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  1. William Kissinger
    1. William D. Kissinger
    2. PartnerBingham McCutchen LLPConsultantBingham Consulting LLC
    3. T +1.415.393.2850
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    1. Ella Foley Gannon
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    3. T +1.415.393.2572
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    1. Steve W. Black
    2. Of CounselBingham McCutchen LLPPrincipalBingham Consulting LLC
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Achieving California’s Greenhouse Gas Emissions Goals: New Study Exposes Overgeneration as Key Challenge to Increasing the Renewable Portfolio Standard

Jan. 24, 2014

Over the past decade, California has made a multi-billion dollar investment in implementing a Renewables Portfolio Standard (“RPS”) that requires the State’s load serving entities to provide to their customers a minimum percentage of their electricity from renewable energy sources. Currently load serving entities must procure more than 20% from such sources and are well on the way to meeting the 33% requirement by 2020. This effort has been costly but has resulted in significant advances towards achieving California’s goal of dramatically reducing its greenhouse gas (“GHG”) emissions.

At the same time, the State’s increasing reliance on renewable generation, particularly solar photo-voltaic (“Solar PV”) and wind, has created operational challenges, given the intermittent and variable nature of such generation, challenges that some have suggested will worsen with stricter RPS requirements. On January 13, 2014, Energy and Environmental Economics (“E3”) published a much anticipated report entitled “Investigating a Higher Renewables Portfolio Standard in California“ (“E3 Study”).1 The study, funded by California’s three investor-owned utilities (“IOUs”) and two largest municipal utilities,2 identifies overgeneration as one of the biggest operational challenges to integrating renewable resources under increasing RPS requirements, with the need for flexible generation to accommodate such generation close behind.

Overgeneration occurs when there is more generation than there is demand for that power. When this occurs, at some point, the only way to avoid damaging the electric transmission system and maintain reliable electric service is to shut down, or curtail, generation. E3 concludes that without the adoption of new solutions to mitigate the problem, overgeneration will become pervasive once renewable penetration goes above 33%, which as a practical matter seems all but certain to occur.

At the same time, higher penetrations of Solar PV and wind create serious operational problems because of the intermittent and variable nature of such generation. Because the output of such resources are dictated by nature, E3 concludes additional resources as well as curtailment would be necessary to reliably operate the grid to ensure generation can meet customer demand.

The E3 study identifies several potential solutions to mitigate these challenges, including increasing regional coordination, increasing demand response, procuring energy storage, and ensuring that higher RPS targets are met with a diverse supply of renewable resources. The study also suggests that increasing the RPS may not be the most cost-effective mechanism to reduce California’s GHG emissions, especially if integration solutions are not incorporated into energy resource planning.

California’s energy procurement proceedings at the California Public Utilities Commission (“CPUC”), and transmission planning before the California Independent System Operator (“CAISO”), do not currently incorporate mechanisms to evaluate solutions which mitigate the operational challenges caused by higher RPS requirements. Therefore, the E3 Study is a call to action to California’s regulatory regime to adapt its planning processes to evaluate and incorporate integration solutions which mitigate or avoid the need to curtail the operation of the multi-billion investment California has made in renewable generation.

A. Renewables Likely to Exceed 33% Beyond 2020

Starting in 2002, California passed a series of laws requiring the State’s electrical utilities to procure increasing proportions of eligible renewable resources3 to serve their retail load. What began as a requirement to reach a 20% RPS by 20174 has evolved into a 33% target by 2020 for all retail sellers of electricity in the State.5 Although no further RPS targets have been mandated by law, the CPUC has authority to increase the RPS targets for utilities under its jurisdiction and may do so as a means to achieve the State’s ambitious GHG reduction targets.6

Even without mandated increases in renewable generation, however, California’s renewable portfolio will likely exceed 33% by 2020. Many of the IOUs have over-procured renewables in order to ensure they could meet their RPS targets in the face of potential failure by projects with which they contracted. As a result, to the extent the utilities were overly conservative, their resulting portfolios may exceed 33%. In addition, new rooftop solar and other distributed generation, which are not counted toward the 33% RPS will almost certainly push renewable penetration beyond 33%.

