California’s system operator is moving ahead with its plans to organize 38 independent power providing systems into a western region grid and market.

Nobody is more passionate about this history-making plan than California Independent System Operator (CAISO) President and CEO Steve Berberich. Just-released preliminary assessments of the regionalization plan to integrate the separate balancing authority areas (BAAs) into a single market give him more reason to push ahead.

Berkeley Economic Advising and Research (BEAR) says the plan could generate $1 billion to $1.5 billion in annual benefits to California ratepayers and provide between 9,900 jobs and 19,400 jobs throughout the West by 2030. A Brattle group study shows it could cut California emissions 8% to 10% and Western region emissions 3% to 4% in 2030.

CAISO is already running a system with $9 billion in revenues and 26,000 miles of transmission for a California economy that is one of the eight biggest in the world, Berberich told Utility Dive on the sidelines at WindPower 2016, the annual wind industry conference and trade show.

“We are already showing it is possible to decarbonize an economy that large,” he said. “The key is that you can’t keep doing things the way you have always done them.”

On May 15 at 1:50 p.m., California served 56.2% of its load with 12,473 MW of electricity generated by a mix of California and out-of-state renewables, Berberich said.

“We are ahead of our schedule for achieving the capacity to meet the state’s previous 33% renewables by 2020 mandate and, without question, we will be able to meet the state’s new 50% by 2030 mandate and manage over 50% renewables,” he added.

Reasons to regionalize

Grid planning has always been about having a portfolio of resources, Berberich said.

Historically, that resource portfolio was composed of coal, natural gas, and nuclear energy. State mandates across the West now require renewables but “the same thing holds true,” he said. “We need wind, we need solar, we need geothermal, and we need a portfolio of resources.”

With increasing levels of central station renewables and distributed generation, there are more and more inflections on the grid and managing them is getting more challenging. “But it is also an opportunity,” Berberich said.

The Warren Buffett-owned PacifiCorp utilities, serving six states in the West, are partners in the proposal of a tariff-free Western transmission system that would extend from the Canadian to the Mexican border, and from the Great Plains to the Pacific.

That would create a market richer in resources than MISO or PJM, with market operations modeled on those at CAISO. 

Before answering the question of how to regionalize, Berberich said, the question to answer is why.

The preliminary studies from BEAR and Brattle, required by the legislation that upped the state’s mandate to 50%, show clear economic and environmental benefits from increasing the use of renewables in California and the West.

The $1 billion to $1.5 billion in savings to California electricity users from a fully integrated Western utilities market would boost household incomes by $300/year to $550/year, according to the analysis.

Also, organized markets in other regions have proved that grids with larger geographic footprints and bigger resource bases are “cleaner, cheaper, faster, and safer to operate,” than those run by vertically-integrated utilities, according to a recent paper on the plan from the Natural Resources Defense Council (NRDC).

And a regional grid “can access the untapped flexibility and diversity of resources throughout the West,” CAISO Vice President Keith Casey recently told Utility Dive.

What's in it for utilities?

“We will need all the utilities on board with this because they have influence we don’t,” Berberich said. “We are a relatively small, apolitical organization. Utilities’ much larger organizations can more effectively engage, influence, and educate all the stakeholders.”

It is important that utilities understand how the improved operations, market efficiency, and more strategic transmission planning that will come with a regional system will also produce benefits for California’s utilities and utilities across the West, Berberich said.

Investor-owned utilities (IOUs) in California have largely divested their generation and will therefore not be competing with generation from out-of-state utilities, he explained.

The California munis that own generation are concerned about competition with out-of-state resources, but Berberich said they "need to think about the world that will be, instead of the world that is.”

“The threat they have is competing with the increasing in-state supply of zero marginal cost renewable energy," he said. "If there is market, it can benefit them by lifting prices.”

Berberich sees two kinds of new opportunities for out-of-state utilities. At times when California’s milder weather lightens demand, its abundant renewables increase the demand for fast-ramping thermal generation. At those times, Nevada utilities could sell ramping capacity from natural gas units going unused in that state’s mild weather to CAISO.

