California’s plan to avoid blackouts relies on fossil fuels as last resort

California has spent the past two years ramping up its efforts to protect the grid from threats of extreme heat, drought and wildfires. This has involved ordering the deployment of gigawatts’ worth of solar and batteries, paying utility customers to reduce energy use during grid emergencies, and — for when all else fails — lining up fossil-fueled generators to fill any gaps.

Now California Governor Gavin Newsom (D) has proposed $6.7 billion in additional spending over the coming years to shore up grid reliability. Some of that spending — nearly a billion dollars — would be aimed at expanding carbon-free energy. But much more of it — about $5.2 billion — would likely end up going to gas power plants and diesel backup generators the state hopes it won’t have to use.

Already this year, record-breaking heat waves, drought and fires in the West have scrambled utility and grid operators’ grid-reliability forecasts. Last week, the North American Electric Reliability Corp., an industry-led grid-monitoring group, warned of elevated risk of summer grid outages from the Upper Midwest and Texas to California and the Pacific Northwest.

“We’re really trying to estimate collectively at state agencies the worst of the worst, the extreme of the extreme, and to prepare for that,” Siva Gunda, vice chair at the California Energy Commission, said at a Friday workshop focused on California’s summer grid challenges. ​“The governor’s budget gives us much-needed tools to expand this fight against climate change” — starting with lessening the risk of blackouts or other grid emergencies spurred by extreme weather events.

Earlier this month, state agencies announced that state grid operator CAISO could face a 1.7-gigawatt gap between electricity supply and demand this summer. Even bigger shortfalls could occur if heat waves, drought conditions and wildfires combine to increase stress on the grid and disrupt power supplies, as this chart indicates.

In August 2020, California faced a heat wave that led to the state’s first rolling blackouts in more than a decade. Last summer, a wildfire forced the temporary shutdown of a 4-gigawatt transmission line from Oregon. And an ongoing drought is sapping hydroelectric capacity in California and across the West.

“What would happen if all of them were to coincide?” Gunda asked at Friday’s workshop. ​“And how do we prepare ourselves in a way that we move forward on our clean energy transition?”

That sort of preparation is the goal of the grid-reliability package proposed as part of Newsom’s revised budget plan released earlier this month. The new $300.7 billion spending proposal, made possible by a record $97.5 billion state revenue surplus, includes $47.1 billion to fight climate change — about $10 billion more than in Newsom’s first budget proposal in January.

The California legislature has until June 15 to approve a budget for this year’s legislative session, and Newsom must sign the budget by June 30 in order for it to take effect at the start of the next fiscal year starting in July 2022.

Fossil-fueled generators as a last-resort resource

About $5.2 billion of the proposed grid-reliability spending would go toward creating what’s been dubbed a ​“strategic electricity reliability reserve.” That funding will secure up to 5 gigawatts of emergency generation capacity. While it would technically be available for use in deploying fuel cells, batteries or other lower-emissions technologies, it would most likely be directed to fossil-fueled generators.

That’s because the funding comes in two buckets — $4.25 billion for strategic reliability assets and $950 million for distributed and utility-scale assets — that will extend emergency programs, launched after the August 2020 blackouts, aimed at securing generation capacity from fossil power plants and backup generators. Those programs were expanded by Newsom’s emergency order last summer and by a broader set of emergency measures ordered by the California Public Utilities Commission in December.

The $4.25 billion will go in large part to expand work begun by the California Department of Water Resources under the 2021 emergency order to buy, install and operate backup generators at dams, pumping stations and other sites it operates.

That funding could also be used to pay gas power plants to stay open and improve their reliability during heat waves. A number of gas-fired plants are struggling to earn enough revenue in California’s increasingly solar-saturated energy markets. Last summer, only a handful of these power plants heeded requests from California grid operator CAISO to remain available for emergency service. The new funding aims to entice more of them to stay on standby.

The money could also help gas-fired power plants that may not otherwise be able to invest in the upgrades and maintenance needed to reliably serve during periods of high heat, said Seth Hilton, a partner at law firm Stoel Rives whose practice is focused on the California energy sector.

