Energy Policy

Smart Choices Balance Climate Change, Renewables, and Energy Stability

California energy policy is a complex interaction of economics, technological challenges and environmental considerations, all of which must work together to create a reliable and cost-effective system for delivering energy to millions of homes and businesses across California. Those responsible for the energy grid must balance these considerations while accounting for a constant stream of electrons across the entire West—all of which is interconnected between and among the western states to form the Western Interconnection as shown at right. Every electron produced in California—whether renewable, nuclear, fossil fuel, or otherwise, must be carefully integrated into a complex series of wires, switches, and transformers before flowing into your home or business. All these maneuvers come together to ensure you can turn on the lights when you hit a switch, but also that your toaster doesn’t burst into flames. Energy rates resulting from these decisions affect every California consumer, whether directly through your home energy bills or through increased prices of goods and services. Smart and planned integration of renewables into this precarious system of interconnected electrons must be evaluated carefully and not reduced to tag lines.

The Basics

California Energy Grid Is a Federal and State System. All the electricity in the Western Interconnection is tied together and, by design, must operate at a constant frequency of 60 hertz (Hz). This complex series of interconnection is managed by a series of balancing authorities, the largest of which, the California Independent System Operator (CAISO) is located in California and encompasses part of California and Nevada.

The legal authority to regulate the energy grid across the United States is split between the state and federal government. The federal government, through the Federal Energy Regulatory Commission (FERC) governs transmission of energy, as molecules of energy do not respect state boundaries and travel in interstate commerce. The states control decisions such as siting, procurement, and in-state retail sales—the end use to homes and businesses. FERC retains governance over the CAISO and balancing authorities to the extent they transmit energy across power lines.

Renewable Portfolio Standards and Integrated Resource Planning. While FERC governs transmission of energy, California retains jurisdiction to make decisions regarding wholly in-state production and retail sales of energy. California’s energy portfolio uses a mix of energy sources that allows use of California’s abundant natural resources when the wind is blowing and the sun is shining, but still allows for sufficient power to ensure that you can turn on your lights at night or charge your electric car when these natural resources are scarce.

To that end, natural gas, large hydroelectric plants, nuclear, and minor amounts of coal are still in the portfolio mix. The largest portion of renewables (approximately 70%) consists of solar—an unpredictable and intermittent energy resource. In 2002, in response to growing climate change concerns, California adopted the Renewable Portfolio Standard (RPS) program, requiring first private utilities, and then public utilities, to procure a certain percentage (20% at the time) of “renewable” energy resources. Categories of resources that qualified as “renewable” initially included things like solar, wind, municipal waste combustion, and small, existing geothermal plants.

Over the last 16 years, the Legislature has fussed with the definition of renewable, and increased the goal to its current level of 60% by 2045. California’s utilities are currently on track to meet RPS requirements.

The Policy Concerns

Peak Energy Usage Has Changed. As each new bill pushes the renewable energy threshold, regulators, utilities, and ratepayers alike have to decide how to meet and pay for demand to maintain the complex grid described above. At peak sunlight, California produces too much energy and must curtail (shut down) production at solar and wind facilities. At the same time, California must ramp up its production at peak energy usage.

Over the years, as a result of many factors, including electrification of buildings, cars, and increases in population, California’s peak energy usage has shifted slightly later, after sunset. As such, solar cannot provide the power needed to meet peak demand. Fast ramping, responsive resources must be available to meet this demand if Californians are going to continue to keep the not-so-proverbial lights on.

The California Independent System Operator (CAISO) maintains a real-time look at the sources of energy supply and current renewables at www.caiso.com/TodaysOutlook/Pages/supply.aspx.

Storage Technology Is Still in Its Infancy. Much interest surrounds development of storage solutions, with studies to evaluate batteries, pumped or kinetic storage (where water or heavy objects are hoisted up a hill using cheap and abundant solar electricity during the day until peak demand, where gravity is holstered to create energy when the water or objects are allowed to move back downhill), conversion of hydrogen to natural gas, and other technology.

Storage solutions are thrown around as if they are already in place, waiting to be utilized. The problem arises because this technology has not fully developed to the extent that it constitutes a significant portion of California’s energy mix. Batteries currently make up less than 1/10th of 1% of renewables in California. California does not yet have energy storage at anything approaching the scale necessary to meet peak energy demand.

Consider pumped hydro, currently the biggest and best-developed form of long-term energy storage. A comprehensive literature review of 30 studies on decarbonization published by the Energy Innovation Reform Project (EIRP) notes that the top 10 pumped-hydro storage facilities in the United States combined could “supply average U.S. electricity needs for just 43 minutes.” Much is needed before California can rely on storage technology as the answer to increasing renewable procurement.

Rates Are High and Increasing. Every energy policy decision made by the state and federal government has a direct impact on California ratepayers. The U.S. Energy Information Administration, which conducts independent analysis of energy data, notes that California has the nation’s sixth highest retail price of electricity in the residential sector. In 2017, residential and industrial consumers paid an average price of 16 cents per kilowatt hour (kWh) and commercial ratepayers paid more than 18 cents.

In debating sound energy laws, policymakers throw around different statistics on California energy rates. For instance, it is often touted that Californians use less in terms of kWh than residents in many states, which is true largely because of the shift toward electrification and end-user conservation efforts.

However, California per kWh rates remain among the highest in the nation—even in states that similarly use little to no coal. Consider Michigan, where rates average 16 cents for residential but only 11 cents and 7 cents for commercial and industrial, respectively, and Oregon, where residential rates average 11 cents and commercial and industrial rates average 9 cents and 6 cents.

Legislative Action in 2019

With a new Governor and Democratic supermajority in the Legislature, the California Chamber of Commerce expects that lawmakers will continue to introduce bills to further push the renewable energy threshold above its current 60% RPS goal. With those pushes come increased challenges to integrate existing and future renewables, rapidly develop storage technology, and avoid crises during events that prevent wind and solar from working at full capacity.

CalChamber Position

Legislation that continues to push the renewable threshold without consideration of grid capacity, pricing, or energy stability misses the whole picture. The CalChamber supports legislative and regulatory solutions that bring new businesses to California and help employers and the state reduce greenhouse gas emissions in the most cost-effective, technologically feasible manner while allowing flexibility to ensure a stable energy future. California cannot achieve its stated goals as a leader on climate change if it cannot demonstrate a sustainable balance between renewable integration, grid reliability, and cost containment.

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Leah B. SilverthornLeah B. Silverthorn
Policy Advocate
Climate Change, Energy, Environmental Regulation, Transportation