Texas working group plans to 'remove barriers' to expand virtual power plant pilot scale, addressing insufficient participation

The Electric Reliability Council of Texas (ERCOT) is considering doubling the size of a virtual power plant pilot project while advancing a series of rule changes aimed at activating this underutilized program.

The project, called the Aggregated Distributed Energy Resources pilot, or ADER, launched in 2022 with an original goal of integrating 80 megawatts of flexible resources, primarily batteries, into the ERCOT grid. To date, however, only two entities—Tesla and Bandera Electric Cooperative—have connected aggregated resources to the grid, totaling roughly 15 megawatts.

The ADER project aims to assess the feasibility of aggregated distributed resources participating in ERCOT's wholesale market, but experts point out that various restrictions early in the project prevented it from achieving its stated goals.

Jimmy Glotfelty, a commissioner on the Public Utility Commission of Texas, has been leading the ADER effort and serving as a liaison with the working group and grid operator that developed the pilot's initial rules.

"I'm pleased with the progress so far," Glotfelty told Utility Dive. "But there are definitely things about how the project operates that need to be adjusted. For me, success means reaching 300 or 500 megawatts within two to three years and making it a regular part of the market system."

With electricity demand continuing to climb in Texas and the state racing to add new resources, lawmakers have begun focusing on the role the ADER project can play in ensuring grid reliability.

ERCOT Senior Vice President and Chief Operating Officer Woody Rickerson testified before the Texas Senate Committee on Business and Commerce in October, outlining the challenges constraining the ADER project. The grid operator typically focuses on transmission-side resources of 100 megawatts or more, while ADER works to aggregate smaller resources of roughly 0.1 megawatts operating at lower voltage levels.

"This is not an area ERCOT has traditionally been involved in," Rickerson said.

"Getting to 15 megawatts sounds like a lot of work," said Republican Senator Charles Schwertner, chair of the Business and Commerce Committee.

"It has taken a lot of effort, but I believe the project has potential," Rickerson responded.

The difficulty distributed energy aggregations have in responding precisely to grid dispatch signals has been one of the main barriers to their participation in the ERCOT market. "We're moving into a new phase where we'll send larger dispatch signals, and aggregations won't need to be as precise," Rickerson said.

Additionally, the way qualified scheduling entities, or QSEs, represent aggregations in the market could also see changes. In the ERCOT system, QSEs submit offers and bids on behalf of resource entities or load-serving entities and charge fees for their services. ERCOT also does not allow aggregators to bundle resources across load zones, further driving up costs for aggregators.

"That's the number one barrier to entering the ADER market," said Arushi Sharma Frank, founder of energy consulting firm Luminary Strategies. Sharma Frank participates in the Public Utility Commission of Texas ADER working group through her firm and previously served as vice chair of the working group during her time at Tesla.

The revenue potential of large, centralized generation resources far exceeds the costs associated with telemetry systems and QSEs, while ADER's breakeven point sits at roughly 15 to 20 megawatts. "This scale is already near or above the current QSE cap and must be raised," Sharma Frank wrote in a 2023 working group memo on behalf of Tesla, referring to the size limits in the early stages of the ADER pilot.

Sharma Frank believes multiple entry barriers have limited the scale of the ADER pilot.

"When the pilot first launched, we were overly conservative because there was no precedent," she said. The 80-megawatt cap was already low, and it was divided across eight settlement areas, creating multiple smaller sub-caps. Additionally, other restrictions—such as the types of services the pilot could offer into the ERCOT market—also constrained the project's potential.

These caps and restrictions "sent a dampening signal to the market," Sharma Frank said. "If regulators initially offer only a fraction of the potential scale and lack certainty about opportunities, you simply cannot build a revenue model for the project at its peak state."

Facilitating complex multi-party commercial and strategic collaborations like the ADER pilot in the ERCOT market "fundamentally depends on there being a sufficiently large pool of value on the other side that makes parties willing to sit at the same table and negotiate how to divide that value," Sharma Frank said. "That's the opportunity that was previously missing."

Glotfelty also argues that consumers should have the right to register their own devices with the aggregator of their choice. He specifically expressed concern that Tesla Powerwall batteries can only participate in the ADER project through Tesla's retail electricity provider.

"Texas has an open market, and choosing how to join a resource group should be part of that openness," he said.

