The Inflation Reduction Act needs a flexible energy system to succeed
In the wake of the passing of the Inflation Reduction Act (IRA), every part of the United States energy system must prepare itself for what is going to be a radical shake-up. We take a look at what the IRA is and why a flexible energy system, with non-wire alternatives (also known as flexibility services) at its heart, will be critical to its success.

Earlier this month, Piclo launched its first local flexibility market in the United States with National Grid. Covering the area of New York State, Piclo will seek to widen access and streamline participation to all types of assets capable of providing flexibility services. Across the US, utilities have been running non-wires alternative (NWA) programs for several years and Piclo is excited to contribute to developing and scaling these solutions further through our market-based approach. Companies such as aggregators, retailers or large energy users with existing or planned assets (e.g. battery storage, electric vehicles, wind and solar farms, or demand response) - known as Flex Services Providers (FSPs) - can now register for free on Piclo Flex to participate in upcoming opportunities.

The introduction of the IRA means that now, more than ever, utilities must focus on accelerating towards delivering a smart and flexible electric grid.

The impact of the Inflation Reduction Act

The IRA is the most significant action ever taken by the US to tackle the climate crisis. It will deliver $369 billion in energy security and climate change programs over the next ten years to reach its climate goals of reducing carbon emissions by 40% by 2030 and net zero by 2050. The widely acclaimed package will materially impact a variety of technologies, such as incentivizing the uptake of electric vehicles and energy storage and has the potential to double US wind and solar capacity by 2030. Additionally, the IRA will provide rebates for clean energy-powered homes, which will lower costs for technologies such as heat pumps and rooftop solar and increasingly drive electrification through distributed energy resource (DER) adoption among consumers and project developers.

Consequently, for the IRA to achieve its aims, these new low-carbon technologies must be able to connect quickly to the grid and their additional impact managed. Even before the IRA was introduced, areas with high EV adoption forecasted a 20-30% increase in peak demand by 2030. Now, it’s more likely to be 30-40%, without factoring in the effect of heat pumps or the increase in renewable generation. Yet these DERs also provide a huge opportunity for utilities seeking to balance the grid, reduce peak demand and minimise constraint costs. Utilities must pivot their approach at both transmission and distribution levels to access and leverage DERs to increase grid resiliency and security.

The need for a flexible energy system

There’s no single silver bullet to managing a system packed with variable generation, peak-increasing technologies and consumers using more electricity. Traditional grid upgrades and reinforcements will play a critical role in decarbonizing our energy system, and the IRA contains important provisions for the development of electricity transmission infrastructure. However, the sheer scale of these infrastructure developments, alongside their cost and long lead times, means that grid upgrades alone are not capable of transforming the energy system at the pace required. As a result, it is critical that flexibility services, which are capable of being quickly deployed and enabled by marketplaces like Piclo Flex, are scaled and invested in significantly.

Flexibility’s role in delivering net zero has long been recognized in the States. At the federal level, FERC Order 841 focused on better enabling battery storage access to balancing, ancillary and flexibility markets. More recently, Order 2222 was introduced to remove barriers preventing DERs from competing on a level playing field in regional grid operator-run markets. You can read more about this in our previous blog.

The role of local flexibility markets

However, the impact of the IRA will also be felt significantly on the distribution level as a result of the connection of smaller-scale, distributed assets. The additional, varying demand and generation patterns caused by the uptake of these technologies will lead to highly locational grid issues that require local flexibility services to resolve. To date, flexibility at the distribution level has been encouraged through NWA programs, which are technologies or operating practices intended to:

  • Manage network issues, including localized constraints or increases in peak demand
  • Enable DER connections to the grid at pace
  • Deliver a cost-effective and faster solution to issues on the grid in comparison to grid reinforcement, which can be deferred or removed altogether  

ICF analysis highlights there is NWA activity in almost half of US states. For instance, New York implemented the Reforming the Energy Vision in 2014 that set the scene for the development of NWAs by calling for utilities to adopt these programs within its wide-ranging set of initiatives. Although market factors have resulted in less success than had been hoped, recent examples include Nexamp’s community 8.4MW solar and 31MWh storage co-located facility providing an NWA solution to a substation in New York State. However, the overall progress of NWA programs has been slow. Analysis suggests activities are held back by regulatory frameworks, cost or unreliability concerns and that only 40% of projects have moved beyond a proposal stage. Yet the picture painted by the IRA shows that this will need to change imminently.

What needs to happen now

  • Value DER flexibility: utility regulatory incentive mechanisms must value and incentivize OPEX-related costs such as DER flexibility services to drive investment and uptake. Currently, only CAPEX-related costs, such as grid reinforcement, are rewarded appropriately.
  • Set ambitious goals: utilities and regulators must recognize flexibility’s role in enabling decarbonization and the increased DER development the IRA will bring. Implementing ambitious and clear goals will set the trajectory to provide confidence to DER developers and aggregators investing in flexible assets.
  • Get going: one of the key lessons from developing local flexibility markets in the UK is that utilities should start small and iterate. In doing so, utility and DER developer understanding, skills, tools and personnel can be developed early and scale symbiotically. Market confidence will grow as utilities continuously signal their commitment, and utility confidence will grow as contracts are awarded, services utilized and value secured. In the UK, cross-utility and marketplace events open the door for positive, collaborative discussions providing transparency, confidence and communication with the market. This enables holistic plans to be developed with stakeholder input that minimizes risk and includes priorities reflective of market needs. Read the output from “Growing DSO flexibility markets to reach net zero”.
  • Use a marketplace: an independent marketplace can streamline participation and widen access to all types of FSPs through a user-friendly interface or automated integrations. Its independence will ensure market confidence and mitigate conflicts of interest concerns. Utilities can use a proven end-to-end solution for advertizing, qualifying and securing their grid needs through competitively run tenders, dispatching, settling and paying FSPs for the procured services.

If you are interested in finding out more about Piclo Flex, we are holding our first introductory webinar to flexibility services for New York State. Find out how you can become an FSP and how to use the Piclo Flex marketplace platform on Tuesday 20th December 11am (EST).