Calif. governor makes emergency bid to prevent blackouts. Is it too little, too late?

California Governor Gavin Newsom (D) signed an emergency proclamation on Friday setting the most aggressive efforts yet to bolster a power grid that is inching even closer to climate-change-driven blackouts than previous pessimistic forecasts had predicted.

But emergency efforts that had already been underway to quickly add new grid capacity have been falling short of expectations, so it’s unclear whether this new push will significantly alter an increasingly dire power supply situation. If it doesn’t, Californians could be facing blackouts and brownouts over the coming weeks and months.

Newsom’s interventions include paying lucrative state-funded incentives to big industrial power users that can reduce electricity use during grid emergencies. To ease the impact of these load reductions, those customers will be allowed to run fossil-fired backup generators in ways that would otherwise violate air and water quality regulations.

The emergency provisions also direct state agencies to suspend certain competitive bidding and siting rules to allow new battery and clean energy projects to be interconnected to the grid as quickly as possible.

The hope is to increase supply, and decrease demand, enough to withstand conditions like those that forced state grid operator CAISO to cut power to hundreds of thousands of customers for hours at a time amid a regionwide heat wave on two August evenings last year.

“While we build toward a safe, affordable and reliable energy future that benefits all our communities, we’re also taking action to meet the challenges caused by climate change that are already at our doorstep,” Newsom said in a Friday statement.

Friday’s declaration comes after months of worsening conditions for a grid that was already expected to face a significant risk of strain this summer, with climate change a key culprit. An ongoing drought has left reservoirs at record-low levels, reducing the capacity of hydroelectric dams compared to last year.

Wildfires are becoming more intense and starting earlier in the year, including the massive Bootleg Fire in Oregon, which has threatened power lines carrying electricity into the state. Large swaths of the U.S. West are under similar heat, fire, drought and grid stress, which could further reduce California’s ability to lean on neighbors for power supply to meet peak demand.

CAISO, utilities and energy analysts have been warning for years that California may face such a moment of grid reckoning. Now the state is rushing to avert it. But with such a tight deadline, the odds of securing significant amounts of new grid capacity are not high.

No quick fixes for new grid supply

After the August 2020 grid emergency, the California Public Utilities Commission issued emergency orders for utilities to secure hundreds of megawatts of generation and load-reduction resources for this summer, and expedite the construction of more than a gigawatt of battery storage systems to be ready for the height of summer heat in August.

The goal was to retain natural-gas-fired power plant capacity and build new battery capacity to meet the ​“net peak” in statewide energy demand. That peak happens when California’s growing supply of solar power fades away in the evening while electricity use related to air conditioning remains high.

But in a July 1 letter, the leaders of the CPUC, CAISO and the California Energy Commission reported that these rushed efforts haven’t kept up with the worsening grid conditions.

In January, the CPUC ordered the state’s big three investor-owned utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric — to secure more natural-gas-fired capacity for the net peak. But at least 300 megawatts of natural gas capacity ​“will not be available this summer,” the letter said.

Similarly, several of the ​“incremental resources” expected for this summer ​“will be delayed by one or several months, and in some cases will push online dates past the summer window,” the letter warned. While it didn’t specify which resources were delayed, battery projects make up the vast majority of the incremental resources expected by August.

Battery developers have cautioned for some time that the slow and complex process for interconnecting new resources to the grid, combined with an ongoing supply crunch for batteries and key electrical gear, would make meeting this summer’s deadlines difficult, if not impossible.

Even CAISO’s ability to call up resources to serve in emergencies isn’t bringing more supply online. Last month, CAISO used its Significant Event Capacity Procurement Mechanism backstop authority to seek out 2,000 megawatts of power plant capacity for the coming months. But ​“sufficient resources were not available to make up for the projected shortfall,” Newsom’s emergency declaration states, with only about 300 megawatts committed to being available.

The end result is that California faces an energy supply shortfall of up to 3,500 megawatts during the net-peak period on days with extreme heat, the emergency declaration states — worse than the shortfall that agencies projected in May.

“There is insufficient time or supply to install new energy storage or zero-carbon energy projects” to meet that shortfall, the emergency declaration states, indicating that its move to waive regulations to speed new resources may not yield significant changes until next year.

