Changes to California’s Resource Adequacy Program Will Have Huge Consequences for the Power Grid

September 21, 2022 | 10:40 am
Jeremy Bezanger/Unsplash
Mark Specht
Western States Energy Manager/Senior Analyst

For the past few years, California regulators have been hard at work on a wholesale revamp of their resource adequacy program, which helps ensure the lights stay on when electricity demand is at its highest, during hot summer evenings, for example. For the most part, the resource adequacy redesign has been quietly playing out in a long series of extremely technical workshops, but this past summer, something big happened.

On June 23, the California Public Utilities Commission (CPUC) voted to finalize a decision that sets many aspects of the new resource adequacy framework in stone. But somehow, this consequential decision, which will have massive implications for California’s multi-billion dollar resource adequacy market, barely made a splash.

Over the course of the reform process, energy experts have described the newly adopted changes as “a slow-moving train wreck.” But other experts have called them “a big step forward for clean energy.”

Which is it? And what does it mean that hardly anyone outside of the wonkiest energy circles even noticed?

What’s at stake with resource adequacy?

California’s resource adequacy program was born in the aftermath of the California electricity crisis, during which millions of Californians lost power. In plain terms, “resource adequacy” just means “keeping the lights on,” and it’s specifically geared towards preventing power outages due to electricity supply shortages (as opposed to other types of power outages).

More recently, California’s resource adequacy program has come under increased scrutiny. With the transition to clean electricity well underway, it’s become clear that resource adequacy rules need to change as well. Resource adequacy requirements can serve as a critical tool to incentivize electricity providers to bring clean technologies online, and at the same time, resource adequacy rules essentially determine when California can transition away from fossil fuels and shut down the state’s gas power plants. It’s a delicate balance, and to ensure a smooth transition to clean electricity, California regulators recognized a need to revamp their resource adequacy program.

The current “peak load” framework

In many ways, the CPUC’s current resource adequacy system is similar to the systems used by grid operators in many other parts of the country. The CPUC establishes monthly resource adequacy requirements, which are based on the peak load forecast in each month plus a planning reserve margin. Each electricity provider is then responsible for procuring its share of the total needed capacity. When counting up capacity to ensure there’s enough, the CPUC has developed a set of rules to determine the “capacity contribution” of different types of resources, or in other words, the extent to which different types of resources count towards resource adequacy requirements. For example, the CPUC’s current resource adequacy framework uses effective load carrying capability calculations to determine the capacity contribution of solar and wind resources.

Over time, and especially in the wake of California’s rotating blackouts in August 2020, energy regulators have become concerned that the current resource adequacy framework is no longer up to the task.

The first concern is that, as California’s grid integrates more weather-dependent clean energy resources, the resource adequacy program needs to look beyond peak demand and consider other periods when reliability events could occur. This could include reliability challenges during the net peak—the time after sunset when solar production drops but electricity demand remains high—or, in the future, early morning in the winter when renewable production is low and batteries have been drained from overnight use.

The toughest period for California’s grid used to be during peak demand (5 p.m. in this graph). But California’s rotating outages on August 14, 2020, happened during the net peak demand (6:55 p.m.), after solar production had dropped but demand remained high. (Source: CAISO)

The second concern is that, as more and more energy storage comes online, electricity providers need to make sure there’s enough energy available to charge the storage. However, the current resource adequacy framework doesn’t include any explicit requirements that ensure energy storage can fully charge before it’s needed.

These two main concerns have led California regulators to explore new frameworks for resource adequacy. The goal is to provide clear signals to electricity providers to ensure their portfolio of resources can do it all: meet the peak and net peak demand, ensure there’s enough energy to make it through the night, and charge any storage that’s needed to meet grid reliability needs. (I think these concerns can be addressed within the existing framework, but I’ll get to that later.)

The new “24-hour” framework

In July 2021, the CPUC decided to move forward with a new “slice-of-day” resource adequacy framework, and in June of this year, the CPUC issued a decision that finalizes many of the new framework’s details.

To my knowledge, this framework has never been used anywhere else before, so here’s how it would work: The biggest change is that the new framework will establish hourly resource adequacy obligations for a representative day in each month. So, in contrast to the current framework that has a single capacity requirement in each month, the new framework sets 24 hourly capacity requirements for each month. Those hourly requirements will be determined by using the load profile for the “worst day” (i.e., the day with the highest peak load) in any given month and adding a planning reserve margin.

One important consequence of shifting to an hourly resource adequacy framework is that the CPUC needs entirely new rules to determine the reliability contribution of many types of resources. The CPUC’s recent decision established initial new rules for resource counting, and some significant changes are in order. For example, while the capacity contributions of wind and solar are currently calculated using effective load carrying capability, the new framework will use the “exceedance methodology,” which essentially creates an hourly production profile based on historical data.

