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Can Community Initiatives and Demand Flexibility Save the California Grid?

April 21, 2021

To both meet ambitious decarbonization goals and adapt to the growing impacts of climate change, utilities are engaging an increasing range of distributed resources, many behind their customer’s meters, to shift demand to periods where generation is clean and low cost, and to help their customers manage their costs during the coming clean energy transition. Last summer’s blackouts in California and the winter grid crisis in Texas only highlighted the urgent need for more dynamic and flexible approaches to managing demand.

by Matt Golden, CEO of Recurve – an AnnDyl Policy Group client

As states like California accelerate toward aggressive decarbonization and clean energy goals, they are increasingly experiencing costly challenges transitioning to a new distributed model. Greenhouse gas reduction targets are no longer just coastal and progressive. In fact, 71% of US utility customers buy power from a utility with a carbon goal in place already.

Existing grid resources and supply-side solutions are insufficient to cover the growing flexibility gap as solar and wind continue to accelerate.

To both meet ambitious decarbonization goals and adapt to the growing impacts of climate change, utilities are engaging an increasing range of distributed resources, many behind their customer’s meters, to shift demand to periods where generation is clean and low cost, and to help their customers manage their costs during the coming clean energy transition.

Last summer’s blackouts in California and the winter grid crisis in Texas only highlighted the urgent need for more dynamic and flexible approaches to managing demand. 

Community Choice Aggregation allows communities to pool their electricity load to purchase clean energy and develop local projects and programs on behalf of their residents and businesses. Community choice aggregators (CCAs), like Northern California’s MCE are ideally positioned to help solve these emerging grid challenges. CCAs have over 11 million customers in California, representing 50 GW of load, including 3.9 GW of solar generation and 1.1 GW of storage. Because CCAs are designed to offer more local control over energy, they are close to their communities and therefore more responsive to their customers’ demand flexibility, needs and desires.

MCE, which serves 36 communities in four Bay Area counties, was Recurve’s first partner. The San Rafael-based non-profit has reinvested over US$180 million back into its communities through customer programs and renewable energy projects since 2010 while eliminating almost 500 kt of GHG emissions and investing US$1.6 billion into new California renewable energy projects.

MCE has supported the innovation of open-source tools and new market models that turn traditional energy efficiency and demand response on their heads, breaking down barriers and driving toward scale. 

Given MCE’s history of innovation and mission to address the challenges of decarbonization and climate adaptation in California, they are leading the state through its collaboration with Recurve to procure local market-based demand flexibility to help hedge exposure to costly energy market peak prices, while creating local jobs and helping customers reduce costs.

Learning from the August 2020 Blackouts

In August 2020, an extreme heat storm stressed the California grid, creating statewide blackouts. In an emergency bid to enhance supply, California Independent System Operators (CAISO), a non-profit Independent System Operator (ISO) serving California, called for behind-the-meter demand response resources to reduce demand.

However, because the day-ahead locational marginal pricing (LMPs) did not reach the price cap during the rolling blackouts and measurement rules meant dispatching would negatively affect their future baselines and DR value, many third-party demand response providers did not dispatch their resources. 

The following is an example of the hourly impact from OhmConnect, a demand response company that provides a way for California homeowners to get paid for responding to demand response events. 

Under current rules, the amount of savings that OhmConnect provided were calculated relative to the traditional “10-in-10 baseline”, which is simply calculated using an average of the past 10-days’ consumption, with a capped “same-day adjustment”, to attempt to account for the fact that the event day was a heatwave, not an average day. Because of this, there were no savings shown or paid to OhmConnect, even though reductions rather clearly occurred.

Those like OhmConnect that chose to dispatch during the blackout lost hundreds of thousands of dollars doing it. 

In other words, the California system stacks the cards against the very players it needs in the market and then blames them when these private companies follow the rules and make rational economic decisions that do not align with the public good or regulators’ priorities.