Texas working group plans to 'remove barriers' to expand virtual power plant pilot scale, participation still needs improvement

The Electric Reliability Council of Texas (ERCOT) is considering doubling the size of a virtual power plant pilot project while advancing multiple rule revisions, aiming to activate this underutilized distributed energy aggregation mechanism.

The pilot project, named "Aggregated Distributed Energy Resources" (ADER), launched in 2022 with plans to integrate 80 megawatts of flexible resources (primarily batteries) into the ERCOT grid. However, to date, only two entities—Tesla and Bandera Electric Cooperative—have actually connected to the grid, totaling approximately 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 numerous initial restrictions prevented it from achieving its stated goals.

Jimmy Glotfelty, a commissioner on the Public Utility Commission of Texas (PUC), has served as the liaison between ERCOT and the ADER working group, leading the pilot project. He told Utility Dive: "I'm satisfied with the current progress, but there are aspects of the mechanism that need adjustment." He added, "Success in my view is reaching 300 to 500 megawatts of aggregation within two to three years and making it a regular part of the market system."

Against the backdrop of continuously rising electricity demand in Texas and the state government accelerating the addition of new generation resources, state lawmakers have shown strong interest in the ADER project and its potential to ensure grid reliability.

Woody Rickerson, ERCOT's Senior Vice President and Chief Operating Officer, testified before the Texas Senate Committee on Business and Commerce in October, outlining several challenges constraining the ADER project's development. Unlike the large transmission-side resources ERCOT traditionally focuses on (typically 100 megawatts or more per unit), ADER focuses on aggregating small devices operating at lower voltage levels with individual capacities of approximately 0.1 megawatts.

Rickerson admitted, "This is not an area ERCOT has previously ventured into."

Senator Charles Schwertner (Republican, Chair of the Business and Commerce Committee) remarked, "It seems like a lot of work has been done for 15 megawatts."

Rickerson responded, "Indeed, the investment has been substantial, but I believe the project holds potential."

The difficulty of distributed energy aggregations in precisely responding to grid dispatch signals has been one of the main barriers to their participation in the ERCOT market. Rickerson revealed, "We are entering a new phase where we will send larger dispatch signals, so aggregations won't need to respond with such fine granularity."

Additionally, rules governing Qualified Scheduling Entities (QSEs) representing aggregations in the market may also be adjusted. In the ERCOT system, QSEs submit offers and bids on behalf of resource entities or load-serving entities and charge service fees. Currently, ERCOT does not allow aggregators to bundle resources across load zones, further increasing aggregators' operational costs.

Arushi Sharma Frank, founder of energy consulting firm Luminary Strategies, noted, "This is the biggest barrier to entry for ADER participation." Sharma Frank participates in the PUC's ADER working group through her firm and previously served as vice chair of the working group during her tenure at Tesla.

In a working group memo submitted on behalf of Tesla in 2023, Sharma Frank pointed out that the revenue potential of large centralized generators far exceeds telemetry system and QSE-related costs, while ADER's breakeven point is approximately 15 to 20 megawatts. She wrote, "This scale is already near or exceeds the current QSE capacity limit, which must be raised."

Sharma Frank believes multiple barriers to entry have limited the scale of the ADER pilot. "At the start of the pilot, we were overly conservative because it was entirely new," she said. She noted that the 80-megawatt overall cap was too low and was divided across eight settlement zones, creating multiple smaller capacity limits; other restrictions, such as the types of services the pilot could offer to the ERCOT market, also hindered the project's potential.

"These caps and restrictions send a negative signal to the market," Sharma Frank said. "If regulators initially offer only a tiny share without certainty of opportunity, you cannot expect the project to reach great heights."

She further explained that facilitating complex multi-party collaborations like ADER in the ERCOT market fundamentally depends on "there being a massive value pool on the other side, enough to bring all parties to the table and agree on how to distribute that value. Currently, such opportunities are lacking."

Glotfelty also advocated allowing consumers to choose their own aggregator to register their devices. He specifically expressed concern that Tesla Powerwalls could only participate in the ADER project through Tesla's own retail electricity provider.

