Microgrid Tariffs: The key solution to CA's clean energy and resiliency problems. PART 2 of 2
- Feb 27, 2020 10:38 pm GMT
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If you didn't read Part 1, you can find it here
TL;DR: The most equitable way to socialize the cost of microgrids across the state of California and get the best value for the cost is for the Commission to create a statewide microgrid tariff that all utility customers can take service under. This could be developed so that microgrids that can respond to price signals for grid services in blue sky conditions and provide resiliency during black sky conditions. This will ensure that microgrid projects get built widely, quickly and leverage private investment by developers and customers to minimize the cost to ratepayers. This is how we achieve resiliency.
The point of SB 1339's direction to "facilitiate the commercialization of microgrids through separate rates and tariffs as necessary" is not to help utilities build more rate-based capital-intensive assets. The statute does not say microgrid projects must be in the ground by June, September or “next fire season”. That self-imposed deadline is far from realistic and every developer knows that. Anyone that has any experience in construction for any type of infrastructure, be it microgrids, bridges, buildings, highways, knows that the process includes many steps, all of which take time.
Sales, feasibility analyses, preliminary design and development, risk review, legal review, contract negotiations and approval, all need to happen before a developer can proceed with the actual development. This process alone can take 6+ months, especially when we are talking about large scale projects such as the IOU proposals. Let's say we get a contract in place in 6 months by some miracle, then the developer starts the detailed design and engineering, project management, going back and forth with the IOU getting interconnection approval (takes 3-12 months), getting all building permits, environmental review and permitting, lead time for procurement of equipment and resources, coordinating with subcontractors and vendors, coordinating construction timelines, managing the construction process and all the schedules of those that are involved with building, actually get steel in the ground, go through utility and local authority having jurisdiction approvals, commissioning, and finally, getting permission to operate. By the way, none of this is cheap. Customers and developers are bearing the risk and putting up the upfront development cost, not just the construction and maintenance of these assets.
The time between the customer agreeing to do a feasibility study for a project to the time we celebrate by flipping the switch takes 12-18 months realistically, sometimes even longer. Construction timelines change based on field conditions (weather, unexpected issues with equipment, etc.) and many other factors so there is no guarantee the original estimated timeline for project completion will be maintained. There is no possible way that projects of the scale and complexity being proposed will be built by June, probably not until early/mid 2021. Even the Coalition of Utility Employees (labor) wouldn't commit to that timeline. They know. And so should the Commission.
Maybe if the Commission opened the proceeding in a timely manner instead of sitting on it for a year, third parties (and the communities in which microgrid projects will be sited) could have been given a real opportunity to present more viable solutions instead of having a 10 days to react and respond to 4 proposals written in legalese totaling 150+ pages and a large number of highly technical questions with significant implications.
The utilities have been given over a century of regulatory assistance from the state. They should be focused on their core business of modernizing their T&D infrastructure, vegetation management and other wildfire mitigation efforts. Interconnection should be added to the list of core responsibilities. The IOUs claim to not have enough funding and workers to improve the T&D infrastructure, how do they have resources for microgrids? They should be outsourcing all non-core functions and focus on the basics. Just like a regular business would have to do if in the situation we are in today. There are better, cleaner microgrid solutions from other qualified entities that can be deployed faster, cheaper and better than the incumbent utility. Regulators, please help us!
Would you pick a provider of any service that has bad Yelp reviews when there are other options at the top of the list with good references and reviews? Why should we give more responsibility to the utilities and let them build microgrids when they have demonstrated their challenges with basic poles and wires and bad credit? Customer confidence is at an all-time low and people do not trust the utilities. The state needs to shop around and actually look at alternatives for modernizing the grid. There are other options that provide a higher value to the state than what the utility can offer at this time.
Would you finance a car or a house at 10-16% interest? Would you not shop around for auto and home insurance before choosing the best rate and provider? Does your stock portfolio only hold one fund? No, you diversify your portfolio to mitigate risk and maximize value. The state should be doing exactly that when it comes to financing grid infrastructure in the form of microgrids. Diversifying the state’s energy portfolio and modernizing grid infrastructure to meet local needs is the most prudent way to modernize our grid.