In addition to the benefit to the Nevada utilities, “California utilties benefit because they do not have to build new fast-ramp capacity,” Berberich said.

The second opportunity is the ability to share resources across the region. The PacifiCorp East and West territories on the Northern Great Plains and in the Pacific Northwest make for “a winter peaking system” Berberich said. “California is a summer peaking system. If they share resources, the combined capacity need for the two systems is not as big as their separate capacity needs.”

This opportunity is also available east to west, he added. Arizona’s evening peak is earlier than California’s. Excess midday California solar generation can help Arizona meet its peak.

Similarly, California’s load curve comes up about 4:30 a.m., before its solar is available. But solar is available in Arizona, New Mexico, and Nevada. “That solar could follow our load curve,” he said.

Wyoming and California winds can be similarly reciprocal.

“The critical thing is to have the portfolio. It is not solar or wind or geothermal. It is solar and wind and geothermal,” Berberich stressed.

Finally, this plan will help bend the cost curve for utilities.

“They will need to invest less in resources and services they can obtain regionally, Berberich said. “And since they pay for the renewables that we curtail when we are in surplus, it would be better for them to get something for them rather than nothing.”

The lingering question of emissions

Much of the West “is very coal heavy,” Berberich acknowledged.

“They could face billions of dollars in costs to comply with the Clean Power Plan and other pollution regulations," he said, "or they could spend $20 million, join a regional market, and have access to zero marginal cost renewables.”

Sierra Club has misgivings about that formulation, however. CAISO's preliminary analysis of the market showed PacifiCorp’s integration into the ISO “would result in an increase in the dispatch of coal power plants that would lead to higher greenhouse gas emissions in the region by 2020,” its press release reported.

Environmental and consumer advocate groups and elected officials are concerned because PacifiCorp “is the largest owner of coal-fired power plants in the western United States and relies on coal power for more than 60% of its energy production,” the release added.

But Sierra Club only sees risk if the regional market is limited to an CAISO-PacifiCorp merger. If other utilities in the West are integrated, the market could cut emissions.

“Modeling scenarios that looked at incorporating other western energy grids into an expanded market indicated that by 2030 the region could see a decrease in greenhouse gas emissions and an increase in the development of renewable energy,” Sierra Club California Director Kathryn Phillips said. “We need to make sure that a new market results in real benefits for Californians and the environment.”

Sierra Club’s biggest concern is this early ISO-PacifiCorp partnership, Staff Attorney Travis Ritchie emailed to Utility Dive.

“By increasing the dispatch of specific coal units across the PacifiCorp service territory, the proposal could in turn prolong the life of some of the dirtiest plants in the West," he said.

If this happens, carbon benefits of a WECC-wide 2030 integration could be lost, Ritchie added.

“Brattle group modeling of an ‘ISO-PacifiCorp only’ case shows a potential for a tiny carbon increase in the first years of the market as the transition unrolls,” observed NRDC Western Transmission Director Carl Zichella in response.

The carbon increase is “statistically insignificant, and likely the result of an imprecise and overly conservative modeling assumption, according to Brattle consultants,” Zichella, a decades-long Sierra Club leader, added. “It could just as easily be a modest decline as was made clear at the public presentation of the research.”

The same modeling, he pointed out, “shows that a regional market will result in GHG emission reductions that grow rapidly in future years, and increase greatly as other market participants join.”

Berberich had a simpler answer.

“If those other areas are buying our excess power, they must not be running their coal plants as much,” he said. “This allows us to displace what would otherwise be coal generation.”

Lessons from abroad

The central lessons from Europe's extensive experience with growing renewables through regional sytems are critical, Berberich said.

One is that costs must be controlled. In Germany, as documented by the Environmental Defense Fund (EDF), and Spain, as documented by Wind-Watch, the failure to cost-effectively integrate increasing levels of renewables led to increased ratepayer costs that both countries are still coping with.

The other lesson is that the regional portfolio effect and sharing of resources is vital.

“We are on this journey to decarbonize the grid and if costs get out of control, all bets are off,” Berberich said. “But it is a cool opportunity because California can show the world how it can work.”