B. An RPS Exceeding 33% is Likely to Result in Increasing Overgeneration and Renewable Curtailment

Assuming current procurement trends continue, E3 projects that the majority of renewable energy in California in 2030 will come from a mix of Solar PV and wind projects. The E3 report concentrates in large part, however, on the impact of Solar PV on the overgeneration problem. Marginal overgeneration (percentage of incremental megawatt-hours resulting in overgeneration) is expected to be greater for Solar PV than other technologies. Because certain energy generation resources (including many fossil fuel-fired thermal power plants) need to operate at minimum levels throughout the day, when Solar PV peaks there is a potential for renewable generation plus other non-dispatchable generation to exceed load plus exports. When this occurs, excess generation must be curtailed if not stored. Because non-renewable resources presumably have already been reduced to the greatest extent allowed by system requirements, overgeneration will likely result in curtailment of renewable output.

How big a problem is the threat of curtailment due to overgeneration? Although E3 does not project considerable overgeneration upon achievement of the 33% RPS target, the problem worsens considerably as renewable penetration approaches 40% and 50%. At a 40% RPS level, E3 projects that 2% of all RPS-eligible energy production will be curtailed in the absence of sufficient integration solutions. According to E3, this number will rise “exponentially at RPS levels approaching 50% RPS,” resulting in possible curtailment of nearly a tenth of all RPS-eligible generation at 50% RPS if current procurement trends continue.

The enormity of these numbers becomes clear when looking at marginal curtailment:7 E3 projects that more than a quarter (26%) of the RPS-eligible energy required to move from a 33% RPS to a 50% RPS may be curtailed absent the mitigation measures E3 identifies. As a result, in the absence of integration solutions such as storage, regional coordination and diversification of resources, and demand response, the E3 Study projects a significant jump in electricity rates between 40% RPS and 50% RPS, primarily due to increasing renewable curtailment as the RPS target increases.

C. Integration Solutions Must Be Incorporated Into Long-Term Resource Planning

The E3 Study identifies various mitigation strategies or “solutions” which can reduce the need to curtail renewables under the 40% and 50% RPS scenarios.8 Although the E3 Study described these potential solutions individually, it also concludes that these solutions can be additive to help mitigate the overgeneration problem.

First, E3 found that increasing regional coordination between balancing area authorities in and around California can allow for flexible energy generation produced elsewhere, help meet flexibility needs in the State, and also allow for increased export opportunities from California to other markets. The CAISO is already working on enhancing regional coordination by developing an Energy Imbalance Market (“EIM”) with PacifiCorp.9 Assuming the EIM proposal is approved by the Federal Energy Regulatory Commission, generators in both the CAISO and PacifiCorp balancing authority areas that voluntarily participate in the EIM would be able to sell energy into the real-time energy market. In other words, energy resources would be able to be shared and dispatched economically across grid-planning boundaries.

Establishing the EIM is expected to have a number of benefits including facilitating the integration of renewable resources by enhancing the geographic diversity of the renewable resources available and improving access to flexible resources. The EIM Market is being designed so that it can be readily expanded to include more balancing authority areas and more are expected to join, which may become reality if studies which show that both the CAISO and PacifiCorp will enjoy significant cost savings by having an EIM market prove correct.10

Second, increased conventional demand response programs that reduce load during peak periods can help mitigate the problems associated with steep upward and downward generation-load ramps. Third, advanced demand response programs and flexible loads that can additionally absorb energy during times of surplus further help the overgeneration problem. Fourth, expanding the amount of energy storage resources connected to the grid can provide both upward and downward flexibility by absorbing excess energy and then providing it back to the grid when there is less renewable generation entering the system. Fifth, because all renewables are not created equal, the overgeneration can be mitigated by employing a more diverse mix of renewable resources with different generation profiles.

Incorporating these integration solutions has the potential to substantially decrease the cost of moving to a 50% RPS. For example, the E3 Study projects that a 50% RPS under current procurement trends would increase electricity rates by 14% compared to a 33% RPS, whereas procuring the more diverse set of generation resources described above, would increase rates by about 9%. Enhanced regional coordination, allowing flexible load to be moved to periods of high generation, and storage also have the potential to reduce projected electricity rate increases under a 50% RPS.

Identifying and evaluating additional integration solutions through California’s energy and transmission planning processes will be difficult, as neither CAISO nor CPUC proceedings have incorporated the threat of overgeneration into their analytical planning tools. The E3 Study is just a start, and E3 recommends that further studies be conducted to understand, for example, the combined impact of various integration solutions, researching and developing storage technologies, and identifying transmission constraints.

