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Industry debates FERC's idea of making frequency response capability mandatory

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

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Industry debates FERC's idea of making frequency response capability mandatory

Certaincommenters on a FERC inquiry into whether it should require all new generators tohave the ability to provide frequency response supported the idea, but did so cautiouslyand conditioned on any new requirement not applying to existing generators. Others,however, including a group of ISOs and RTOs, were far more enthusiastic about theidea and said the new requirement should apply to existing generators.

Frequencyresponse service requires a generator to change its output automatically, withinseconds and for very short periods of time, to dampen large changes in grid frequency,which in North America must be maintained at roughly 60 hertz or the grid becomesunreliable. Primary frequency response, or PFR, is key in the initial stages offrequency control and occurs in the first few seconds after a frequency event.

FERClaunched the notice ofinquiry in February as the first step to taking more formal action if it becomesconvinced that such action is needed. Currently, the agency does not require generatorsto provide PFR or new generation resources to have frequency response capabilitiesas a precondition of interconnection.

The agencyfloated the idea of imposing such a requirement because fewer generating resourcesare now capable of providing frequency response. Power providers have been retiringbaseload synchronous units with significant frequency response capability and replacingthem with wind, solar and other variable energy resources that usually lack theability to provide primary frequency response. The use of distributed generationand demand response is also growing.

In addition,the NOI noted that regional frequency response reliability requirements for individualgenerating resources differ by region, and few, if any, entities are being compensatedfor selling PFR as a stand-alone product. Manufacturers also appear to have madesignificant advancements in developing equipment that allows a variable energy resourceto provide frequency response.

FERCtherefore sought comment on whether it needs to act, including whether it shouldamend the pro forma large and small generator interconnection agreements to requirethat all new generation resources have frequency response capabilities as a preconditionof interconnection. It also asked whether it should implement PFR requirements forexisting generation resources, and establish procurement and compensation mechanismsfor PFR.

Some support change, but withconditions

The AmericanWind Energy Association toldFERC that it is does not oppose requiring new resources to have the capability toprovide PFR capability, but would want to ensure certain conditions are first met.

For instance,the trade group wants FERC to first assess the causes of declining PFR, insistingthat blaming the growing use of wind and solar is a common misconception. It assertedthat the North American Electric Reliability Corp. has found that the real culpritis changes in the way conventional power plants are operated, with changes in thecomposition of electric demand also playing a role. It further maintained that somehave found that the addition of wind generation can actually improve total powersystem frequency response under some conditions.

AWEAsaid that once FERC fully understands the problem it should use that informationto identify market mechanisms that new and existing resources can participate into provide PFR. Since the failure of existing conventional generators to providesustained PFR is the largest contributor to the problem, AWEA said FERC should focuson creating market incentives for conventional generation to provide PFR.

Onlyif those market-based solutions fail to meet the need for resources to have PFRcapability should FERC consider requiring new resources, but not existing resources,to have the capability to provide PFR, AWEA said.

"Marketsare ideally suited for procuring PFR at the lowest possible cost to consumers, giventhat not all resources need to provide PFR at any point in time, and … differentpower system resources face widely divergent costs for providing PFR, with individualresources also facing varying costs at different points in time," AWEA said.

Moreover,the trade group said that while requiring new resources to have the capability toprovide PFR may make sense, requiring all resources to actually provide PFR servicewould be inefficient given the wide divergence in costs for different resourcesto provide PFR. As for existing generators, AWEA noted that many, especially windturbines, were not designed with this capability and therefore requiring them toadd it could be costly.

In jointcomments, the ElectricPower Supply Association, Independent Power Producers of New York, New England PowerGenerators Association, and Western Power Trading Forum warned that requiring allnew generating resources to have the capability to provide PFR will not addressall the issues facing system operators.

The competitivesuppliers therefore urged FERC to explore more effective and cost-efficient waysof addressing the problem, such as requiring only those regions facing challengeswith primary frequency response to take steps to incentivize the provision of PFR.

"Thereis not sufficient evidence to justify a mandate that every generator have primaryfrequency response capability," the competitive suppliers said. "Withoutextensive evidence across markets, implementation of a generic mandate risks 'goldplating' the system and unnecessarily raising costs for consumers."

The competitivesuppliers also urged FERC to adopt a capability-based market approach that willensure that resources with the capability to provide primary frequency responseare compensated for that capability, and resources without the capability are not.

The EdisonElectric Institute toldFERC that it supports the idea of requiring all new generation resources to havefrequency response capabilities as a precondition of interconnection, citing the"ongoing evolution of the nation's generation resource mix" and new technology.

However,the trade group said requiring solar generators to provide PFR could be problematicgiven certain technological and practical challenges unique to solar facilities.In addition, EEI said establishing such a mandate may not resolve all the problemshighlighted by the NOI. It therefore urged the agency to hold a series of technicalconferences to consider essential reliability services issues further, includingcompensation issues.

Should mandate be extended toexisting generators?

Likemany of the other commenters, EEI also asked FERC not to impose mandatory PFR capabilityrequirements on existing resources because of the high cost of retrofitting existingunits that do not currently have the physical capability to provide the service.It further asked FERC to refrain from establishing prescriptive performance requirementsthat would require governor control settings to be implemented.

drove home EEI'spoint about the technological and economic challenges that solar facilities wouldface in trying to comply with a PFR mandate. "From the perspective of basiceconomic theory, a mandate that all generators must provide frequency response ignoresthe fact that the opportunity cost of providing this service may vary significantlyby generator and by technology," the company stated.