Missed opportunities on the demand side

That leaves demand-side resources to make up the shortfall — everything from large industrial, commercial and agricultural customers that agree to drop load in exchange for payment, to residential customers that can reduce load en masse or provide energy stored in behind-the-meter batteries. But so far, the CPUC’s attempts to free up more demand-side resources don’t appear to be on track to deliver the hoped-for load-reduction capacity.

Ed Randolph, CPUC deputy executive director for energy and climate policy, noted in a May briefing that changes made in March to the CPUC’s ​“base interruptible programs” for commercial, industrial and agricultural customers could add from 167 to 367 megawatts of capacity this summer. He added that an Emergency Load Reduction Program (ELRP) created in March was expected to enlist 500 to 720 megawatts of load reduction through lucrative incentives of $1 per kilowatt.

But according to the July 1 letter from CAISO, CPUC and CEC, ​“it appears that savings from the program will be less than targeted in the decision.” While the letter doesn’t specify why that is, demand-response providers in California have been complaining for the past year that state agencies have failed to take up reforms that could make their services a bigger part of the solution to the state’s grid woes.

“All signs point to the fact that demand-side flexibility and DERs work and have saved the California grid from blackouts time and time again. In fact, they are the only resource that California can stand up in such short order,” Allison Bates Wannop, director of regulatory affairs for demand-response provider Voltus, said in a Monday email. 

Voltus has joined other similarly minded companies in warning the CPUC that adding new programs to California’s mix, rather than reforming its existing demand-response structures, would fail to expand the market.

In that light, it’s unclear whether the part of Friday’s emergency order aimed at enlisting large industrial customers to cut power use during grid emergencies will shift the balance. That emergency program would double the incentives of the ELRP, offering $2 per kilowatt of reduction paid by the state Department of Finance through the state’s three big utilities.

At the same time, participants in the new program must prove that any load drop achieved under the emergency program is ​“incremental to an obligation” from any of the other demand-response programs available in the state.

David Meyers, CEO of agricultural demand-response provider Polaris Energy Services, characterized this provision as akin to ​“tying a bow on a Gordian knot,” referring to the confusing and sometimes conflicting rules that govern demand response in California.

Like the ELRP, the new emergency program won’t offer any upfront or fixed payments, he noted. That means ​“aggregators have no likely revenue by which to justify recruitment, enablement and program management efforts, and for customers to justify effort or technology investment.”

Simply reducing load for $2 per kilowatt may seem like a low-risk opportunity for big power customers, Meyers conceded. But participating does create significant risk for companies already enrolled in other demand-response programs, he said.

For example, Polaris Energy and other demand-response providers asked the CPUC earlier this year to reduce penalties in its Base Interruptible Program. Those penalties currently mean that participants that hit up to 80 to 90 percent of their required load drop, but not 100 percent, lose most or all of their payments, he said.

The CPUC rejected that request, and as a result, said Meyers, ​“we saw attrition from our portfolio among customers who could not risk occasionally opting out of an event costing them more than they earn in a season.” Asking customers to enlist in a brand-new program that could sap their available load-reduction capacity, and thus expose them to even greater risk of penalties, may be a non-starter, he said.

Companies that aggregate residential and commercial load reduction for grid needs, such as OhmConnect, Enel X, CPower, Leap and Google Nest, have cited other conflicts holding back existing programs.

Many of these companies bid their customers’ capacity to aid the grid last August, only to face penalties for failing to provide the level of load reduction called for — a result, they say, of measurement protocols that don’t accurately capture how much load drop they actually achieved.

For their part, the CPUC and CAISO have cited those measurements as an indication that many demand-response providers are failing to deliver on the capacity they committed to. That’s led the CPUC to resist calls from demand-response providers to loosen the rules on how their grid value is measured and compensated, and CAISO to propose more stringent measures to account for performance shortfalls.

Dana Guernsey, Voltus chief product officer, said in a Monday interview that her company engaged California customers to commit 2,500 megawatts of backup-generator-backed load reduction during the August 2020 grid emergency, despite lacking any clear path to being compensated for that service.

“We’re eager to go back to our existing customer base and be able to actually compensate them this time around,” Guernsey said. ​“You’ll see statements that [demand response] saved the day and conservation was what kept the lights on.” But California regulators tend to be dismissive of this contribution, making ​“statements that [demand response] didn’t show up, and structure their programs in very punitive ways that hinder the type of progress and development of these resources that we all need.”