Addressing overgeneration will require California’s energy planning agencies to expand the nature and scope of their proceedings. For example, the draft Planning Assumptions and Scenarios of the CPUC’s 2014 Long-Term Procurement Plan (“LTPP”) proceeding proposes one planning scenario in which 40% RPS is achieved by the year 2030.11 If the CPUC chooses to fully analyze this or other high-renewable scenarios during the LTPP process, it may help to identify the grid integration solutions that can be developed or employed to stave off renewable curtailment. The assumptions underlying how the high RPS targets will be achieved are also critically important to the planning effort. While the CPUC’s draft Planning Assumptions and Scenarios assume that a 40% RPS incorporates high amounts of distributed solar generation, the E3 Study suggests that too great a reliance on distributed generation would not be ideal. According to E3, RPS portfolios using a broad mix of geothermal, small and large solar PV, solar thermal, and wind resources are not only less expensive than those weighted toward rooftop and small solar generation, the diverse portfolio can also mitigate overgeneration problems.

D. Increasing RPS to 50% in the Absence of Integration Solutions Would be an Expensive GHG Emissions Reduction Strategy

Cost will have to be one of the factors addressed by the CPUC when deciding whether to set higher RPS targets beyond 2020, and the E3 Study suggests that such increases won’t be a very cost-effective GHG emissions reduction strategy. The E3 study estimated the GHG emissions reduction cost of the 50% RPS scenarios studied to be in the range of $403 to $637/ton. These costs could be reduced by implementing some of the integration solutions discussed above, but they are well above the carbon allowance prices projected to fall within a range $22 to $110/ton in 2030.12 Renewable generation also reduces emissions of other pollutants, which may factor into whether RPS targets are raised beyond 33%.

E. Conclusion

Utilities, energy project developers and their sponsors, and ratepayers have invested billions of dollars in renewable resources in California. The E3 Study suggests the benefits from this investment must be tempered by the limitations on their usage, particularly as their penetration increases.13 The thought of doubling down on this investment, with the specter of higher curtailment rates and increased operational challenges for the grid, makes plain the need to implement the kind of solutions called out in the E3 report if California is to increase its RPS and cost effectively achieve its longer term GHG emissions goals. To get at the problem, the State’s energy agencies will have to develop new tools to evaluate and consider the full impact of particular resources and to consider a more diverse portfolio of renewable resources as well as additional approaches, such as storage to capture overgeneration and provide flexible generation when needed.

Endnotes

1 The E3 Study was reviewed by an impressive advisory panel who also issued a report regarding the study, available at the same website.

2 The E3 Study was funded by Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, the Sacramento Municipal Utilities District, and the Los Angeles Department of Water and Power.

3 Eligible renewable resources include a large variety of resources ranging from biomass to geothermal to wave technology. Large hydroelectric resources (plants generating over 30 MW) are not RPS eligible resources. See Renewables Portfolio Standard Eligibility Guidebook: Seventh Edition, California Energy Commission, April 2013, available at http://www.energy.ca.gov/2013publications/CEC-300-2013-005/CEC-300-2013-005-ED7-SF.pdf.

4 See Senate Bill 1078 (2002), available at http://www.energy.ca.gov/portfolio/documents/documents/SB1078.PDF.

5 See Senate Bill 1X-2 (2011), available at http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0001-0050/sbx1_2_bill_20110412_chaptered.pdf.

6 See Assembly Bill 327 (2013), available at http://www.leginfo.ca.gov/pub/13-14/bill/asm/ab_0301-0350/ab_327_bill_20131007_chaptered.pdf.

7 Marginal curtailment is the percent of each additional MWh of renewable energy expected to be curtailed.

8 In order to study the effects of five key solutions, E3 relied on a renewable scenario that assumed a high penetration of large solar PV, as this represents a continuation of “business-as-usual” procurement trends in the State, but E3 concludes that the strategies can be effective under more than one renewable scenario.

9 Numerous documents relating to the CAISO-PacifiCorp EIM are available at: http://www.caiso.com/informed/Pages/StakeholderProcesses/EnergyImbalanceMarket.aspx.

10 The report analyzing benefits to CAISO and PacifiCorp from the EIM (which was also conducted by E3) is available at http://www.caiso.com/Documents/PacifiCorp-ISOEnergyImbalanceMarketBenefits.pdf

11 The Planning Assumptions and Scenarios are available at http://www.cpuc.ca.gov/PUC/energy/Procurement/LTPP/ltpp_history.htm.

12 The E3 Study assumes a $50.38 /ton CO2 allowance price for fossil generating units based on the CPUC’s Market Price Referent forecast. E3 Study at p. 91. E3 also modeled high and low carbon costs of $22.10/ton and $110.40/ton in 2030.

13 For example, the E3 Study concludes that merely maintaining the 33% RPS standard through 2030 will require an additional $24.4 billion, above and beyond the investment necessary to meet the 2020 RPS objectives. E3 Study at p. 141.

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