Navigant Research Blog

California’s Risky Path to Grid Reform

— December 30, 2013

In June, the California Independent System Operator (CAISO) presented a draft roadmap for integrating demand response (DR) and energy efficiency (EE) into California’s electric grid.  On December 17, a final version of the roadmap was released.  According to the report’s vision statement, “The ISO envisions demand response and energy efficiency becoming integral, dependable and predictable resources that support a reliable, environmentally sustainable electric power system.”  The ISO is working with the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) to create market opportunities for DR and EE as preferred resources, as the report title suggests.

The roadmap includes four interdependent paths that run from 2013 through 2020: load reshaping, resource sufficiency, operations, and monitoring.  Load reshaping focuses on applying DR and EE resources to the demand side of the market.  These resources will create a flatter load shape for the ISO system through enhanced EE programs and dynamic retail electric rates.  The needed alignment between retail and wholesale markets entails at least three primary approaches: smart grid automation, retail tariff changes, and the encouragement of energy conservation during times of grid stress.

Mind the Duck

Resource sufficiency focuses on the supply side of the equation to ensure sufficient resources are available in the right places and at the right times, while operations aims to make the best use of all resources that are made available through the resource sufficiency path.   Finally, monitoring is the feedback loop for the other three paths.   Systematic monitoring will foster a deeper understanding of the operational capabilities of DR resources, the effectiveness of procurement programs in aligning with system needs, and the impacts of EE and other load-modifying programs in reshaping load profiles.

Implementing new, more flexible and responsive resources will further advance California’s goals of a more reliable and cleaner power system, with the added potential of replacing or deferring investments in more expensive energy infrastructure.   From an operational perspective, DR resources will contribute to the low-carbon flexible capacity needed to maintain real-time system balance and reliability, while also supporting the integration of increasing levels of renewable energy resources, as displayed in the ISO’s famous duck graph.

 

(Source: California Independent System Operator)

California continues to walk the tightrope between markets and mandates as it confronts its rapidly changing energy landscape.  Unfortunately, I’m not sure it will be able to keep its balance and make it to the platform.  Rather, I think it may fall and need to create a new safety net in a few years.  The state needs to choose to either let the markets find solutions, or to stay fully regulated and not create paper markets.  I understand it has been burned by free-market solutions in the past and may be gun shy, but making quasi-markets is not the answer.

That’s not to say that other regions have pure markets.  State policies always interact with grid operations, whether it’s in single-state regional transmission organizations (RTOs), like New York and Texas, or multistate RTOs like PJM, ISO-NE, and MISO.  All have seen battles between market operators and regulators, but there still seem to be some sense of respect for each side’s territory of control.  Of course, California likes to blaze its own trail.  Sometimes that leads to glory, but in this case, it may lead back to the starting line.

 

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