Reforming Resource Adequacy: First, Establish Where We’re Going

Gridworks is leading an initiative to help California Resource Adequacy market leaders address the troubled Resource Adequacy program. Our discussions are focusing on:

• Identifying current and future challenges for the heart of the program: maintaining a reliable balance of energy supply and demand
• How to evaluate the merits of different approaches, and
• Building consensus around working alternatives

The results of these discussions are intended to benefit policy-makers as they navigate their critical decision-making on the program’s future. Our ultimate aim is to help California progress towards a future reliability program that complements California’s clean and equitable energy transition.

Stakeholders agree on one thing: RA is barely working

The energy supply, energy demand and, thanks to climate change, even the weather have all changed radically since 2004, when the California Public Utilities Commission (CPUC) first established the Resource Adequacy (RA) program. In our first article in this series, “Resource Adequacy May Not Have Failed, But is it Working?”, we noted several issues with the current RA program that leave it poorly equipped to meet these changing circumstances. The question that remains is how RA can better achieve its objectives- not just in today’s environment, but into the future.

Several insightful proposals have been put on the table in the CPUC’s current RA proceeding, and others are expected shortly. The joint proposal by Southern California Edison and the California Community Choice Association has drawn particular attention for several innovations, including a new concept- “net qualifying energy” – that are intended to help bridge the gap between RA’s current construct and the realities of today’s energy supply and demand characteristics. Will these proposals offer enough to redeem a program that nearly all stakeholders consider “barely sufficient”- let alone arm it for the even greater challenges ahead?

In Gridworks’ discussions, leading stakeholders have concluded we just don’t know enough about the nature of the future energy system to fully redesign the RA program just yet. Conditions and technologies- and customer responses to both- are all changing rapidly. Advanced modeling of these changes is underway, but results will depend on forthcoming data from many new developments, including renewables-storage hybrids, advanced customer-side capabilities, and the increasing electrification of the building and transportation sectors. In the meantime, maintaining reliability as the energy system undergoes the most significant transformation since its very beginning, over a century ago, has become a major issue across the nation. California is once again at the forefront of a cutting-edge issue, with all of the positives and negatives that come with being ahead of the curve.

Challenges to Overcome

To help determine where we want the Resource Adequacy program to go, and how to get there from here, it helps to consider where the program’s journey began. Consider where we’ve come from:

• At the start of the RA program, nearly all new generating capacity was gas-fired and fully dispatchable, and peak demand was the peak stress point. California’s first Energy Action Plan was issued at about the same time, and had just accelerated the 20% Renewables Portfolio Standard (RPS) to 2010- but that was still six years off. The RPS had not yet led to a significant change in the energy supply, and California’s Million Solar Roofs Initiative was still two years away. In this relatively simple environment for the energy system, peak demand truly represented the apex of resource need. Under these circumstances, a demonstration of sufficient capacity to equal system peak plus the 15-17% planning reserve margin served as a reasonable proxy of sufficiency for most needs.
• These days, RA’s chief assumptions no longer hold true.  Capacity that helps meet system peak may not be available at other times, and system peak itself isn’t the primary stress. RA has arguably achieved what it set out to achieve- ensuring sufficient supply at times of peak demand. In 2019, electricity produced by natural gas-fired generation accounted for just slightly more than the amount from renewables, at just over 34% relative to just under 32%. California surpassed the million solar roofs goal half-way through the year. California’s remarkable success with utility-scale and customer-side solar helps it meet the absolute peak of demand with relative ease. Why is there a reliability problem? The landscape has changed, and it is the balance of supply and demand rather than the greatest absolute demand that causes the greatest stress.

The “net peak”- after the sun goes down, and demand that had been met by distributed and utility-scale solar remains- has emerged as the most significant single stress point. Simply swapping system peak with net peak as the reliability target wouldn’t do very much to help. Since an increasing proportion of the energy fleet isn’t fully dispatchable, procuring resources targeted to meet net peak instead of system may leave other stress points unaddressed.  With climate change, conditions that were once rare reasons for concern in the energy system are becoming increasingly common. For similar reasons, a single capacity rating for supply-side resources is itself a less reliable proxy for its actual reliability value under the variety of challenges facing the energy system. As we noted in our prior article, our current approaches to rating capacity increasingly appears to overcount some resources under some circumstances while undercounting them for others.

• One day at a time may just not be enough. Resource Adequacy’s focus on peak periods within the timeframe of a single day is also likely to fall short of ensuring reliability. The increasingly fragile natural gas supply system has demonstrated that failures can severely hamper reliability for several days, or even weeks. The first day of such an extended outage, or of an extended period of bad weather that suppresses renewable energy output, can exhaust use-limited resources like short duration storage. When challenging conditions stretch across the region, like August’s heat storm or this year’s wildfire season, imports may not be available to fill the demand gap or to recharge short-duration storage. The current RA construct simply doesn’t consider these scenarios, which can make its primary objective- balancing supply and demand- extremely difficult if not impossible for many days at a time.

Reasonably stable energy systems and markets need reasonably stable solutions- not just for yesterday’s challenges, but for tomorrow’s as well.

Once again, California finds itself having to make changes to its energy markets to maintain reliability in the face of uncertainty. A reasonably smooth transition will require ensuring interim improvements offer more than reactions to immediate needs: at a minimum, they should take steps in the right direction to address future challenges.

• With the status quo unacceptable, reliability improvements cannot wait. Maintaining reliability is critical for California’s economy and quality of life, particularly when outages can have catastrophic medical or financial circumstances. A stable, reliable system is equally important for the clean energy transition. As one California legislator noted in the aftermath of August’s rolling blackouts, without reliable electricity, few people will want to buy an electric car.  Popular support for transforming the energy sector, let alone electrifying the transportation and building sectors, depends on keeping the lights on and keeping rates at a reasonable level.
• An affordable, reliable energy transition depends on whether the steps we take now actually lead us toward the future we want. Although we can’t quite know the future, simply adding more patches to a program that is already described as a “Rube Goldberg” contraption is not very appealing. Without stable regulatory and market foundations, California will have a difficult time attracting the investment and innovation it needs for a clean and equitable energy transition. This dynamic puts California in a difficult position, as it’s clear that the RA program will require a paradigm shift at some point in the not-too-distant future. Avoiding near-term disruption by taking smaller steps now would improve “backwards-compatibility,” and better assure existing expectations. The downside to taking smaller steps now is that it may require future steps to be much larger and even more disruptive. To strike the right balance, we need to have some sense of the future RA program’s fundamental elements, and to use those projections to evaluate whether interim proposals go too far- or not far enough.

What are the most salient criteria of the future RA program? 

From our conversations with energy thought leaders to date, we know RA must maintain its primary focus on balancing supply and demand in the bulk power system, and take at least this much into account:

• The need for simple, understandable rules to
  • Attract investment and innovation
  • Recognize and make use of the full reliability value of network, distribution system and customer-side resources
• The balance of energy across supply and demand, either in addition to or potentially in place of ensuring sufficient capacity
• Varying potential stress conditions throughout the year, including stresses that may last for multiple days
• Anticipated generation retirements and their timely replacement
• Changes to imports and exports as neighboring states undergo their own energy system changes
• Consistency with California’s energy policy objectives, including achieving an equitable and clean transition no later than 2045

In our ongoing dialogue on the future of California’s RA program, we will be asking energy leaders to offer their own perspectives on the essential elements of California’s future RA program, as well as how to evaluate how policy proposals contribute to those elements.  We welcome other stakeholder ideas on a successful transition to California’s future RA program.  To support policy-making, we plan to publish a report in January bundling the best of these ideas and perspectives.