Regulators, Grid Operator Face Capacity Heat

22 Feb 2013

A new energy product that can quickly respond to the short-term electricity ebb and flow across the state's transmission highway may be part of a modernized system to accommodate more wind and solar energy. The faster reaction could also address supply imbalances from retiring seawater-cooled coastal plants.

Agreeing on the parameters of this "fœflexible capacity" resource--including its definition--continues to be debated by the two lead players in California.

The California Public Utilities Commission and the California Independent System Operator are pursuing the development of a flexible capacity product--also known as a multi-year capacity market--on separate tracks. They're set to delve into the matter at a Feb. 26 public workshop.

The commission, according to a CPUC staff study released Feb. 20, should consider the effects of "the real costs and impacts of status quo versus significant regulatory framework change. The CPUC also needs to consider how any proposed modifications to the current regulatory structure may impact ratepayer costs and improve or worsen the balance of risks between ratepayers and resource owners."

The paper outlines the challenges of pursing a flexible capacity product to satisfy short-term supply cushion requirements under its resource adequacy proceeding. That supply margin requires utilities to have the capacity to generate between 15-17 percent above forecast load. State regulators also are weighing the matter as part of the projected long-term energy forecasts, under their “long-term procurement process.

At the same time, the grid operator has backstop authority to fill in unexpected supply gaps under its "capacity procurement mechanism."

The CAISO additionally is pursuing developing a short-term flexible capacity market through the Federal Energy Regulatory Commission.

The commission staff paper highlights four key roadblocks in the state planning process. It specifies differences over how "conservative" to make supply and demand forecasts--both in its proceedings and at the CAISO.

That includes, for instance, whether to count energy efficiency and demand response. If so, what assurances are in place to ensure they can be relied upon when needed? Also unsettled is when the state is expected to reap future energy reductions, such as those from efficiency standards being implemented.

According to the commission, there is expected to be excess system-wide capacity. The planning margin for system-wide reserves "peaks in 2014 at 44 percent and then is about 20 percent in 2022," according to the report. At the same time, local capacity shortfalls are expected. With the ongoing outage of the 2,100 MW San Onofre Generating Station, for example, there may be local needs in Orange and San Diego counties.

Other hurdles to an improved energy system reflecting different resources, such as recognized flexible capacity products, include the existing economic incentives to aging, inefficient fossil power plants to stay online, and payment inadequacy to other generators. State proceedings have interfered with sending sufficient, timely and accurate signals to generators to invest in new power plants and upgrades, according to the staff paper

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