Gov. Jerry Brown has signed Senate Bill (SB) 1339 (Stern, 2018) that orders the California Public Utilities Commission (CPUC) to examine the benefits of electrical microgrids and possibly develop a rate structure—otherwise known as a “tariff”—which can set the stage for a very promising future for greater microgrid integration into the state’s power grid.

Once developed, a microgrid tariff could increase renewable energy integration and provide opportunities for greater grid resiliency. However, creating a microgrid tariff is no easy task. Much could go wrong, and the CPUC needs to use extra care to hit the mark on two major elements to ensure success for SB 1339: interconnection and compensation.

InterconnectionConnecting microgrids to the main distribution gird

Among the largest barriers to microgrid interconnection in California is Public Utilities Code Section 218(b), which places a heavy regulatory burden on those who wish to share self-generated power across nonadjacent property lines.

In examining how this statute can be modified for microgrids, the California Legislature may want to take a page from Connecticut and allow microgrids to share power across public streets and boundaries for smaller installations, perhaps for those under 5 megawatts. Adoption of such a statute would allow microgrid owners and operators to explore more options without the unrealistic requirement that they be regulated like a utility if they serve properties not immediately adjacent to one another.

But as microgrids grow in popularity, changing a few rules may not be enough. A 2014 CPUC staff white paper contemplated the role of microgrids in California’s energy future. One recommendation suggested regulators begin to transform California’s electric utilities from the classic model of top-down, one-way distribution network operators into “distributed system operators” that provide a more complex model that accounts for and manages a host of dispersed generation sources, energy storage and other modern technologies. The white paper stated such an entity may be better equipped to “determine appropriate costs for both interconnection and delivery of electricity traveling over the distribution grid. This approach would allow the customer and other service providers to offer additional products and services in support of a microgrid.”

Whatever path the CPUC decides to take, reducing the costs and complexity of interconnecting microgrids should be the primary goal of any future tariff.

CompensationHow operators are paid for exported and imported energy

For many years, microgrids were primarily sources of backup power for critical installations, such as hospitals, research facilities and military bases. Important advances in photovoltaics, energy storage and networked technologies mean that modern microgrids can take a much more active role than before. For example, not only can microgrids provide load for critical services when there’s an outage, they can also sell clean power to the utility when excess energy is produced.

Microgrids also help reduce peak load and curb transition losses by locating generation near demand. Furthermore, microgrids can reduce greenhouse gas emissions as they are ideal for incorporating solar, wind, energy storage and clean cogeneration systems.

The most effective method for ensuring microgrids properly contribute to the grid is to establish fair and effective value streams for services they can provide. Without a solid value stream for both the utilities and microgrid owners and operators, there is little incentive for microgrid operators to invest in more innovative practices that could benefit everyone.

One option is allowing microgrids to participate in wholesale electric markets. This would ensure that microgrid power delivered to the main grid would represent the same value as other sources of electricity that participate on open energy markets. However, this approach doesn’t capture other benefits microgrids provide, such as grid stability and resiliency.

The CPUC therefore should consider creating a unique pricing structure for microgrid power exports, similar to net energy metering, that captures the benefits microgrids provide to the utility but also considers the costs microgrids might incur on the grid, such as requiring utilities to maintain standby power and provide power distribution. Also crucial for this tariff is the ability for microgrid owners and operators to participate in demand response and load shifting programs that could represent additional value streams for all parties.

Now that Gov. Jerry Brown has signed into law yet another landmark climate policy, referred to as the “100% clean energy bill,” it’s time to celebrate – but not let our guard down.

The newly enacted Senate Bill 100 (Kevin de León, Dist. 24) calls for electricity providers to rely on renewable sources for at least 60% of delivered power by 2030 and on zero greenhouse gas-emitting sources for the remaining 40% by 2045. SB 100 represents a bold new approach for reducing California’s carbon footprint and greenhouse gas (GHG) emissions, and the Legislature deserves praise for its dedication to these important issues and its leadership.

So, we’re done! Since all utility power is going to be clean, as consumers we are off the hook. Phew! It doesn’t matter how much electricity we use.

Well, not so fast. It’s still important that we reduce demand for energy, continue to generate and store local renewable power and shift our usage to periods of lower demand. Some circumstances created by SB 100 give cause to be vigilant. Here are some reasons why.

# 1 – Under SB 100, some GHG emissions remain in 2045

For starters, consider how the mandate is worded – by 2045, the entire electric supply must be composed of “eligible renewable energy resources and zero-carbon resources.” This phrasing is not accidental. Many types of eligible renewables emit carbon and will continue to do so for decades.