Companies that install and operate behind-the-meter batteries, such as Sunrun, Stem and Tesla, have similar complaints about rules that prohibit them from injecting battery-stored electricity back onto the grid. Battery vendors contend this could double or triple the grid value they can deliver, compared to simply reducing a battery-equipped building’s load to zero.

Paying for customers to help the grid, versus asking them to do it for free

Some companies have been pledging to expand their grid services even in the absence of policy changes that would reward them for the effort. Tesla last month began asking California customers with Powerwall batteries to join a virtual power plant without promise of payment, as a ​“public good program to support the California grid.”

OhmConnect is giving away 1 million free smart thermostats to existing and new customers this summer, at a cost of about $100 million. That’s despite having lost hundreds of thousands of dollars last summer from the mismatch between its avowed load reduction and how the state valued it — and facing the risk of similar losses this year.

California’s slow process for enrolling new customers in demand-response programs has also held back growth, said Jennifer Chamberlin, CPower’s executive director of market development. It takes two years for CPower and other demand-response providers to move from signing up new customers to having them approved as a grid resource in California. 

“We needed to start in 2020 to qualify 2022 megawatts, even though you can stand up new resources in a couple of months,” she said. ​“The commission has done nothing to streamline that process.”

The CPUC’s new Emergency Load Reduction Program does not help expand the available pool of participants for CPower and other non-utility demand-response providers, she added, because it’s limited to existing customers.

“Demand-side resources should be an important part of the solution,” she said. ​“They can’t be all of the solution. I understand the need to get backup generation in with the new resources we have today for this summer. But we are essentially in exactly the same place we were a year ago on the demand side, and that’s not good.”

These companies hope that policy changes could lead to greater rewards in the future, if not for this summer. CAISO has begun piloting a new approach to measuring the grid impact of customers reducing load during grid emergencies that could avoid the ​“baselining” methods that can lead to load drops during heat waves being undervalued. The ELRP will allow customers to be rewarded for battery capacity fed back into the grid, although the methods for doing so are still being worked out.

Several of California’s community choice aggregators — the county-based power procurement entities serving about a quarter of the state’s electricity customers — have launched programs aimed at offering customers compensation for long-range shifts in power consumption to reduce net-peak demand, on top of additional payments for responding to emergency calls.

Whether these distributed energy resources could be aggregated at the volumes needed to help forestall grid emergencies this year is far from clear. But finding ways to pay customers for altering their energy consumption patterns to meet California’s changing grid supply mix will be a critical step in achieving a cost-effective transition to an increasingly decarbonized grid, according to a multiyear study by Lawrence Berkeley National Laboratory.

That’s because it could drive investment toward technologies and businesses that can leverage a grid-balancing resource that’s cheaper and more flexible than large-scale batteries, power plants and transmission lines.

It could also relieve the threat of customers losing patience with volunteering to help the grid through emergencies that are expected to grow more severe and frequent under climate change. Voluntary load reduction helped shave roughly 4 gigawatts of grid demand during heat waves last August and September, led by CAISO’s use of ​“flex alerts” asking customers to turn down their air conditioning and other loads during the net peak. The CPUC’s emergency plan for this summer focused much of its demand-side efforts on marketing and outreach for broader use of these alerts.

But as those conservation calls become more frequent, they’re likely to become less effective. CAISO has already issued five separate calls for voluntary conservation during days of triple-digit temperatures over the past two months, but its most recent calls appear to have yielded much lower participation, according to preliminary data.

Along with its emergency proclamation, Newsom’s office on Friday released a ​“vision statement” outlining principles for an ​“electricity system of the future” that’s powered by carbon-free energy by 2045. The principles of the plan include an ​“equitable and inclusive” system that puts ​“customers first,” a ​“reliable and resilient” grid with load flexibility measures that are ​“more ubiquitous and automated,” and an ​“affordable” system that encourages ​“the adoption of new technologies, including distributed, community and large-scale projects.”

It’s not clear that Friday’s emergency proclamation, with its short-term reliance on backup generators that will worsen air quality and carbon emissions in the state, represents a step toward or away from those goals. But with no time left for more comprehensive action to meet this year’s grid emergency, it will have to do.

(Lead photo by Claudia Lorusso / Unsplash)