Can a new way to pay for behind-the-meter flexibility help prevent rolling blackouts in California?

Last summer’s rolling blackouts in California have focused the state’s attention on the disconnect between customers’ ability to shift power use to reduce grid stress and the structures available to reward them for that service.

The California Public Utilities Commission has been hard at work with emergency measures to prevent more rolling blackouts this summer. But the CPUC’s plans for expanding the role of demand-side resources for that task have so far fallen flat with the companies that are most heavily involved in tapping customer flexibility to balance the grid, including Tesla, OhmConnect, Leap, Enel X, CPower and Google Nest.

With summer now fast approaching, California’s community choice aggregators are moving to fill in the gap. CCAs have more flexibility than the state’s investor-owned utilities to try new ways to enlist customers as grid agents. While they’re starting small at first, the approach they take could help revolutionize how the state shapes its electricity demand to match its increasingly solar-powered grid.

One example of this is Demand FLEXmarket, the program launched last week by CCA Marin Clean Energy. It’s starting out small, with hopes of enlisting 20 megawatts of what it terms ​“flex capacity” by the start of the peak summer season. But ​“if it works reasonably well, we can expand with much more funding next year,” said Joey Lande, Marin Clean Energy’s manager of customer programs.

The details of the program are complex, but the overall goal is simple: to pay energy efficiency and demand response providers for helping customers reduce energy consumption during the hours of the day when California’s grid demand is peaking.

The ​“avoided cost” during those hours — so named because it helps Marin Clean Energy avoid buying power on the energy markets run by state grid operator CAISO — is much greater than during hours when electricity is plentiful on the grid.

To capture that value, Marin Clean Energy (MCE) has tapped Recurve Energy, a company that’s developed an open-source software platform to match load drops to their grid value. Recurve’s FlexValue Engine captures smart meter data and correlates it with the CPUC’s avoided-cost calculator, yielding a dollar-per-hour value for the load-shifts that a customer (or a company aggregating lots of customers) can achieve.

“Together with Recurve, we’ve proposed a payment structure that focuses on the avoided-cost value of hourly energy efficiency savings,” Lande said. MCE is offering participants payments of $150 per megawatt-hour of verified load reduction between 4 p.m. and 9 p.m. from June to September.

That’s more than they could expect to receive from traditional energy-efficiency measures, but it’s about the same price that MCE is paying for resource adequacy — the grid capacity that utilities and CCAs must purchase every year to ensure the grid has enough resources to cover annual peak demands.

As last year’s rolling blackouts showed, however, resource adequacy isn’t always enough to meet unexpected spikes in demand or make up for shortages of energy supplies from inside and outside California’s borders. To prepare for these emergencies, MCE will offer higher additional payments for customers and aggregators that can commit a day in advance to reduce afternoon and evening peak loads even lower.

The funding for these payments will come not from MCE’s efficiency program budgets but rather from its energy procurement budget, Lande said. ​“Instead of spending that on generation or [resource adequacy], we’ll just move that into a load-shifting pot.”

That’s similar to the deal East Bay Community Energy has contracted with demand response provider OhmConnect, which will provide 20 megawatts of household load reduction the CCA can tap instead of buying even more expensive energy from natural gas-fired peaker plants when grid demand spikes.

But in MCE’s case, ​“the idea is to be an open market” for multiple aggregators, offering both emergency load drops and persistent reductions during peak hours, Lande said.

“That not only moves this toward more of a load-shifting or load-shaping efficiency program, but it also helps us ensure we’re cost-effective,” he said. ​“We’re focusing on the hours that will be most valuable.”

Bridging the worlds of energy efficiency and demand response

MCE’s approach is notable because it blends two arenas that have traditionally been treated separately: energy efficiency (which targets 24/7/365 reductions in energy consumption) and demand response (which pays extra for loads that can be reduced to prevent grid emergencies).

But on California’s grid, the distinction between these two realms has become something of a barrier to solving the state’s grid needs as it moves toward its mandate of getting 60 percent of its energy from renewables by 2030 and becoming completely zero-carbon by 2045.

This is highlighted by the problems demand response providers faced last summer when CAISO experienced a shortage of electricity during last summer’s regionwide heat wave, forcing it to institute rolling blackouts over two days in August.

Further blackouts in August and September were averted only by desperate pleas for voluntary conservation, as well as by emergency measures ordered by California Gov. Gavin Newsom to fire up backup generators, microgrids and other resources of last resort.

