In 1994, California restructured its electricity market, introducing competition as a theoretical means to bring down the price of power. The end-goal was to help revive an economy that was struggling due to a blend of issues, including high energy costs that were driving major manufacturing companies to leave the state, taking jobs and expendable income with them.
But despite good intentions, the restructured system lacked normal power market stabilizers. This, coupled with sharp, adverse changes in supply and demand, led to opportunistic (and occasionally illegal) behavior from out-of-state energy traders that caused power shortages, extreme price spikes and rolling blackouts during the infamous California Electricity Crisis of 2000-01.
A decade later, as California’s two major utilities teetered on bankruptcy and immense uncertainty, the California Public Utilities Commission (CPUC) established a policy framework in 2004 to prevent this from happening again. The resulting Resource Adequacy (RA) program created the rules for how load-serving entities (LSEs) contract for electricity capacity to ensure demand is met in case of an unexpected event.
Over the ensuing years, the RA policies and programs have proven to be effective in helping to keep the lights on. Today, as we deal with new, unexpected crises, planning for RA remains critical in enabling California to meet its clean energy goals, while ensuring grid reliability during prevalent wildfires, uncertain economics and unpredictable weather patterns.
There are three types of requirements for the California RA program:
- System — At the most basic level, LSEs are required to own or contract with sufficient resources to meet their share of the California Independent System Operator (CAISO) system’s peak demand, plus a Planning Reserve Margin (PRM) of 15 percent.
- Local — LSEs need to procure a certain amount of capacity from resources sited in certain load pockets where supply is needed due to insufficient transmission to serve the entire load. Local requirements are determined based on an annual CAISO study using a 1-10 weather year and an N-1-1 contingency.
- Flexible Capacity — LSEs must procure a certain amount of capacity from resources that can ramp up or down on short notice based on an annual CAISO study that currently looks at the largest three-hour ramp needed each month to run the system reliably.
RA has been conventionally supplied by utility-scale, fast-ramping hydro and gas plants. However, through recent regulatory changes, the CPUC and CAISO are accepting and encouraging distributed energy resources (DERs) to now provide RA via proxy demand response. DERs such as solar, storage, electric vehicle charging stations, smart thermostats and other controllable loads are seen as preferred alternatives for providing peaking capacity and RA. By leveraging DERs — and thus minimizing the need to build and maintain peaking power plants — utilities can reduce costs, emissions and land use requirements. This is especially attractive in a time when oil prices have fallen below zero in a struggling economy; a 25+ year, multi-billion dollar capital investment is hard to swallow.
How it Works
California’s market is bilateral, based on individual transactions between LSEs and resource owners. Demand response, storage resources and other aggregations of distributed resources are eligible resources to provide RA. To qualify to sell RA, a capacity resource must register with CAISO and be tested to determine if it is “deliverable” to load when the transmission system is stressed by high demand. Each resource is assigned a Net Qualifying Capacity (NQC) value, which defines the amount of RA that it is eligible to sell.
A capacity resource that commits to provide RA undertakes a “must-offer” obligation to bid or self-schedule its capacity into the CAISO market. This obligation ensures that those resources will be available to serve CAISO demand when needed; however, this does not mean that the resource will be dispatched if other more economical capacity resources are available to CAISO at the time. On the other hand, if RA capacity is requested and not delivered by the resource, the LSE will incur penalties.
Constraints and Orchestration
As attractive as DERs are for RA and grid resiliency, these smaller, more distributed devices are typically not owned by LSEs, but rather by LSE customers, posing a problem of certainty and reliability of their performance. For resource owners, the RA program provides a source of revenue, but it can also pose a risk if the resource under-delivers when called upon. The ability to monitor and control these DERs such that they meet the owner’s operational needs while also qualifying for RA is complex and requires sophisticated orchestration.
Enbala’s grid-balancing software platform, Concerto™, allows LSEs to visualize the available RA capacity within the network, reserve this capacity and dispatch it to meet CAISO market signals. When a market signal is received, Concerto conducts internal optimization assessments on the fleet of controllable energy assets within the LSE’s network and then dispatches an aggregation of available and economically viable DER assets to follow the signal from CAISO as closely as possible, while still maintaining all resource-level operation rules and constraints.
Are you a community choice aggregator or load-serving entity in California looking for RA solutions? Request our RA solutions brief to see how Enbala can help.