Most biomass processes add more carbon to the atmosphere than they offset. Utility-scale solar thermal power plants use natural gas to preheat the towers that capture the solar energy. Further, when such facilities store excess heat for later use, they frequently rely on molten salt fields kept warm with natural gas burners when the sun isn’t shining.

Facilities that store solar and wind output, by using underground chambers filled with compressed air, use natural gas to warm up the air as it’s released to provide power to generating facilities. Geothermal power plants can release carbon dioxide into the atmosphere and still qualify as renewable. Systems that create electricity by burning methane derived from dairy waste use up a very potent greenhouse gas, but they still release carbon dioxide. You get the picture.

#2 – Coal or natural gas can be burned to generate electricity and called renewable

Retailers can meet part of their renewable power obligations by buying unbundled renewable energy credits. These credits exist because some additional renewable electricity is being generated but isn’t being delivered into the electricity market. While that power is entering a grid somewhere and potentially displacing power from some other source that might or might not have burned fossil fuel, we just don’t know for certain (see blog “Californians Deserve Better Power Content Reporting”). But retailers have choices as to what kind of power they use to back up these credits and can choose to burn coal or natural gas.

#3 – More utility-scale renewables require more transmission lines

New transmission lines represent additional GHG emissions because of the materials manufactured to build them, the trucks and machines used to construct them and the vegetation eliminated to create rights-of-way. When these lines are placed underground (increasingly necessary as our urban footprint expands), more electricity is needed to run pumps that circulate oil through the system to dissipate heat. The fewer new long lines we build, the better.

#4 – Climate damage can get worse between now and 2045

Meeting California’s admirable 2045 power goals is going to take a long time and rely on innovative approaches to grid operation and technology. In the meantime, conventional generators will continue to spew carbon and greenhouse gases into the atmosphere.

#5 – Energy efficiency, onsite generation and storage provide many benefits

If we use energy more efficiently, we can reduce the number of electricity facilities needed and the amount of greenhouse gas released into the atmosphere. If we increase our use of onsite solar generation and energy storage, we can reduce the need for large generating stations and long-distance lines used to deliver power to customers – and reduce GHG emissions even more. These actions can save customers money and make the electricity system more resilient in the face of possible grid interruptions. All these strategies improve our ability to reduce GHG emissions now.

Looking ahead

Carefully watch the news coverage of California’s new electricity policy. Pay attention as people get a little enthusiastic and suggest that the grid of 2045 will be 100% clean. And while you are at it, contemplate what is meant by clean energy (the new law doesn’t define it – regulators will) and whether their definition meets your expectation of what it means.

The new law is reason to celebrate, but not to think all of the hard work is done – or abandon efforts to produce a more sustainable, lower carbon and more resilient way to manage our energy use.

It’s an understatement to say CSE is proud to be a central part of the administrative partnership for California’s new Solar on Multifamily Affordable Housing (SOMAH) program. With up to $1 billion over the next 10 years, it has the potential to incentivize solar photovoltaic (PV) systems on hundreds of low-income multifamily housing apartments across the state. We are extremely gratified!

CSE is well-positioned for a key role in SOMAH. We’ve served as administrators in the San Diego Gas & Electric territory for the Self-Generation Incentive Program, the California Solar Initiative and the Multifamily Affordable Solar Housing program and as statewide administrators of Energy Upgrade California's marketing, education and outreach. In doing so, we’ve informed innumerable residents and businesses about renewable energy and energy efficiency and facilitated hundreds of millions of dollars in incentives for projects that have provided hundreds of megawatts of renewable energy.


For too long, families facing the greatest environmental hurdles have been left out, and this decision moves some of those benefits much closer to the families that need them.” - Assembly Member Susan Eggman, sponsor of the bill creating SOMAH

CSE is joining some great nonprofit partners to run SOMAH for the California Public Utilities Commission – the Association for Energy Affordability and GRID Alternatives, with assistance from the California Housing Partnership Corporation, Rising Sun Energy Center, California Environmental Justice Alliance and others.

Such a team of clean energy and affordable housing organizations with community-minded and mission-based values will ensure the maximum possible program benefits for both multifamily property owners and tenants alike. Moreover, the partners’ public benefit lens will boost SOMAH’s value by providing job training opportunities, ongoing technical assistance and coordination with other existing state energy assistance programs.

