I’m enough of an energy nerd to have a smart thermostat, an electric vehicle, and more smart plugs than I’d care to admit. And I’m not alone. These distributed energy resources (DERs) are projected to grow by 10 GW annually or the same as adding fifty nuclear power plants to the grid in just five years. And that was before Senator Manchin unveiled the Inflation Reduction Act of 2022, which will inject $389 billion into the climate fight if it passes this weekend (and we sure hope it does!).

The bill would invest $4.5 billion towards electric appliances like water heaters or electric heat pumps; $4.3 billion in making homes energy efficient (more smart devices!); and would make electric vehicles (EVs) more affordable by extending the EV credit to used cars and applying it at point of sale.

But all this new technology could prove to be a ticking energy time bomb for our already stressed electric grid. McKinsey is forecasting demand for power to triple due to electrification appliances like heat pumps, while the expected surge in electric vehicles in New York could add as much electric demand as a new city of 4 million people.

Fortunately, we have an army of companies ready to manage the coming electric wave:

They make smart devices like Google Nest (thermostats), Enphase and ConnectDER (solar and batteries), Plentify (water heaters), Brilliant (lighting), Span and Emporia (electrical panels).

They manage EV charging like ev.energy, WeaveGrid, and OptiWatt;

And they connect all your smart devices in your home like OhmConnect, David Energy, and EnergyHub or at your business like Voltus, Therma, Enel, and Leap.

However, slow regulatory reform is stifling their potential to help. In 2020, the Federal Energy Regulatory Commission (FERC) passed Order 2222, heralded as a game-changer for these distributed energy resources (DERs). Controlled by software, aggregated in the thousands - and even millions, - and bid into a market (which Order 2222 was supposed to enable), they could meaningfully reduce strain on the grid and lower electric bills.

So two years later how are we doing? Not well:

1. There is a total lack of urgency. Despite worsening grid conditions, market operators are not moving fast enough. Major regions, like most of the Mid-Atlantic and the Northeast, won’t be complying with Order 2222 until at least 2025, and the Midwest won’t until 2030. This means adding nearly ten years of pressure to an already-strained system. These delays are due to market operators dragging their feet on investing in the modern IT systems required to enable DER participation, and a general resistance to adapting their policies to new technologies.

2. Market operators put a square peg in a round hole. To keep things “simple”, they have treated DERs the exact same as large generators that are a million times their size. This means requiring each household to send in all the data your electric meter collects to the market operator. And the requirement is there even if you don’t actually have any way to share the data (most states don’t). It’s like asking a flip phone to stream the latest Marvel blockbuster. It’s not going to work.

3. FERC reneged on demand response. In 2008 FERC created a rule that allowed states to opt-out of allowing companies from running demand response programs that pay people to not use electricity at certain times, often using DERs. Thirteen states, including my home state of Minnesota, decided to take advantage of this provision. And although the opt-out was initially removed by Order 2222, FERC reversed course and decided to keep it after pressure from Midwestern regulators and utilities who aimed to protect the utility’s monopoly right to run demand response programs themselves.

But it’s not too late to act. Here’s what needs to happen.

1. FERC should require that market operators comply with Order 2222 by 2024 – no exceptions. A timeline of eight years to develop IT upgrades, like what was proposed for the Midwest, is too slow. They are trying to operate a 21st Century energy market with 20th Century IT systems. We need to learn from tech companies that have shown how to push hundreds of software updates a day to get the 10 GW of annual DER growth into the energy markets.

2. Market operators need to make it easy for households and businesses to participate in energy markets. We shouldn’t treat households the same as a grid-scale generator. Instead of requiring hard-to-access data from the electric meter, we should use data that is easy to capture, like when the device turned on or off and best estimates of how much electricity it shifted by doing so. And we need organizations like Mission:data and companies like Copper Labs, UtilityAPI, and Arcadia to fix data access solutions so companies can offer more advanced products.

3. FERC and state regulators need to stop blocking millions of households and businesses from participating in energy markets. The promise of Order 2222 is not going to be realized if we keep the outdated opt-out rules. Retaining the opt-out looks especially short-sighted when twelve of the states with the opt-out are facing a 5 GW shortfall and soaring costs of electricity.

Congress is about to make a historic investment in our energy transition. It will be a historic mistake if we simply keep building more power plants and ignore the gigawatts of potential power on our walls, in our garages, and everywhere in between.

Did you like what you read? Disagree? Want to learn more? I’d love to chat! Please don’t hesitate to connect with me at brian@theadhocgroup.com or on LinkedIn.