Those included hundreds of megawatts of demand response and behind-the-meter battery capacity provided by companies including OhmConnect, Enel X, CPower, Leap, Sunrun and Stem. But much of this load drop ended up not being compensated during the two days of rolling blackouts because California’s demand response regime measures these load reductions against typical consumption during the 10 days beforehand — including much cooler days when air-conditioning demand wasn’t nearly as high as it was during the heat wave.

Recurve’s software has taken a different approach. Instead of comparing each customer’s load drop to a baseline from previous days, it uses normalized metered energy consumption values from comparable customers across California.

Then it corrects for all the other variables that could skew that measure of the baseline of what customers would have done if they hadn’t been responding to calls for load reductions on hot days. Those can range from the fact that other customers were participating in demand response as well, to the fact that they weren’t running at full capacity because of the Covid-19 pandemic.

“Our measurement and verification methodology is such that we don’t destroy any baselines, and we can pick apart discrete events,” said Matt Burton, Recurve’s vice president of sales and business development.

Matt Duesterberg, OhmConnect’s chief risk officer, called this approach a ​“win-win-win” for OhmConnect and other companies already operating in California’s resource adequacy market.

“We’re paying the customers. Marin doesn’t have to purchase energy from natural-gas generators. And we’re getting further incentivized to secure lower costs for our customers,” he said.

Importantly for the purposes of MCE’s Demand FLEXmarket, Recurve can also account for the load reductions from 4 p.m. to 9 p.m. that participants have already achieved before they get those day-ahead calls to reduce them even further, Burton noted.

“If you’re already doing some routine level of load-shifting, that’s going to be baked into what your…baseline will be,” he said.

Targeting the shifting capacity to balance California’s solar-powered grid

That’s a critical capability for California as it seeks to adapt its demand-side policies to encourage energy efficiency that targets the grid’s most stressful hours. Most of California’s clean energy will come from solar power, creating a supply-demand profile known as the ​“duck curve,” with deep drops in demand during solar’s midday generation peak and major spikes in demand that can remain for hours after the sun has gone down, particularly on hot summer and autumn days.

Lawrence Berkeley National Laboratory has been studying this problem for years, with an eye on moving California away from the ​“shed” resource of traditional demand response and toward ​“shift” resources that can move demand away from those post-solar peaks and toward times when solar power is plentiful.

LBNL’s most recent report on the subject found that shifting electrical loads to match solar power’s ups and downs could replace gigawatts’ worth of batteries otherwise needed to meet evening peaks. It also found that ​“an improved policy analysis paradigm that integrates the co-benefits of energy efficiency, [demand response] and other distributed energy resources” will be needed to achieve this demand-side potential.

California’s rules for measuring and rewarding energy-efficiency investments, created before smart meters could identify hour-by-hour load reductions, weren’t designed to capture and reward the difference between high-value and low-value hours. While California has had a ​“pay-for-performance” efficiency mandate in place for years, the methods designed to comply with it are complicated and hard to meet, efficiency providers say.

That’s why MCE has chosen to pay Demand FLEXmarket participants through the energy procurement value they can provide, according to MCE energy efficiency specialist Alice Stover.

Cutting the regulatory logjam for demand flexibility?

The increasing influence of California’s CCAs, which now serve about one-quarter of the state’s electricity customers and are growing quickly, could allow this new approach to gain ground in the state, Recurve CEO Matt Golden said.

That could open up new money-making opportunities to smart thermostat providers such as Nest and ecobee, companies targeting low-income communities for energy-efficiency projects such as BlocPower, and a widening range of companies that are seeking more reliable investment signals from California’s existing efficiency and demand response programs, he said.

MCE and East Bay Community Energy are starting small this summer ​“so they can get it out in the next two months,” he said. But Recurve is working with a larger group of CCAs to study its broader use in coming years, he said.

Recurve’s approach is also getting attention on the demand response front from CAISO, which plans to test its open-source comparison group methodology with the hope of applying its ​“performance methodology for settling market dispatches in summer 2021,” according to an April 9 letter from the grid operator.

As for measuring pay-for-performance energy efficiency, Recurve’s underlying FLEXvalue methodology has proven itself to closely match the CPUC’s Cost-Effectiveness Tool, used to establish whether efficiency programs are worth their cost to ratepayers, Golden said. The California Energy Commission, meanwhile, is collecting smart meter data that could be used to inform its baselining methodology across the state.

“It [has a] very low transaction cost. It’s market-based. It doesn’t pick winners,” Golden said. And perhaps most importantly for a state trying to prevent another summer of rolling blackouts, ​“this can actually get out the door, fast.”

(Article image courtesy of Brocken Imaglory)