Gridworks: Wanted: A Regional Market and Distributed Energy

By Mike Florio, Former Commissioner of the California Public Utilities Commission

During my last year as a CPUC Commissioner in 2016, my two largest projects were the Commission’s Integration of Distributed Energy Resources (IDER) proceeding and the (thus far unsuccessful) effort to expand the California Independent System Operator (CAISO) into a larger regional entity that would serve other western states as well as California. At times, I asked myself if these two efforts were in conflict with one another – increased penetration of DERs and a larger regional market? The answer that I eventually came to was: “NO.”

I do not believe that increased deployment of DERs and regionalization are in conflict because there is a place for both in the clean energy system of the future. Customers are increasingly interested in the development of LOCAL resources, whether through installation of rooftop solar themselves or through the creation of a Community Choice Aggregation (CCA) in their city or county that will prioritize local economic development. Given the enormous demand for electricity in California, however, it seems unlikely that ALL electricity will ever be produced and consumed locally. Even if every single-family home were zero net energy, there will still be office buildings, apartment complexes, shopping malls and factories that are not able to produce enough energy onsite or nearby to meet their consumption needs. Those customers will have to obtain their electricity somewhere, and even those who produce locally will sometimes need to supplement their supply with grid power.

There is a place for both increased deployment of DERs and regionalization in the clean energy system of the future.

When customers need grid power, they generally prefer that it be as cheap and clean as possible. That is where a larger regional market comes in. Today the CAISO dispatches power within California on a least cost basis, which means that zero-fuel-cost resources like wind and solar are dispatched first (with some exceptions for reliability purposes). But most of the good sites for wind farms in California have either already been developed or placed off-limits due to environmental concerns. We can develop a lot more solar in-state, but how are we to reach the current 50%-by-2030 RPS standard or our aspirational goal of 100% clean energy when the sun only shines about half the time on average? Energy storage will certainly play a big role in the process, but installing enough storage to meet the majority of our nighttime electric demand could prove to be an expensive and difficult proposition.

This is where a larger regional grid comes into play. Some of the best wind sites in the country exist in the West, particularly in states like Wyoming, New Mexico and Montana, which historically have produced coal power that often eventually found its way to California. As those coal plants close down for age, cost or environmental reasons, space will open up on transmission lines that already exist to bring that cheap wind power to California. Some enhancements to the existing grid may be necessary, but we may be able to meet a significant portion of our future renewable energy needs without having to spend billions on large new transmission expansions. At the same time, customers in other states can purchase our excess solar power when mid-day production exceeds the load in California.

Speaking of solar: additional benefits stem from latitudinal diversity as the sun moves from east to west; the belly of the duck on the Salt Lake coincides with a steep downward morning ramp on the Salton Sea – why not exchange our respective needs and “teach the duck to fly”? By trading with our neighbors (which we have always done to some degree), California can take advantage of load and resource diversity across the western grid to increase our reliance on clean renewable power, without having to invest as much as we otherwise would in ever larger amounts of energy storage.

One of the main reasons why it is difficult to trade power with other states today is that there are 38 separate “balancing authorities” in the West, each operating its own portion of the larger regional grid. These entities charge fees to “wheel” power across their systems, resulting in “pancaked” transmission rates that often destroy the economics of regional power trading across long distances. A larger regional market could both eliminate these duplicative charges and more efficiently plan for least-cost expansions of the grid to facilitate movement of renewable power from where it is produced most cheaply to where it is needed at any given point in time. But achievement of that goal is difficult and politically sensitive, for reasons that I will discuss in a future “Mike’s Corner.”