What is Resource Adequacy? Three Requirements that Keep the Lights on in California

January 3, 2019 | 12:57 pm
Photo: Henning Witzel
Mark Specht
Western States Energy Manager/Senior Analyst

In many parts of the United States, power plant owners can get paid for doing pretty much nothing. You might think that power plant owners make all their money selling the electricity they generate. However, many power plant owners also get paid for providing “capacity,” or the ability to generate electricity. These types of payments are playing an increasingly large role in keeping fossil-fueled power plants operational, and finding cleaner alternatives is going to be a big challenge.

The idea behind paying power plant owners for capacity is that grid operators want to make sure there is enough power to meet electricity demand if something unexpected happens (such as a grid emergency or higher-than-expected electricity demand from a heat wave). These capacity payments are a bit like paying for insurance – power plant owners get paid so that their plants are available to generate electricity just in case that electricity is needed.

Interestingly, there are only a few places in the country where power plant owners do not get paid for capacity. For instance, in most of Texas, power plant owners only get paid for the electricity they produce. As a result, electricity prices skyrocket when electricity demand is at its highest, and those brief moments of sky-high electricity prices are what incentivize Texas power plant owners to have power plant capacity available to generate electricity.

California’s Resource Adequacy Program

In California, the California Public Utilities Commission manages a resource adequacy program. This program obliges electricity providers (usually electric utilities) to pay power plant owners for electricity-generating capacity.

California’s program has three different types of resource adequacy requirements, each designed to keep the grid operating under different types of conditions:

  • System Capacity: These requirements help keep the lights on during the annual “peak load,” when California uses the most electricity. Peak load usually happens on a hot summer day when everyone turns on their air conditioning. The exact requirements are determined by forecasting the next year’s peak load and adding 15% just to be safe.
  • Local Capacity: These requirements help keep the lights on in certain local areas during grid emergencies. For example, a grid emergency might entail a combination of a transmission line to a local area going down and a power plant in the local area going out. Different requirements are determined for each local area by studying worst-case-scenario grid emergencies in each area.
  • Flexible Capacity: These requirements help keep the lights on in the evening when solar generation is winding down and people are starting to use more electricity after coming home from work. Because solar generation tapers off in the evenings when electricity demand is still high, these requirements ensure we have enough flexible resources that can start producing electricity quickly. These requirements are different for each month of the year, and they are based on the largest forecasted three-hour “ramp,” or increase in electricity demand.

Achieving reliability with clean alternatives

California’s resource adequacy requirements are important because they help ensure that the state has enough electricity-generating resources in the right places.

At the same time, California’s resource adequacy requirements present a sizable challenge in the transition to a cleaner electricity system. These requirements are one of the reasons why California is slow to retire more natural gas power plants. For example, a recent Union of Concerned Scientists analysis found that local resource adequacy requirements keep a substantial portion of California’s natural gas power plant fleet from being retired.

Thus, one of our biggest challenges in the state’s transition to 100% clean electricity is meeting these resource adequacy requirements with non-fossil fueled, electricity-generating resources.

Battery storage will likely play a significant role in meeting California’s resource adequacy requirements. The right kind of battery in the right place can count towards many of these requirements, and the recent Union of Concerned Scientists analysis found that strategically putting batteries in the right places on the California grid could allow many more natural gas power plants to be retired. But it would take a lot of batteries to keep the grid operating reliably without any natural gas power plants, so we will need other solutions too.

Another approach is to take actions that reduce the resource adequacy requirements altogether. For instance, California could incentivize strategies that reduce electricity use at certain times of day, which could then reduce system and flexible resource adequacy requirements. Or, California could build more transmission lines into local areas, which could reduce local resource adequacy requirements by expanding access to electricity generated elsewhere.

Meeting California’s resource adequacy requirements through a variety of cleaner approaches – such as battery deployments, reductions in electricity usage, and transmission line upgrades – can help reduce our reliance on natural gas power plants while reliably keeping the lights on.

There will be no single solution for this challenge, and we will likely need to take an all-of-the-above approach. But by reducing resource adequacy requirements and meeting those requirements with clean resources, California will be better able to achieve its ambitious clean energy goals.