An Update on California’s Distributed Energy Leadership

Credit: Data Source: Southern California Edison and the Los Angeles County GIS Data Portal

My colleague, NRDC Fellow Dan Aas, is the primary author of this blog entry.

California is the national leader in distributed energy resources (DERs)—local ways to meet energy needs such as through technologies like solar panels and avoiding or delaying energy use—according to metrics ranging from installed capacity to jobs. In a unanimous decision yesterday, California regulators created a new financial incentive pilot that encourages utilities to invest in DERs instead of more expensive traditional grid investments.

The robust DER market in California owes its rapid development to decades of support from state policies. DERs include energy efficiency, demand response (consumers modifying when they use energy in exchange for compensation), solar energy, energy storage, and electric vehicles. Tools like energy efficiency programs, requirements that utilities use energy storage technologies like batteries, and net energy metering (where customers receive a credit for excess energy produced by their solar panels) create the certainty that clean energy businesses need for success. As the DER industry in California has grown out of its infancy, policymakers and stakeholders are now working to develop new policies that ensure DER markets continue to grow. 

Let’s review California DER policy activity in the past year, and what’s to come in 2017.

A common lament in California has been that our energy policy is fragmented into increasingly granular activities across a number of different agencies and proceedings. For example, within the California Public Utility Commission (CPUC) alone there are separate proceedings for energy efficiency, storage, demand response, and others. In 2016, CPUC President Michael Picker developed a DER Action Plan that articulates how the sum of these disparate proceedings can align with the state’s broad energy and climate goals. The Action Plan divides DER policy activity into three categories: 1) rates, 2) planning, infrastructure, and procurement, and 3) wholesale energy markets and interconnection. In 2016, the CPUC was particularly focused on the questions of how utilities should plan for and procure DERs.

Preparing for a high DER future

The electric grid is both capital intensive and technically complex. As a result, when utilities identify issues with reliability or potential new demands for power they must start planning solutions in timeframes ranging from months to years in advance. But what if DERs could provide the same energy and grid services as conventional projects, but at lower cost?

The Distribution Resources Plan (DRP) proceeding at the CPUC is tasked with specifying under what conditions DERs can replace traditional infrastructure investments, and also to develop a set of tools to ease integration of DERs into the grid. The first tool is called the Locational Net Benefit Analysis (LNBA). This model will help utilities and stakeholders understand the value of deferring or avoiding expensive grid upgrades, and to design DER-based alternatives. The second tool is called the Integration Capacity Analysis (ICA). New DERs can stress the electric grid by injecting amounts of power beyond what the system is designed to accommodate. ICA methods develop location-specific estimates of how much additional generation from local DERs can be safely added into the grid (see the illustration below). Eventually, these estimates may help speed up the deployment of DERs in areas of the grid that can easily accommodate more generation, and identify solutions for the more constrained areas.

Example ICA/ LNBA output in the vicinity of Inglewood, CA. Red indicates portions of the grid with congestion; green indicates significant remaining capacity.

These tools are still in development, but early versions suggest that they will help to accelerate the deployment of cost-effective clean energy in California. Exactly how much of this potential is captured depends on the next phase of DRP proceeding, called “Track 3.” Track 3 will determine the types of grid services that DERs can provide. DERs cannot replace many aspects of the system, for instance the poles that support power lines. However, DERs can meet other grid needs—like avoiding “congestion” on the power lines at certain times of day or helping to regulate power quality.

Once utilities and stakeholders have established the conditions where DERs can meet grid needs, the question turns to how these resources can be acquired or incentivized in the right places. The Integrated Distributed Energy Resource (IDER) proceeding takes this question up, as well as how to provide utilities with a financial incentive to implement DER-based solutions. NRDC and other parties engaged in a working group designed to explore “competitive solicitations” to acquire these resources. While these solicitations will have some role to play, electricity rates and programs—like energy efficiency incentives administered by utilities—have proven to be effective strategies to deliver the clean energy resources Californians demand and must play a large role in the future as well.

In a unanimous decision in the IDER proceeding yesterday, California regulators created a new incentive pilot that encourages utilities to invest in DERs in places that they can delay or avoid more expensive traditional grid investments. Properly incentivized utilities can be effective drivers of clean energy investments, so this pilot is a good first step towards a high DER future supported by strategic utility investments.

Tying it all together

NRDC will be working with partners in 2017 to ensure that the policies shaping the future of DERs continue to make progress. Key decisions will include: specifying what types of grid investments are needed to accommodate DERs, the criteria to evaluate environmental and public health benefits when assessing the value of DERs, and how location-specific values will be used to encourage the development of new DERs. Successful resolution of these questions will ensure that DERs realize their potential to help drive a clean energy economy in California.