy resources through aggregations after determining whether a distributed energy resource that is proposing to participate in a distributed energy resource aggregation is (1) registered to provide the same services either individually or as part of another RTO/ISO market participant; or (2) included in a retail program to reduce a utility’s or other load-serving entity’s obligations to purchase services from the RTO/ISO market.”

So, FERC said PJM could impose restrictions on DER aggregations so that DERs are not compensated twice for providing the same service. But PJM’s restrictions are too narrow for all NEM DERs, including storage, compared to NYISO and ISO-NE.

Why does FERC allow retail tariff DERs to provide wholesale services?

FERC devotes 6 paragraphs to the double-counting issue in Order 2222 because FERC received extensive comments in the Notice of Proposed Rulemaking (NOPR) before the order was issued. Double counting is not an issue unique to NEM solar. It is also an energy storage-related issue.

Several commentators noted in that NOPR proceeding (docket #RM16-23) that DERs can provide wholesale and retail services. For example, Advanced Microgrid Solutions noted, “larger battery installations are capable of providing capacity, energy, and ancillary services to the wholesale market in flexible and varying configurations – A battery can simultaneously deliver voltage optimization and energy, or be used for host customer peak shaving while delivering capacity to the grid.”.

The American Petroleum Institute commented, “a storage facility used to manage distribution system congestion during the local network peak, may also be allowed to buy and sell energy in the wholesale market. In cases where this is allowed, participation parameters need to be well-defined and tracked to ensure that retail and wholesale activities remain distinct.”

How are other ISOs navigating this NEM issue?

NYISO asks aggregators to self-attest that DERs as part of the aggregation are not providing the same service in retail tariff before registering in the wholesale markets. Additionally, NYISO is also working on a matrix to guide DER providers on this double-counting issue as indicated in their November 19, 2021 response to FERC: “The service matrix developed by the NYISO and Distribution Utilities will assist Aggregators in identifying incompatible services and programs.”

In the ISO-NE Forward Capacity Market (FCM), net injecting energy such as rooftop solar participates as a “Generating Resource Capacity” model if the resource is front-of-the-meter and as a “Demand Capacity Resource” model if the resource is behind-the-meter. Hence NEM DER is not an issue at ISO-NE and NYISO.


Net Energy Metering provisions on the retail side should not become a barrier for distributed energy resources to participate in the wholesale energy, capacity, and ancillary services markets.

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