California’s Distributed Energy Future

GTM Research has established itself as the premier source of information on solar industry trends and developments in the United States. It’s instructive that from that perspective, they chose to organize a conference focusing on a single state, California.

We who participate in the solar industry here have recognized the state as a leader, but the less patronizing among us also recognize that the magnitude of this lead is only temporary. If solar is to realize its potential as one means of reducing environmental damage while reducing future customer utility costs, then other parts of the United States need to catch up (and as GTM’s latest data for 2015 shows, they are).

Nonetheless, as GTM Research Senior Vice President Shayle Kann observed in his opening keynote at GTM’s California Distributed Energy Future conference in San Francisco, California remains the epicenter of next generation distributed energy (DE) regulation and is at the forefront of the shift toward distributed energy in the U.S. And (I would add) what happens in California doesn’t always stay in California. Hence the conference to examine California’s transition to a distributed energy future and consider what’s working and what isn’t.

The discussions at the conference covered a variety of issues confronting the state. Here is an overview of the key themes coming out of the discussions, and the insights shared by the different speakers:

The strongest and most frequently recurring theme was that of the interaction of Distributed Energy Resources (DERs, essentially distributed solar PV) and the electrical grid. This issue has numerous dimensions, and subsequent “fireside chats” helped highlight some of these.

Appropriately the first discussion was with a Senior Vice President from Pacific Gas & Electric (PG&E), California’s largest investor-owned utility (IOU) and the utility with more connected PV capacity than any other in the United States. Issues were fairly raised: e.g., how should rates be structured to fairly compensate the value of Grid access received by the customer, how does PG&E envision an environment of growing Community Choice Aggregation (CCA) systems and how is the Grid managed for reliability. Unfortunately, the moderator for this session let the PG&E representative off with the stock, PR answers: “we have to make changes in our rate structures”, “they can work, note how long Marin (Clean Energy, 2010) and Sonoma (Clean Power, 2014) have been in service”, and “we need to build in robustness.”

Ah well, at least subsequent chats returned to DER issues in more depth. DERs can lower costs for Grid operators / managers; experiments were cited by both Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) involving combinations of storage and DERs. Time of Use (TOU) pricing is coming, and 150 studies worldwide on this issue indicate that customers like this. But there is just too little experience with California’s residential customers while the customers themselves have too little information on which to make decisions as to costs versus savings.

Questions were also raised about Grid planning, to which respondents appeared to agree that too much is moving to identify a “right” strategy, especially as there isn’t even agreement on how to weigh technical issues such as reliability against other social goals we “should” be pursuing. The underlying complexity raised by these superficially straightforward questions was well-highlighted.

Michael Picker, President of the California Public Utility Commission (CPUC) noted that despite all the issues the CPUC addresses, DE issues are of significant importance. CPUC needs to consider even the framework for its decision making processes going forward. A system designed to regulate railroads in the 1890’s may not provide the responsiveness and flexibility for regulating changes to utilities in a rapidly evolving technological, economic and social environment. The “adversarial” approach used in CPUC proceedings may not be the best approach—why is the current process more dependent on legal skills than on engineering skills? The desire is to move forward not too fast, not too slow in opening the market to competition while allowing utilities to remain viable business entities. These are issues that could keep one up at night.

Michael Picker (CPUC, left) and Shayle Kann (GTM, right) during their “Fireside Chat”

GTM California's Distributed Energy Future Conference

The second, albeit lesser, recurring theme I heard at the conference was that of CCA developments. Until this year, there have been only three of these organized in California: Marin (with subsequent geographic extensions) and Sonoma were cited above, and Lancaster Choice Energy was launched in 2015. San Francisco’s Clean Power SF, Silicon Valley Clean Energy and Peninsula Clean Energy (San Mateo County) are in the process of launching this year.

As Mark Ferron, CAISO Board of Governors, cited, in 5 years 60% of the state’s eligible population could potentially be served by CCA’s if all programs now in discussion came to completion in that time. He provided a link in later discussion which I repeat here for those who want to follow up on the tally he reported:

CCA’s make solar available to those in multi-family dwellings or who own a home not situated with a solar-favorable orientation or location. Expansion of solar power to these customers is required if solar-based power is to expand. Yet as Michael Picker observed, CCA “forced collectivization is a coup against the traditional utility model, challenging utilities and eroding the role of the PUC.” We don’t know yet where this takes existing suppliers and industry participants.

The challenges of the new, evolving energy infrastructure are actively being addressed by the states of California and New York. Conferences such as this provide an excellent opportunity to reflect on the issues and the difficulty this transition poses for firms competing in the market, regulators and the state legislatures who will eventually need to rewrite the rules for structuring state energy markets.

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