Tesla Shares ADER Progress Report With Texas PUC, Notes Upcoming VPP Test

Notes Break-even Point, Potential Challenges To ADER Revenue Streams

July 18, 2023

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Reporting by Paul Ring • ring@energychoicematters.com

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Tesla Inc. filed with the Texas PUC a progress report, "stating the detailed milestones achieved in the first year of the ERCOT Aggregated Distributed Energy Resource ('ADER') Pilot Project."

"The ADER Pilot Project has reached numerous success milestones, embedded in the details of market participants’ efforts to develop a business model, innovate technical requirements, identify customers, register as an ADER Resource Entity and thereafter ready the ADERs to participate as energy and reserves in ERCOT’s day-ahead and real-time markets," Tesla said

"In submitting this progress report as an ADER registrant and participant, Tesla therefore seeks to provide a clear view of the tremendous progress that has been made in under a year, from the date that ERCOT published its ADER roadmap guidelines on 12/19/22 to today, when an initial batch of ERCOT and utility-qualified Tesla Electric retail energy customers will participate in a VPP test prior to ERCOT commissioning activities over the next two weeks," Tesla said

Tesla said that, today, within nine months of the pilot metrics being established by ERCOT in its Governing Document, there is a functional process to:

(1) identify potential participants (individual customers by device and premise meter ID)

(2) validate the completeness of each individual interconnection

(3) maintain a precise physical and electrical location for each customer premise, and

(4) verify that each premise is not participating in competing or overlapping demand response programs.

(5) Database participant characteristics to ensure safe, reliable dispatch and sets the stage for future phases (potentially with a more granular locational dispatch.)

Tesla stated, "ERCOT has established guidance and Tesla has delivered the ability to monitor effective load curtailment at a device level. This monitoring, coupled with finely tuned control systems, has enabled an aggregated location to participate in a 5-minute dispatch."

"While the initial process is workable, the population is relatively small. When ADERs become commonplace, subsequent phases of the Pilot should include more elegant data transfer tools. Without the work being accomplished today with the TDSP community, the basic requirements for more sophisticated data collection and databasing tools could not be completed. This work also provides a level of DER device-level visibility to TDSPs that was not available to TDSPs from ERCOT, from interconnection applications, or other third party or customer reporting sources – the granularity of information exchange between ADER participant-applicants, TDSPs, and ERCOT is indicative of the clear objectives of the project charter to ensure that TDSPs have clear visibility into the potential impacts of ADERS on their distribution systems and a role in ensuring an increase in reliability as a result of customer participation in VPPs," Tesla said

Tesla stated, "To date, Tesla customers enjoy notification of their Tesla Powerwall deployment driven by ERCOT Load Zone Price."

"As part of our ADER commissioning plan, Tesla has conditioned our customers to a dynamic, rather than static, price response threshold. In addition to dynamic price settings, Tesla has developed a suite of web-based and mobile notification systems to enhance awareness of the application of customers’ Powerwall devices as they begin to fulfill grid needs in real-time," Tesla stated

"Customers are connected to ERCOT markets, by way of their devices, and our mobile app. The ADER pilot has allowed Tesla to increase that connection, specifically by raising awareness of grid reserves, their deployment characteristics, and perhaps most importantly to the customer, the value they create when participating in a coordinated dispatch. Even in the early phases of implementing the VPP experience, Tesla customers are asking for more engagement (most notably, many customers request ability to set their own deployment price.)," Tesla said

"An amazing, yet unexpected outcome of the ADER pilot is the customer willingness to set their own deployment price. A customer-determined deployment price is akin to establishing price elasticity of demand: a longstanding, missing key component of energy markets," Tesla said

Tesla stated, "Tesla has activated this strategy such that consumers interact with ERCOT in real-time, expressing their capabilities to net inject as a bid-to-buy, and curtailing effective load by dispatching the battery when grid prices exceed their marginal utility of consuming off-site power. Participants will soon be able to also provide grid reserves (Non-spinning Reserve Service) as currently enabled in the Phase I ERCOT Governing Document for ADERs."

Tesla stated, "In the wake of catastrophic weather-driven supply interruptions, consumers have a heightened awareness of how extreme events threaten the continuity of electric supply. Tesla has used the ADER Pilot to improve a consumer’s awareness of the grid while providing implements that can respond to grid needs without inconveniencing the consumer. Demystifying grid jargon typical in the industry means, as part of the ADER pilot, Tesla must capture the basics of supply and demand, and enable consumers to use their investment in Powerwalls to provide a coordinated response to the grid. Perhaps most importantly, Tesla leveraged the ADER pilot to develop a payment mechanism to reward consumers for the value they create and do so in a way that is aligned with their willingness to participate in real-time. As we progress through subsequent phases of the pilot, Tesla wishes to make the VPP experience one where customers can observe their value creation and receive rewards commensurate with their willingness to ‘opt-in’ when their capacity is needed the most. This is a starting point and a baseline for how ERCOT should be able to value and rely on dispatchable DERs in the near future as they continue to be adopted in record numbers by Texans."