As for the $950 million for distributed and utility-scale resources, it’s aimed at reducing carbon emissions and local pollution from both large and small backup generators, California Energy Commission Supervisor David Erne said at Friday’s workshop. On the larger end of the scale, that could involve upgrading emissions controls at aging power plants. On the smaller end, that could involve adding low-emissions technologies such as fuel cells or batteries, or paying for lower-emissions diesel backup generators at data centers, hospitals, fire stations and other critical sites.

The conflict between stabilizing the grid and reducing emissions

Proposals to increase the use of gas power plants and diesel backup generators have faced pushback from environmental groups and communities affected by the resulting pollution, however.

David Weiskopf, senior policy adviser for the progressive nonprofit NextGen Policy, said he supports the expanded funding for climate change and grid reliability in the budget proposal, but he’s disappointed that California didn’t act earlier to deploy more clean energy and energy storage and prevent the need for emergency backup generators now.

“For the past five to 10 years, the state hasn’t done what it needs to do to prepare for the energy transition,” Weiskopf said. In 2019, the California Public Utilities Commission ordered procurement of 3.3 gigawatts of solar power, batteries and other carbon-free resources by 2023, but the state is likely to fall short of those goals by hundreds of megawatts, stymied by supply-chain disruptions and clogged grid-interconnection queues. It’s also expected to struggle to meet its newer, more aggressive targets to build out renewable energy, batteries and long-duration energy storage to replace the Diablo Canyon nuclear power plant now set to close by 2025.

“Then, all of a sudden, it got much hotter and much fierier in the West than many people expected it to,” he said. That’s left California agencies essentially in the position of reaching out to generator owners to say, ​“We know you’re running crappy backup generators. Let us replace them with better ones,” Weiskopf said.

California already faces frequent grid outages intended to prevent power lines from sparking wildfires, he noted. Given the expanded risk of extreme heat and drought causing even wider outages, it’s better for the state to pay for emergency generators with its budget surplus than to push those costs onto utilities, which would then increase rates for customers already facing some of the highest electricity costs in the country, according to Weiskopf.

“Hopefully, you buy these things and never have to switch them on,” he added. ​“Eventually, you build out the clean energy assets that make them obsolete.” 

The carbon-free parts of the grid-reliability plan: Rooftop solar and home batteries

That’s where the remaining funding in Newsom’s expanded grid-reliability budget request comes in. The largest portion of this remaining slice is $970 million to incentivize battery-backed rooftop solar systems for lower-income and disadvantaged households.

That funding would go to the California Public Utilities Commission’s Self-Generation Incentive Program (SGIP), which has for years served as the primary state incentive for batteries installed in homes, businesses, schools and other facilities. In 2020, the CPUC adjusted the SGIP to direct most of its nearly $1 billion in funding through 2024 to communities most likely to lose power during the deliberate grid outages that have been part of utility wildfire-prevention strategy for the past few years. The program’s incentives are high enough to cover almost all the cost of a backup battery, so the $1 billion was quickly snapped up by applicants, relegating many more would-be customers to a waiting list.

The new proposed budget would refill SGIP’s coffers, adding $670 million for residences in lower-income, disadvantaged or tribal communities, and $300 million for a general-market program serving other customers.

Advocates of home solar and batteries welcomed this potential boost in funding. Locally stored solar power can serve both to back up homes during outages and to back up California’s grid when it’s most stressed — in the periods of ​“net peak” demand that come after the sun sets and solar power fades away, but while high heat lingers and air-conditioning use remains heavy.

Jin Noh, policy director at the California Energy Storage Alliance, pointed out that putting money into ​“existing programs and channels,” in this case, SGIP, ​“will help facilitate the transition more immediately, without having to start up a new program.”

But these same advocates also warn that this boost to solar-charged batteries would not outweigh the harm to rooftop-solar and battery economics that could come from changes to the state’s net-metering regulations. The CPUC’s initial net-metering reform proposal in December was harshly criticized by many solar and environmental groups for its potential to undermine the value of rooftop solar, which is a primary driver of the market for residential batteries. One of the proposed provisions would have imposed new monthly charges on homeowners who add rooftop systems, which advocates have dubbed a ​“solar tax.”