The solarprovider therefore urged FERC to use market-based mechanisms for the provision andcompensation of primary frequency response instead of requiring that all generationresources have frequency response capabilities as a precondition of interconnection.

The EnergyStorage Association had a similar take. It assertedthat the advent of proven technologies that are specifically designed to mitigategrid disturbances, including frequency response, means that requiring generatorsto maintain frequency response capability is no longer cost-effective.

The groupfurther asserted that nongenerator resources can provide frequency response performancesuperior to that of generators, noting that energy storage technologies provideinstantaneous response and ramping performance critical for frequency response service.ESA also said frequency response services can and should be procured competitively,and therefore it urged FERC to direct RTOs/ISOs to establish a competitive procurementand pricing mechanism for frequency response service.

Offeringthe view of industrial consumers, the Electricity Consumers Resource Council it generally supports the conceptsoutlined in the NOI. However, it said that if FERC allows generators with PFR capabilitiesto be compensated, the costs should be borne by generators without PFR capabilitiesand not load. It also said that any mandatory requirements should not be imposedon cogeneration facilities and that the requirements should "take full account"of the implementation of NERC's related initiatives and the results of similar initiativesin the Electric Reliability Council of Texas and other regions.

NERC working on the issue

For itspart, NERC noted thatit has begun to focus on increasing the amount of frequency response available onthe system, including through the use of reliability standards and other tools,given that the nation's changing generation resource mix may be inadvertently decreasingthe level of PFR capability available in North America.

"Thispotential decline could result in sharper and deeper frequency dips than currentlyobserved, and contribute to greater likelihood of load shedding," NERC said.However, the organization reported that it is still analyzing the situation to determineif frequency response requirements need to be modified. It also has been proactivelypursuing measures to enhance frequency response capability.

As forthe NOI, NERC said mandating frequency response capability in interconnection agreements"would be consistent with its determination that the rapidly changing resourcemix may reduce the level of available frequency response capability and that additionalmeasures may help ensure the availability of sufficient frequency response."However, NERC also stressed that any mechanism to ensure frequency response capabilityshould also ensure that resources are ready to support system restoration and reliability.

NERCsaid it is still studying whether to add frequency response-related enhancementsto reliability standards for existing generators. It noted that some regions alreadyhave stricter requirements, but they are not uniform across North America, whichcould lead to inconsistent frequency response capability and response characteristicswithin each interconnection.

The AmericanPublic Power Association, Large Public Power Council and the Transmission AccessPolicy Study Group recalledthat NERC just implemented a new reliability standard — BAL-003-1 — on April 1 toensure frequency response, and FERC directed NERC to submit a report in 2018 onthe effectiveness of the standard.

The publicpower groups therefore urged FERC to be measured in taking action prior to the releaseof NERC's report, but they said they support requiring all new generators to installprimary frequency capability as an interim "relatively low-cost action."What the groups do not want FERC to do is impose significant new obligations onexisting generators.

"Whilewe recognize that the changing generation mix may create future frequency responsechallenges, there does not appear to be any evidence that such a burdensome andcostly change to the frequency response obligations of existing generators is nowneeded," the public power groups maintained.

As forcompensation, the groups urged FERC not to impose a uniform compensation policy.Instead, they said FERC should allow individual balancing authorities, includingRTOs, to decide whether and how best to compensate generators for providing PFR,such as by using existing tools, such as purchasing frequency response from thirdparties at market-based rates, or by proposing tariff or other changes.

The NationalAssociation of Regulatory Utility Commissioners also urged FERC to proceed cautiously. While the state regulatorssupport adding a new requirement to generation interconnection agreements requiringall new generators to have the capability to provide PFR, they do not support makingthe actual provision of PFR by each generator mandatory nor requiring all existinggenerators to be retrofitted to be able to provide PFR.

The degradationof PFR seems to have stopped, at least in some areas, and some regions have experiencedimprovements, NARUC said in explaining why it supports voluntary efforts by allgenerators to install and provide PFR. The group also said FERC should wait forNERC's further examination of the issue to play out before pursuing any additionalstandards or requirements.

ISOs/RTOs want change

In sharpcontrast with many of the other commenters, the ISO New England Inc., New York ISO, PJMInterconnection LLC, SouthwestPower Pool Inc. and IndependentElectricity System Operator saidthat not only should FERC condition new interconnections on the generators havingPFR capability, but that NERC should require all registered generators, includingexisting ones and regardless of technology type, to provide PFR.

The gridoperators noted that the new NERC reliability standard, BAL-003-1, requires balancingauthorities such as themselves to meet frequency response requirements but doesnot give them the authority to require PFR capability from generators within theirfootprints. "Accordingly, balancing authorities have limited control of compliancewith their obligations regarding frequency response," the grid operators complained.

The ISOs/RTOsalso said FERC generators who fail to comply with the requirement should be penalized.If a generator believes that it has valid reasons why it cannot provide primaryfrequency, the grid operators said, those reasons should be reviewed and addressedon a case-by-case basis pursuant to local requirements.

"Requiringall units to provide PFR ensures that the system operators will be able to meetemerging real-time events, which may not be the case if the system only has a smallermix of frequency responsive resources. In addition, when more generators provideprimary frequency response, the system will respond quicker to events," thegrid operators maintained.

The ISOs/RTOsacknowledged that establishing the "right" level of additional/separatecompensation for frequency response could be quite contentious given that the incrementalcost to provide frequency response is minimal and also that, in most cases, generatorsalready have this capability through governor controls. They therefore said a newseparate compensation mechanism is not necessary. (RM16-6)