The new resource adequacy framework includes hourly compliance requirements in each month, and this chart provides an illustration of how those hourly requirements could be satisfied with different types of resources. (Based on a tool developed by Nick Pappas at NP Energy.)

Another novel element of the new framework is an explicit requirement that electricity providers have enough capacity to charge energy storage resources before they discharge. So, if an electricity provider plans to meet its evening resource adequacy requirements with energy storage, it must have enough capacity earlier in the day to charge that storage before the evening. (For example, in the graph above, there’s enough excess solar early in the day to charge the energy storage resources that discharge in the evening.)

Finally, I should note that the CPUC has not yet finalized all of the framework’s critical details. For example, the agency has not nailed down the exact process for determining the planning reserve margin or the process for developing hourly profiles for some types of resources. To consider these and other outstanding issues, the CPUC is finishing up a series of workshops this fall, and then it will finalize the new framework early next year.

Major Differences Between Current and New Resource Adequacy Frameworks

The good, the bad, and the unknown

Is the new framework good or bad? I hope you weren’t looking for a definitive answer, because you’re not going to find one here! Let me explain.

The bad: From a strictly analytical perspective focused on maintaining grid reliability, I think the new framework is a step in the wrong direction. The new framework creates a disconnect that will make it trickier to ensure California meets the industry-standard reliability goal of having only “one day in 10 years” with a supply shortage. I could go on and on about why there’s a disconnect, but my main concerns stem from the fact that the planning reserve margin will likely be less directly determined by probabilistic grid modeling and the new framework is incompatible with using effective load carrying capability (ELCC) calculations to determine the reliability contribution of resources. ELCC calculations use robust probabilistic grid modeling to determine the reliability contributions of resources over a vast range of scenarios, and the resource counting rules in the new resource adequacy framework will rely on much more simplistic methods. Proponents argue that the new structure will be “calibrated” using probabilistic grid modeling, bypassing the need for resource-specific ELCC analysis, but this process has not been fully developed.

As California heads into uncharted territory with its new reliability framework, most grid operators in the rest of the country are headed in a very different direction. Other regions are maintaining resource adequacy systems similar to California’s current system, but they’re updating resource counting rules using ELCC calculations to ensure a smooth transition to a cleaner grid.

For example, other regions are applying ELCC not only to wind and solar, but also to energy storage and maybe even to fossil-fueled resources such as gas plants. Other grid operators are recognizing that they don’t necessarily need an entirely new resource adequacy framework to address reliability challenges during net peak load periods or energy sufficiency issues that could arise as more and more energy storage comes online. A reliability framework with regular updates to the planning reserve margin based on probabilistic grid modeling and updates to resource counting rules based on ELCC calculations is enough.

Again, from a purely analytical perspective, I think it would have made more sense for California to maintain its current resource adequacy system while regularly updating the planning reserve margin and expanding the application of ELCC to many more—if not all—types of resources. But theory doesn’t always work well in practice. As one energy expert put it to me, “An ELCC-based reliability framework is the right answer, but is it useful?”

The good: On the flip side, I’m open to the possibility that the new reliability framework will be simpler and more predictable for electricity providers in California. It’s notable that most of the utilities and community choice aggregators in the state supported the new framework. It’s also noteworthy that many of the renewable energy and storage trade organizations supported the new framework too. Energy stakeholders in California clearly like the new resource adequacy system.

One of the things they apparently like is the clear responsibility for electricity providers to secure the resources they need to meet their load for all 24 hours of the day. The new framework will ensure that each electricity provider is doing its fair share to ensure grid reliability every hour, unlike the current system. Stakeholders also seem to like the new resource counting rules, which likely won’t change as much as ELCC values from year to year. In the past, sudden and significant changes in wind and solar ELCC values have been a cause of consternation, and resource counting rules in the new framework should be much steadier.

Putting all that together, the new resource adequacy framework will provide clearer reliability signals to electricity providers, and the value of resources should be much more predictable. That’s good stuff, and it could smooth the transition to clean electricity by providing more regulatory certainty for electricity providers that are responsible for bringing clean resources online and reducing emissions from the electricity grid.

So where does that leave us?

In sum, there are pros and cons to the new resource adequacy framework. I think it will be a worse way to ensure grid reliability, but I also think it will provide more certainty and predictability for California electricity providers responsible for the clean electricity transition. On balance, it’s still not clear if it’ll be a net positive because the CPUC has yet to finalize critical details of the framework.

One of the Union of Concerned Scientists’ (UCS) other issues with the framework, and our main reason for engaging in resource adequacy reform, is that the new framework must ensure fair and accurate resource counting rules and resource adequacy requirements so that gas plants in California aren’t kept online unnecessarily. With so many details still up in the air, it is hard to say if this new resource adequacy framework will really be a win for clean energy, but UCS is working hard to make sure it is.