Bernadette Del Chiaro, executive director of the California Solar and Storage Association, said the state is being inconsistent in its approach to home batteries. ​“It simply makes no sense to incentivize a technology and then turn around and tax it,” she wrote in an email. ​“California would be taking one step toward clean energy and two steps back.”

During a May 13 press conference unveiling the revised budget proposal, Newsom was asked by a reporter whether the $970 million residential solar and battery funding was ​“meant to make up” for potential reductions in rooftop solar values resulting from net-metering reform. Newsom replied that the CPUC has since withdrawn its original proposal and is soliciting further public comment before revising the plan.

“We look forward to working with…advocates in this space and landing on an agreement where we can provide protection and support for an industry that is essential for our fate and future, and that’s rooftop solar,” Newsom said.

More money to reduce demand on the grid 

Similar dynamics are at play regarding ​“demand-side grid support” in Newsom’s budget proposal: It would steer money to programs that industry groups have accused the state of shortchanging in recent policy decisions.

The governor’s proposed budget would direct $295 million to the California Energy Commission to boost a range of programs that reward customers for reducing energy use during grid emergencies, including traditional utility demand-response programs and a new set of programs established by last year’s emergency orders.

California agencies are hoping to achieve up to 1 gigawatt of emergency load-reduction capacity to forestall the risk of rolling blackouts this summer. Last summer, a newly created Emergency Load Reduction Program, which offers lucrative incentives for customers who can cut their power use quickly, was able to deliver about 200 megawatts’ worth of load reduction, Molly Sterkel, the CPUC’s infrastructure planning and permitting program manager, said during last Friday’s workshop.

The CPUC is hoping to increase that to 500 megawatts this summer and bring in additional peak-load reductions from other programs that could ​“make that total much higher,” she said. 

At the same time, California’s demand-response programs have been shrinking over the past few years. Companies that enroll and pay customers for participating in these load-reduction programs have blamed a combination of increasingly complex rules and stringent performance metrics that reduce revenue for companies that participate.

“My take on it is that funds like this are being created to make up for utility programs that just aren’t enticing enough to get customers really engaged,” James McPhail, CEO of demand-response provider Enersponse, said of the new proposed funding. Companies like Enersponse are expanding their customer base beyond these utility programs, he said. But it can take years to qualify new customers to participate under the state’s existing rules, slowing the potential for growth, particularly for customers equipped with batteries, electric vehicles and other valuable sources of grid flexibility, he said.

One major benefit of demand-side programs like those Newsom’s budget would support is how quickly they can be put into effect, compared to building the massive amount of clean energy and battery storage the state’s long-term carbon-reduction goals rely on. During Friday’s workshop, representatives of utilities, the CPUC and CAISO explained the challenges of deploying new large-scale clean energy resources as quickly as state policy demands, given the enormous number of projects in line to interconnect to the grid and the supply-chain pressures facing power developers and utilities alike.

“There are over 200 contracts underway to bring new resources online,” said Sterkel, who co-leads a multiagency task force created to speed up deployments. ​“But they’re facing a large quantity of issues, and it’s hard to tell which of these issues will resolve and on what timeframe.”

Similar uncertainties could hamper the longer-range development of the round-the-clock clean energy resources California agencies say will be needed to shift the state to even higher proportions of carbon-free power in the years to come. Newsom’s grid-reliability budget proposal takes a crack at those challenges with $250 million for transmission and energy financing, which is aimed at reducing the cost and time to build transmission to connect far-off resources to the grid.

The initial target will be California’s Imperial Valley, home of the state’s largest potential geothermal power resource. Beyond opening up the area to development of a round-the-clock source of carbon-free energy, that funding could help expand the development of huge lithium reserves contained in underground volcanic brine, a resource that’s led the region to be dubbed ​“Lithium Valley.”

Weiskopf said that California needs more of this kind of long-range thinking as it seeks to meet its targets of cutting electricity-sector carbon emissions 60 percent by 2030 and reaching a zero-carbon economy in 2045.

“We need to go way faster to catch up to that goal,” he said.