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

The working group is attempting to eliminate these barriers by revising the pilot's governing documents. ERCOT has completed an initial round of revisions and sent the redlined documents back to the working group, with changes to be reviewed at the December 18 meeting. If the working group agrees with ERCOT's modifications, the grid operator will conduct a final review before submitting to the commission for approval. Sharma Frank expects approval to be completed in the first quarter of next year and believes the market could respond to ADER updates within a year, as many technical issues have already been resolved.

Direction of Rule Adjustments

The first and second phases of the ADER pilot set a total registered capacity cap of 80 megawatts for all aggregations and further divided available services into two parts: 40 megawatts each for non-spinning reserve and contingency reserve. According to documents from the November 18 working group meeting, ERCOT now proposes raising the total cap to 160 megawatts and the service allocation cap to 80 megawatts "to support continued growth and evolution of the pilot."

The proposed changes also include introducing a new "Aggregated Non-Controllable Load Resource" (A-NCLR) framework, allowing aggregations to participate in the ADER project under this designation. The framework aims to accommodate the "lumpy" response characteristics exhibited by aggregations that struggle to meet telemetry requirements.

"Lumpy" response refers to load being shed from the system in larger blocks rather than small increments. NCLRs are typically large demand response resources in the ERCOT system, with coarser response granularity than the 5-minute fine-grained response required of devices in the early ADER pilot.

Glotfelty said, "Some ancillary service technical participation requirements are indeed stringent, and for good reason—to ensure that in the first phase, loads of varying sizes could be aggregated across regions and that market signals and pricing accuracy could be verified." Now, the working group is seeking ways to "remove barriers to participation."

Sharma Frank explained, "The A-NCLR framework reduces the difficulty and cost of two-way communication and response between device aggregations and ERCOT. ERCOT can treat them as 'lumpy' responses, which is simply an extension of ERCOT's existing large load response model."

The proposal also opens space for bundled participation of aggregations. Sharma Frank said, "Because responses are lumpy, the backend technical work required for a single QSE will be significantly reduced. We could potentially connect aggregations from multiple entities to ERCOT through a single chain of command. This would fundamentally change the barrier-to-entry issue."

As for interoperability between devices from different manufacturers and device transfers between aggregators, Sharma Frank expects these issues to be gradually resolved as the market expands. "Texas's interoperability challenges are tied to the suppression of economic value from growth," she said, noting that device manufacturers will not invest in integrating with new service providers if revenue opportunities are limited.

Beyond Batteries: Expanding Resource Types

John Padalino, Chief Administrative Officer and General Counsel of Bandera Electric Cooperative, told the Senate Committee on Business and Commerce that the future of distributed energy aggregation in Texas will depend on effective resource integration and expansion of aggregable resource types. Bandera is one of the two current ADER aggregators alongside Tesla.

Padalino introduced that Bandera developed Apolloware in 2017—an appliance-level meter providing real-time energy consumption feedback that can connect devices from different manufacturers while meeting ERCOT's telemetry requirements.

Although the number of Texas households with battery backup systems is limited, Padalino noted that approximately 1.3 million households 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 dispatching schedulable power to the system. Sharma Frank believes that rule changes allowing "lumpy" load participation could incorporate a broader range of device types.

NRG and Renew Home announced a partnership last month to deploy hundreds of thousands of smart thermostats in Texas, supporting a residential virtual power plant targeting nearly 1 gigawatt of capacity by 2035. NRG stated in its announcement that this virtual power plant is not part of the ADER project but "reflects our scaled efforts to expand ERCOT virtual power plant capabilities." NRG's flagship retail electricity provider, Reliant, has registered an ADER aggregation and is currently testing with ERCOT.

Sharma Frank commented that NRG's announcement "is a follow-on effect of ADER paving the way for market revenue certainty." "Previously, no entity had successfully aggregated significant megawatts from sites under 1 megawatt. Now we have, and ERCOT is learning a great deal and validating the technology," she said. "This makes the market opportunity more meaningful, scalable, and certain because it is actually happening."