How California Is Planning for More Solar and Keeping the Lights on at Night
Resource adequacy is a crucial concept that affects everyone who relies on a stable supply of electricity. In this blog post, we'll break down what resource adequacy is, why it matters, how California has been managing it over the past two decades, and how the state plans to do it differently next year with a “Slice of Day” approach – more on that later.
Resource adequacy is how we ensure that there's always enough electricity available to meet the demands of consumers, especially during peak demand times. Imagine the chaos if your appliances suddenly went out during a heatwave or on a cold winter night – many Californians have been in that boat and that's the problem resource adequacy aims to solve.
Before diving into the intricacies of resource adequacy, let's clarify the difference between energy and capacity. Energy is the electricity you use over time to keep your lights on. Capacity is the ability to generate electricity when it's needed, ensuring that the grid remains stable even during high-demand periods.
The California Public Utilities Commission (CPUC) decides how much resource adequacy is needed for about 70% of the electric demand in the state, and the rest is determined by other authorities (e.g., City of Los Angeles or City of Sacramento). The CPUC tells load-serving entities (“LSEs”) how much resource adequacy they need to contract for, verifies that they comply, and penalizes the ones that are deficient. LSEs include investor-owned utilities (e.g. Pacific Gas and Electric), community choice aggregators (e.g. Clean Power Alliance of Southern California), and direct access providers (e.g. Pilot Power Group).
But how does the CPUC decide how much resource adequacy capacity is enough?
- The CPUC obtains a load forecast from another state agency, the California Energy Commission, which develops monthly forecasts based on the energy demand for the past 30 years.
- The CPUC then applies a 16% buffer or “planning reserve margin” (PRM) to that monthly peak load for the next year. That buffer covers potential differences between actual and forecasted demand, unexpected power plant failures, and other regulatory requirements. In 2024, the 16% PRM will increase to 17%. The CPUC then takes the resource adequacy requirements and allocates them out proportionally to the LSEs under its jurisdiction.
- Additionally, the CPUC has ordered the state’s investor-owned electric utilities to purchase an additional 4-6.5% more resource adequacy (called the “effective” PRM) in 2023 and 2024 as additional protection against rotating power outages.
Figure 1: Planning Reserve Margins
The CPUC’s PRM is built on top of the CEC’s 1-in-2 peak demand forecast. The PRM is made up of three components: 1) federally mandated reserve requirements, 2) a buffer to account for unexpected power plant outages and differences between the forecast and actual demand, and 3) the range of effective PRM targets set for the investor-owned utilities.
That’s how California determines the amount of resource adequacy it needs, but counting how much resource adequacy capacity we have available to meet those needs is another challenge, especially when it comes to renewable resources like wind and solar. Historically, the CPUC’s RA program has used an approach called Effective Load Carrying Capacity (ELCC) to predict the contribution of renewables to the grid during periods when forecasting models expect there to be shortages. Over time, those forecasted shortages have moved later in the day towards evening, when solar resources generate less, meaning that their contribution to grid reliability at those times gets lower and lower. On top of that, as you add more and more variable resources to a portfolio, the overall potential variation in output becomes more and more uncertain—the result is that the resource adequacy contribution of later-added renewable resources becomes smaller and smaller.
At the same time, California needs to build renewables at a record pace to meet its greenhouse gas reduction policies. The figure below shows the cumulative resources that California will need to add by 2035 to stay on track with those policies—we need over 25 gigawatts of wind and solar capacity in just 12 years. But if we kept using ELCC to count wind and solar, we would expect to see eroding resource adequacy capacity values for those resources. This erosion would, in turn, reduce a key revenue source for those resources, making it harder to build them.
Beyond the valuation of wind and solar resources, the bulk of new electric resources that have come online in the past few years in California have been lithium-ion batteries. For batteries to provide electric reliability when renewable resources are not available, planners need to be sure that the batteries will be able to charge earlier in the day when more abundant, cheap electricity is available. The status quo planning paradigm does not provide planners the ability to see whether the portfolio of resources provides sufficient energy for battery charging.
Figure 2: Planned Resource Additions (megawatts), Aggregated 30 MMT LSE Plans[1]
Achieving the state’s SB100 targets will require building new resources at a sustained record pace.
The Future of Resource Adequacy is Slice of Day
In 2020, the CPUC initiated a reform of its resource adequacy program in part to solve some of these thorny issues. Two years of stakeholder-led workshops resulted in the Slice of Day proposal. Instead of requiring utilities and other LSEs to procure a single resource adequacy requirement for each month, the Slice of Day approach ensures that utilities and LSEs have contracted enough resource adequacy to cover forecasted energy needs for all 24 hours.
Slice of Day is fairly intuitive when visualized, as in Figure 3 below. Instead of procuring a single amount of capacity that we assume covers all hours, utilities and LSEs will be required to procure enough resource adequacy capacity to cover their own load forecasts for each hour in every month including the PRM (the black line). Utilities and LSEs then show they have enough capacity in each hour by stacking the expected production of the resources they have under contract in each hour. Some resources can be expected to generate electricity at any time of day (e.g., geothermal and nuclear), while solar is limited to daylight hours (yellow bars) and wind (light green) can be highly variable in its production (expected renewable capacity is based on their historic hourly performance). Battery energy storage can be optimized to fill the gaps (brown). Slice of Day verifies that enough capacity is available at each hour of the day, which is critical to ensure renewable resources that do not function 24/7 do not create a threat to state reliability.
Figure 3: Slice of Day Example Using Expected 2024 Resources
Crucially, the Slice of Day approach allows us to test if LSEs are expected to produce sufficient excess energy earlier in the day to fill the batteries that are discharged in the later afternoon period. Finally, it’s worth noting that this is purely a planning exercise. In other words, LSEs must show they have enough resource adequacy capacity contracted to meet their expected demand profile each month, but that does not necessarily mean that their contracted resources will be dispatched. Each of the contracted resource adequacy resources have a contractual obligation to bid into energy markets that are run by the California Independent System Operator, which ultimately decides which resources are dispatched and when.
Slice of Day is a new approach to resource adequacy, with 2024 as a test year before it becomes mandatory in 2025. California has been ahead of the renewable energy integration curve, which means the state has experienced the limitations posed by existing resource adequacy constructs and had to find different ways to plan ahead. Like any innovation, the Slice of Day approach has bugs that stakeholders will need to work through, but significant reliability gains are expected.
[1] Available at https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M520/K522/520522241.PDF.