Two new bills, similar in concept but differing in approach, seek to align renewable energy output with peak electricity demand. Currently, the California Renewable Portfolio Standard (RPS) requires investor-owned utilities to procure 50% of total retail sales of electricity from renewable energy resources by 2030. If enacted, the bills would expand the RPS from a clean energy procurement mechanism to include, for the first time, the procurement of non-fossil fuel based capacity resources.
The Clean Peak Standard
Both new bills, Assembly Bill 1405 (AB 1045) and Senate Bill 388 (SB 388), are derived out of an alternative RPS framework devised by Lon Huber, senior director at energy consultancy Strategen, in a white paper for Arizona’s Residential Utility Consumer Office in December of 2016. The Clean Peak Standard (CPS) concept builds on the RPS by requiring a certain percent of energy delivered to ratepayers during peak load hours to be procured from renewable energy sources, with the aim of reducing costs to ratepayers when electricity rates are highest. “This introduces a policy framework for capacity, not just energy,” Huber said.
It is notable that renewable energy resources are being considered for delivering capacity to the grid. Historically, most capacity resources in California have been delivered by fossil fuel-based power plants that can ramp up quickly to deliver energy during peak periods of the day. In contrast, intermittent renewable energy resources like wind and solar have been considered too variable in terms of production to be used for delivering energy during a particular time of day. However, with the price of energy storage technologies coming down, we are beginning to see more wind and solar projects looking to incorporate energy storage systems. This allows the projects to charge the storage system when the solar or wind resource is available, and then discharge the system at a particular time of day. The proposed CPS, which adds to the traditional RPS framework a capacity element for renewable generation, demonstrates the evolution and maturity of the renewable energy industry.
Assembly Bill 1405
AB 1405, authored by California Assembly Speaker Pro Tem Kevin Mullin (D), would require the California Public Utilities Commission (CPUC) to determine by the end of 2018, the percentage of “clean peak resources” – meaning eligible renewable energy resources or energy storage systems – being used by each of the state’s utilities to serve demand during the peak load period. The peak load period is a pre-defined four hour time period that includes the hour leading up to, and the two hours following, the hour of peak demand. Utilities would be required to meet the minimums for at least 15 days every month.
Each utility would have to meet increasing clean peak targets every three years beginning in 2020 and reaching 40% in 2029, with the first year of the program requiring a 5% increase in the percentage of electricity delivered by clean resources. In order to determine compliance, AB 1405 proposes tradeable credits, similar to the tradeable renewable energy credits used to demonstrate RPS compliance.
Senate Bill 388
Although similar to AB 1405, SB 338 provides a less prescriptive and less comprehensive approach to CPS. Authored by State Senator Nancy Skinner (D), SB 338’s goal is to decrease costs to ratepayers, including eliminating unnecessary new transmission, and increase the benefits of utilizing renewable energy sources such as reducing air pollution, cutting global warming emissions, creating new jobs and diversifying our power supply.
SB 338 requires that on or before January 1, 2020, the CPUC and the California Energy Commission (CEC) work in consultation with CAISO to “establish policies or procedures to ensure that electrical service providers meet net-load peak energy and reliability needs while minimizing the use of fossil fuels and utilizing low-carbon technologies and electrical grid management strategies.” The bill defines “net-load peak” as “the daily period of three or more consecutive hours in which the latest of the three hours is the hour of peak demand for electricity, excluding demand met by generation on the customer side of the meter.”
Additionally, SB 338 permits the CPUC and the CEC to consider creation of “targets or requirements for energy technology that minimizes the percent of load met by fossil fuels during net-load peak energy demand and maximizes the use of low-carbon technologies.”
If passed, the big winners will be energy storage and demand response providers. Energy storage will be necessary to store the renewable energy generated during off-peak periods (for instance, during mid-day for solar) and to deliver that energy during the peak load period (occurring in the evening usually between 4PM to 8PM). So renewable energy providers will look to incorporate onsite energy storage systems if they wish to qualify for CPS credit. Likewise, demand response providers will have the ability to generate credits by reducing demand during the peak load period. In each case, utilities will be obligated to purchase these credits to satisfy their mandate, thus generating a source of revenue for project owners.
The differences between the Assembly and Senate bills will likely be reconciled into a single piece of legislation before being sent to the floor of the Legislature for a vote. A number of important policy considerations remain. Chief among these is whether the law will include a specific mandate for clean peak capacity procurement or leave that up to the CPUC and/or CEC to decide. Either way, if passed, the law would expand the market for renewable energy and the energy storage / demand response industries.