The working group hopes to eliminate many of these barriers by updating the pilot's governance documents. ERCOT has completed an initial round of revisions and sent a redlined version of the governance document back to the working group. The changes will be considered at a December 18 meeting.

If the working group approves ERCOT's revisions, the grid operator will complete a final review before submitting them to the commission for approval. Sharma Frank expects approval could come as early as the first quarter of next year. She believes the market could respond to the ADER updates within a year, given that many technical issues have already been resolved.

Direction of rule changes

Phases one and two of the ADER pilot cap total registered capacity for all aggregations at 80 megawatts and split the services they can provide into 40 megawatts each for ERCOT's supplemental non-spinning reserve and emergency response service. The grid operator now proposes raising those caps to 160 megawatts and 80 megawatts, respectively, "to support continued growth and evolution of the pilot," according to documents from the November 18 working group meeting.

The proposed changes also include allowing aggregations to participate in the ADER project through a new framework called the Aggregated Non-Controllable Load Resource, or A-NCLR. The framework is designed to accommodate aggregations that struggle to meet telemetry requirements and respond in a "lumpy" pattern.

"Lumpy" refers to load being shed in large blocks rather than finely adjusted in smaller increments.

NCLRs are typically large demand response resources in the ERCOT system whose response magnitude is greater than the 5-minute granularity response required of devices in the early ADER pilot.

"The technical requirements for participating in some ancillary services were indeed somewhat burdensome," Glotfelty said. "Those requirements made sense—ensuring we could aggregate loads of varying sizes across regions in phase one and find ways to accurately set market signals and prices."

Now, the working group is seeking ways to "remove barriers to resource participation," he said.

"The A-NCLR framework makes two-way communication and response processes between device aggregations simpler and less costly for participants, while the response from ERCOT's perspective also becomes more 'lumpy'—this is merely an extension of the 'lumpy' response patterns of ERCOT's existing large loads," Sharma Frank said.

The proposal also opens the door for bundling aggregations, Sharma Frank said.

"Because the response is lumpy, the back-end technical work required for a single QSE will be significantly reduced, and we may be able to connect aggregations from multiple entities into ERCOT through a single chain of command," Sharma Frank said. "This will fundamentally change the entry barrier issue."

As for interoperability issues between devices from different manufacturers across different aggregators, Sharma Frank expects them to be gradually resolved as the market expands.

"Texas's interoperability challenges are tied to the suppression of economic growth value," she said. If revenue opportunities are limited, equipment manufacturers will not invest in integrating with new service providers.

Beyond batteries

John Padalino, chief administrative officer and general counsel for Bandera Electric Cooperative, told the Senate Committee on Business and Commerce that the future of distributed energy aggregation in Texas will depend on effective integration of resources and expansion of the types of resources that can be aggregated. Bandera and Tesla are currently the only two operating ADER aggregations.

Padalino explained that Bandera developed Apolloware in 2017—a device-level meter that provides real-time energy consumption feedback. The device can connect to end-use equipment from different manufacturers while also meeting ERCOT's telemetry requirements.

Although the number of Texas households with battery backup systems is limited, Padalino noted that roughly 1.3 million homes have smart thermostats. "If we could convert 40,000 of those thermostats into registered ADER participants, we could achieve the 80-megawatt goal," he told lawmakers.

Currently, the ADER project primarily targets small devices capable of exporting dispatchable power to the grid, Sharma Frank said. But rule changes allowing "lumpy" load participation could mean more types of devices will be included.

NRG and Renew Home announced last month they will partner to deploy hundreds of thousands of smart thermostats in Texas to support a residential virtual power plant approaching 1 gigawatt of capacity by 2035. NRG said in a statement the virtual power plant is not part of the ADER project but "reflects our large-scale efforts to enhance ERCOT's virtual power plant capabilities."

Reliant, NRG's flagship retail electricity provider in Texas, has registered an ADER pilot aggregation and is currently testing with ERCOT, the company said.

Sharma Frank believes NRG's announcement "is further confirmation that the ADER project has paved the way for revenue certainty."

"No entity had ever successfully aggregated a significant number of sub-1-megawatt sites into meaningful megawatt-scale output. Now we've actually done it, and ERCOT is learning a great deal from the process and building validation mechanisms around the technology," Sharma Frank said. "This makes the market opportunity more meaningful, more scalable, and more certain because it's actually happening."