Mitigating the impacts of PSPS is very important, but SB 1339 implementation cannot solely focus on PSPS in such a reactionary manner without also considering the future of the grid. Microgrids are and will continue to be an integral component of California’s energy system. Long-term planning needs to start now. The SB 1339 statute explicitly states that the Commission should facilitate “commercialization of microgrids through separate rates and tariffs as necessary”. Tariffs are necessary to achieve the goals of expanding DER and microgrid technologies that have tremendous value to the grid, ratepayers, and well-being of our communities.
The Commission should look to facilitate a more transactive energy system. Commercialization means bringing goods and services to market, which necessarily involves transactions between providers and consumers. In our case it is distributed energy services and technologies. The legislation specifically uses the words commercialization and tariffs – the law says to facilitate transactions via price signals for microgrid services. That is what we need to make progress on by December 2020. Lawmakers should follow the law. Doing just that will achieve our resiliency goals.
Tariffs will also ensure that customers have an incentive to stay connected to the grid long-term so they can provide grid services and other benefits to the utility. Let’s not forget the very real possibility that if there are, in fact, 5-10 more years of regular PSPS events, many customers will simply leave. The first will be mostly C&I customers, who will get fed up with their continuous economic losses and defect from the grid. They will eat the cost of disconnecting and pay the insane departing load charges. They will consider it an investment in their business to be rid of the liabilities and risk that PSPS has wrought upon them. That is the issue of inequity that California should really be worried about. Businesses must adapt to a changing environment to sustain competitiveness. Utilities also need to eat some costs and cut losses. The sense of entitlement has to end by adapting to changes in the energy sector.
If we do NOT create a tariff for customers to respond to, equity issues will be exacerbated because there will be no incentive for large customers to stay connected long term, or they will suffer significant economic losses hurting our overall economy. Then the most expensive customers to serve (residential, rural, and vulnerable customers) will be left holding the bag. It would be extremely disappointing to see that happen on the state’s watch when we have such an opportunity to greatly transform the energy sector right now. The Commission needs to think beyond the 2020 fire season. By 2025 we could have mass defection of C&I customers (which is what critical facilities and local governments are considered) if we don’t provide an incentive for customers to build microgrids AND stay connected to the grid.
Customers want to engage in decarbonization efforts and help California achieve its aggressive climate goals. They want to share in the cost of building microgrids. The Commission should be welcoming and helping them with their efforts. Commercialization of microgrids will have the added benefit of mitigating the impacts of PSPS and providing long-term resiliency to our communities. It can be done more widely across the state and provide more value to a greater number of customers. California should spread the wealth, so to speak. California’s grid of the future should exemplify its reputation for being the capital of tech and innovation. The Commission should be embracing change as technological advancement continues to accelerate at a rapid pace. This is the intent of SB 1339 and the statute should still be followed. It will have the effect of addressing PSPS and community resilience needs.
We need to move quickly and efficiently. Climate change is here, and we need an all-hands-on-deck approach to fight it. To truly achieve resiliency and sustainability we need to blanket the state with microgrids. All regions, communities and customers should be building microgrids. Resiliency is inherently local. Local communities working with microgrid developers to build and utilities to interconnect is the most efficient path forward with the highest value returns on the investment. It’s important for California to get this right. If the state approves bad public policies and regulations this year in the name of showing it did something, California will lose its position as the world leader in climate action. People will laugh across the world at California deciding to purchase diesel and NG generators to solve this problem when there are so many better alternatives. What we do next has very significant implications for energy and climate policy on a global scale.
California, let’s not set a bad precedent and tone for the rest of the world. What could be worse than what happened in 2018 and 2019? Everyone should have access to a microgrid. Tariffs and price signals will get us there expeditiously. Creating the pathway for microgrids via customer and developer empowerment is the way to help everyone quickly instead of 3 old, unhealthy companies slowly helping a small few in a piecemeal, inefficient approach that takes a huge step backwards from achieving our climate goals.
Leaders of California: Creating a market for microgrids is the best path forward to achieve energy resiliency. It is the law after all. The law does not at all say to green light a bunch of controversial utility generators that don’t advance our decarbonization goals. CPUC, set up the framework for customers as the statute clearly intends and the legislature has multiple written letters to you confirming this. You owe it to your constituents, the people of California, to make big changes. Changes that will advance our decarbonization, resiliency and sustainability goals. We can’t afford to take any steps backwards! This is a climate emergency – accept it and act accordingly. Please, for the sake of tomorrow and the future generations that will live with the repercussions and have to clean up this mess when you leave your post. Be leaders in climate and resiliency policy – unleash the market for microgrids.