Tesla stated, "Tesla Electric, as a REP and ADER aggregator, seeks to serve a customers’ grid needs while reducing the cost of ownership of residential energy storage devices when providing grid services. Providing grid services is aligned with our aspirations to aide in the need identified by the Commission and the Texas Legislature to add dispatchable megawatts to the ERCOT grid and enhance competition in the ERCOT market by passing value created to the owners of the devices providing that service. Tesla used the ADER pilot to develop new incentives to incentivize participation and build familiarity with how the devices will interact with the grid in an ADER/VPP."

Tesla stated, "Participating Tesla Electric Customers will get a monthly bill credit reflecting [sic] of their participation in an ADER. In many months, the bill credit will be greater than the value created by each customer." The monthly bill credit has been advertised as allowing customers to "earn up to $10/month" per Powerwall just for participation, in addition to the sell-back credits

Tesla stated, "Comparatively, current forecasts indicate that the summer and extreme winter value creation will fund the credit for the balance of the year. In subsequent phases of the pilot, Tesla will experiment with how we can retain customer engagement with consistent revenue streams while creating additional incentives to create value when the need for grid services is most pronounced."

Tesla stated, "The Tesla Electric experience surfaced internal testing communications to eligible VPP customers for ADER/VPP on July 17, 2023. This will be followed by ERCOT-integrated testing and telemetry exchange, and live operation in ERCOT after successful completion of the required testing. Tesla Electric customers will be brought along for the journey through the Tesla App experience on all of these ERCOT commissioning steps."

Tesla stated, "Over the course of the ADER Pilot, Tesla has repeatedly heard that other retailers, wholesalers, and non-opt-in-entities ('NOIE') (municipal and cooperative load serving entities that do not avail of competitive electric service) wish to build ADER populations within their existing customer portfolios. Expanding our capabilities to provide this service to third parties is critical to our mission. Tesla has used the ADER pilot to develop the enhancements and control systems required to perform this service internally. It is essential to progress to subsequent phases of the pilot so we can progress on conceptual designs to enable non-Tesla Electric customers to provide the grid services through the ADER pilot that are the most suited to energy-limited battery storage resources. This is pivotal to expanding ADER participation to a scale that is sustainable and meaningful to ERCOT."

Tesla stated, "The first phase of the ADER pilot allows Tesla to demonstrably assess the viability of aggregations as a provider of energy and reserves. Tesla will execute the first phase with confidence in the capabilities of the devices and our control systems; however, we have raised many questions concerning the economic viability of ADERs in the future and the need to quickly address these issues to allow more market participants to add ADERs to the project. First, we have learned that the costs associated with maintaining a QSE and servicing telemetry is challenged on a small scale. The ADER pilot created an opportunity for distributed devices to participate in a manner of equal or better standards applied to traditional resources, which is excellent. Telemetry systems and other QSE costs are often dwarfed by the revenue potential of large, centralized resources. Comparatively, we experience that ADERs have a break-even point near the 15-20MW scale. This scale is at or above current QSE caps, which must be increased."

"Further clouding future ADER opportunities, particularly for enabling third party ADERs, is the sudden and soon to be implemented Dispatchable Reliability Reserve Service (DRRS). One of the options to implement DRRS is to replace the existing Non-spinning Reserve Service. Non-spin is the only service available to ADERs today within the pilot. DRRS is a slower, inferior response relative to our ADER capabilities and revenue expectations are unknown, but likely to follow the performance requirements in a downward direction (relative to the existing non-spin product.)," Tesla stated

"ADERs are capable of providing ECRS and RRS, and subsequent Pilot Phases must include opportunities to demonstrate this capability to ensure the long-term revenue streams exist for ADERs during the pilot, including for third party participants Tesla endeavors to support, and, material access to revenue streams available in future market design when the pilot sunsets," Tesla stated

Tesla stated, "In ERCOT markets today, prior to the ADER pilot, there was no mechanism to operate a VPP construct that allowed participants to coordinate their response with ERCOT. VPP activities, without the ADER pilot’s allowances, only allow for coordinated passive demand response."

Tesla stated, "Passive demand response is fundamentally different from what the ADER Pilot has enabled. Passive demand response allows energy injections to respond to price excursions and be compensated at the real-time load zone price, just as any other net-injector on the ERCOT grid (enabled for example, by retail solar buyback plans). However, these megawatts do not appear as a resource to ERCOT, but as a negative load. Passive demand response allows for customers to be compensated for a valuable response that is correlated with times of grid need, but these negative loads are not coordinated with other wholesale resources which ERCOT expects to be available, so do not lend themselves to supporting efficient clearing outcomes. Active participation in the ERCOT market means that the ADER Pilot Project is used in a way that is part of a least-cost solution that is aware of grid constraints. Thus, the project is a catalyst of the significant work that will be necessary to ensure a future state in ERCOT where coordinated dispatch of wholesale and distributed resources will lead to economically efficient market outcomes."

Tesla stated, "The fact that ERCOT is progressing with the ADER pilot at a relatively early stage of DER integration, will support future market design changes allowing DERS to enhance wholesale price formation, support better valuation of reliability services and reserves which include modeled scenarios incorporating ERCOT-coordinated DER response, and contribute favorably to transmission and distribution system constraints."

Tesla stated, "For all the benefits of active market participation, subsequent phases of the ADER pilot should identify ways to make ERCOT-coordinated demand response programs preferential to the status quo. The ADER pilot is an opportunity to optimize these new assets, as distributed storage, electric vehicles, and on-site generation continue to proliferate across the ERCOT system."

Project 53911

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