SOMAH potential

SOMAH is a monumental solar equity program that will bring clean, renewable energy into low-income and disadvantaged communities. They are the very places that are often the most impacted by the harmful effects of fossil fuel use and related air pollution. While a few other states and local governments have similar programs, once again California leads the way in providing access to solar energy to people of all income levels and living circumstances.

Some 3,500 multifamily affordable properties statewide are eligible for SOMAH incentives, potentially providing power for more than 255,000 individual households. An explicit goal is that solar systems lower the tenants’ utility bills.

Wide role in CA solar

SOMAH is poised to have long-term, significant impacts throughout the state. Its benefits will spread beyond neighborhood boundaries by helping to lower the overall costs of solar, increasing workforce development opportunities and job placement and reducing greenhouse gas emissions.

Making sustainable energy technologies more widely available to all residents and businesses is a central part of what CSE does. We’re proud to be doing our part to help achieve environmental justice.

Historically, municipal and investor-owned utilities have primarily controlled electric services in the U.S. with consumers positioned at end points of complex, interconnected grid systems. Today, with increasing development of distributed energy resources, including wind and solar power and on-site energy storage, microgrids — islands of self-contained power capable of operating on or off the grid — are changing the energy landscape.

The direct benefit of microgrids is twofold. They can serve as “islands” of backup electrical generation in the event of a temporary brownout or longer-term blackout, providing energy resiliency to a building or neighborhood. Microgrids also can assist the overall grid, serving a role in balancing power demands and smoothing the intermittencies of solar and wind generation when the sun goes down or the winds stop blowing.

The California Legislature and state energy regulatory agencies recognize these benefits and have prioritized microgrid expansion. For example, the California Energy Commission has awarded millions of dollars in grants to local governments, research institutions and technology providers through its Electric Program Investment Charge (EPIC) program to develop microgrids and related systems.

Regulatory roadblocks

Despite support for microgrids, the California Public Utilities Code and a current state electric rule are preventing their widespread deployment and need to be changed.

Code Section 218(b), known as the over-the-fence rule, prevents any entity other than a utility from distributing electricity generated at one property to more than two neighboring properties or to any nonadjacent property. When authorized, the ruling protected utilities from competition and consumers from unfair practices, but with the growth of locally generated on-site power, they restrict the potential for distribution of that power.

The City of Berkeley came up against this rule when investigating how to build a microgrid that shares solar photovoltaic generation and storage capacity among multiple buildings that are not located next to one another.

California Electric Rule No. 2 allows each investor-owned utility (IOU) to levy a “cost of ownership” charge or other charge on customers designed to recover the expenses for new grid infrastructure to support their service. It does not expressly apply to microgrids, but regulators have indicated they will assess its application on a case-by-case bais. This leaves unclear what microgrid components are included in the total infrastructure cost or how the cost is calculated for smaller projects located near existing distribution infrastructure. As it stands now, the ongoing cost of ownership fees can be higher than the capital costs to build the microgrid, rendering the project financially infeasible.

Further, there is no microgrid tariff or electric rate that considers the value of power sharing among multiple customer accounts or meters or recognizes the benefits of microgrids to “island” when the main grid goes out.

Possible solutions

Following are steps state officials, regulators and investor-owned utilities could take to resolve some barriers to wider microgrid adoption.

  • Section 218(b) – Consider amending the code to allow nonutilities to distribute power across property lines when doing so as part of a clearly defined microgrid, even if those properties are not adjacent
  • Rule No. 2 – Clarify what “cost of ownership” covers and assure microgrids are treated fairly
  • Initiate a new California Public Utilities Commission (CPUC) proceeding to create a microgrid tariff that outlines a clear interconnection process and recognizes the value of microgrids

What CSE is doing

CSE is actively tracking California Senate Bill 1339, currently in the Assembly Appropriations Committee. Introduced by Senator Henry Stern (D-Canoga Park), the bill, in its current form, requires that each electrical corporation and publicly owned utility (with 700,000 or more customers) develop and submit for CPUC approval a tariff or rate schedule for third-party electrical grid resiliency investments, which would cover microgrids. In support of renewables and increased GHG reductions, the bill prohibits microgrids that use diesel backup or gas-combustion generation.

We’re also exploring whether it makes environmental and economic sense to incorporate combined heat and power systems into microgrids as part of our administration of the Department of Energy’s Western Combined Heat and Power Technical Assistance Program.

Looking ahead

As the electrical grid of the future becomes more intelligently connected, microgrids can serve to encourage on-site renewable energy generation, build storage capacity and increase local resilience and control of energy resources. Supporting microgrid development and pushing forward favorable legislative and regulatory policies are important actions that could lead to more microgrids in California.

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