The Challenge of Valuing DERs in California’s Energy Market

March 24, 2020

On its website, the CPUC states that the Resource Adequacy program “is designed to provide appropriate incentives for the siting and construction of new resources needed for reliability in the future.”

So what’s the problem?

Many energy professionals in California would argue the state’s inability to properly value DERs in the marketplace is stymying innovation and evolution on the state’s grid that would otherwise take place.  

In California, a given resource’s capacity value is determined by the resource’s ability to either generate or curtail in response to grid operator direction. For demand response programs, this is measured as their ability to curtail during the CAISO’s established availability assessment hours. These hours coincide with when the grid is most likely to need extra capacity–namely, in the evening as the sun sets and the state’s solar supply goes offline and residential consumption spikes as people come home from work and go about their electricity-powered lives.

Renewable energy sources such as solar are inherently intermittent. Their supply is not continuous or steady. Solar, of course, is only viable during (cloudless) daylight hours. 

California has been a leader in creating hybrid energy resources that combine distributed energy resources (including renewables) with energy storage.

So far, so good for the Golden State. Here’s the problem.     

While customer-sited, behind-the-meter hybrid resources may participate in California’s wholesale energy market as part of demand response, hybrid resources that consist of front-of-meter resources–as are often found in microgrids–are not fully valued by the  CPUC as resource adequacy. 

Consider a front-of-the-meter solar resource that qualifies as resource adequacy. If the owner of that asset were to add an energy storage resource, the ensuing Qualifying Capacity (QC) value (essentially the MW value that can qualify as RA) would change and thereby cancel the value benefit of the combined resource. Hybrid resources, therefore, are either kept out of the marketplace or they are significantly undervalued.

This situation keeps increasingly popular resilience resources on the sidelines instead of supporting grid needs and allowing for them to monetize their value when not providing support to the customer for daily or Public Safety Power Shutoff events (PSPS).

 As we suggested in the introduction of this book, renewable resources packaged with demand-side resources such as energy storage and demand response may be a panacea for evolving grids and markets seeking to integrate renewables and overcome their inherent intermittency issues.

 Yet, California–the longtime global leader in renewable energy innovation–is lagging behind other US energy markets when it comes to devising a plan to value many DER resources in the marketplace. As a result, the Golden State’s march toward energy’s future has slowed while these issues work toward a resolution.

The state has ample clean energy capacity available to meet its RA requirements now and in the future in accordance with the established goals of the RPS. Unless, however, those renewable resources when packaged with energy storage and/or demand response (hybrid resources) are permitted to both qualify for the RA program and participate in the wholesale market, the standstill will likely continue. For how long depends on whether the CAISO and CPUC can work together in 2020 to establish rules and regulations to allow resources to harness available and developing value streams.

Will 2020 be the year of proper valuation for DERs in California?

That’s the million-dollar question. Depending on your organization’s energy asset portfolio, the question may be worth a lot more. 

And now is as good a time as any to remind that predicting when market-altering legislation might be introduced is the ultimate fool’s errand in the energy industry. But since you picked up this book looking for answers to the million-dollar question, we might as well play the fool and make a prediction. 

Will 2020 be the year the CPUC and CAISO agree on how to qualify and value DERs in the retail and wholesale markets in a way that inspires innovation and implementation on both the supply and demand side?

Not likely.

Simply put, too much has to happen and neither party has made the kind of progress to suggest a sensible plan can be introduced, approved, and implemented this year. But that doesn’t mean that organizations should throw up their hands, bury their heads in their utility bills and wait for next year. 


This post was excerpted from the 2020 State of Demand-Side Energy Management in North America, a market-by-market analysis of the issues and trends the experts at CPower feel organizations like yours need to know to make better decisions about your energy use and spend.

CPower has taken the pain out of painstaking detail, leaving a comprehensive but easy-to-understand bed of insights and ideas to help you make sense of demand-side energy’s quickly-evolving landscape.

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Jennifer Chamberlin

Jennifer Chamberlin has spent more than 18 years advocating for, developing, and analyzing market rules and procurement policy across the competitive energy industry. As CPower’s Executive Director of Market Development for the CAISO market, Jennifer is responsible for keeping hundreds of demand response customers abreast of market conditions, energy prices, and regulatory issues. Her work is overseen by her two cats, who basically rule her household.

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Jennifer Chamberlin

Jennifer Chamberlin has spent more than 18 years advocating for, developing, and analyzing market rules and procurement policy across the competitive energy industry. As CPower’s Executive Director of Market Development for the CAISO market, Jennifer is responsible for keeping hundreds of demand response customers abreast of market conditions, energy prices, and regulatory issues. Her work is overseen by her two cats, who basically rule her household.