Balancing Cost and Reliability: Strategies for Moving Toward a Carbon-Free Energy Supply

Throughout California, aggressive climate legislation has set the stage for carbon-free planning (CFP). Despite challenges related to affordability and reliability, CFP has generated widespread community enthusiasm throughout the Golden State, pushing Community Choice Aggregators (CCAs) and municipal utilities to implement even more aggressive climate goals. During the Ascend Summit 2023, four representatives from Californian CCAs and municipal utilities assembled to speak about the drivers, strategies, challenges, and lessons of developing carbon-free energy markets. Moderated by Mark Dyson, Managing Director for RMI, the panel included Dr. Lena Perkins, Emerging Technologies Manager and Senior Resource Planner for the City of Palo Alto; Roy Xu, Director of Power Resources at Peninsula Clean Energy; Scott Mellon, Assistant General Manager – Power Management for the City of Glendale; and Zakary Liske, Senior Manager of Power Operations, Silicon Valley Clean Energy.  

Key Takeaways

• Communities and non-legislative stakeholders now largely drive CFP efforts in California and remain acutely aware of challenges related to affordability and equity.
• CFP drivers coalesce around a balance of measurable progress toward sustainability that maintains reliability at a reasonable price.
• To achieve this balance, municipal utilities and CCAs must employ both demand-side and supply-side strategies.
• Succeeding in meeting CFP goals requires a united approach to grid expansion and policy reform.

“100% renewable energy is not as far-fetched as some believe.” - Roy Xu, Director of Power Resources, Peninsula Clean Energy

Carbon-Free Energy Planning – Drivers and Challenges

Across the board, Ascend Summit panelists agreed that community and stakeholder ambition currently largely drives CFP. Where California’s legislature once set the standard for sustainable energy, communities now take the lead. For example, Dr. Perkins explained how the city of Palo Alto always sets renewable portfolio standards (RPS) at least 15% to 20% above the California standard. Mr. Mellon echoed how communities and customers within the Glendale footprint have become more involved than ever before, determined to see CFP implemented in their neighborhoods.

Nevertheless, communities remain acutely aware of affordability and equity complications that come from a rapidly changing grid. Mr. Liske noted frequent customer concerns regarding price hikes caused by aggressive CCA action. More specifically, Mr. Mellon pointed out how operators must make careful systems changes to ensure sustainability improvements without raising rates and thus outstripping what individuals are willing to pay.

Even with widespread community enthusiasm for CFP, the age-old question of affordability persists. Thus, CFP drivers coalesce around a very simple balance: measurable progress toward sustainability, achieved at a reasonable price, while maintaining reliability.  

Demand-side and Supply-side Strategies for Meeting CFP Challenges

Strategies for meeting CFP challenges primarily fall into one of two categories: demand-side and supply-side. According to Mr. Xu, supply-side strategies largely involve finding the right projects, signing favorable contracts, and ensuring regulatory compliance. For CCAs specifically, reliability compliance standards have begun to jeopardize the affordability of CFP, undermining one of the core tenants driving interest in CFP. Mr. Liske noted that for SVCE, balancing aggressive procurement orders with the costs of reliability compliance poses a real threat of rate increases for customers. Challenges also exist from regulatory structures misaligning with the signals they desire to send, as well as hurdles for clearing the interconnection queue (IQ). Ultimately, supply-side strategies hold limited influence over CFP progress due to current IQ and regulatory limitations.  

On the demand side, Dr. Perkins elaborated on the merits of mixed mandate-incentive programs to drive electrification. Mandates – cheap to implement yet generally unpopular – work well for changes requiring rapid response, such as heating electrification. Incentive programs – more expensive yet more widely favored because of their voluntary nature – help to encourage long-term, capital-intensive changes, such as switching to EVs. Incentive programs target early adopters of technology and facilitate change. Regardless of the approach, Dr. Perkins emphasized the importance of a bilateral effort that leverages mandates and incentives where appropriate to motivate demand-side participation in CFP.

Other potential demand-side strategies, notably distributed energy resources (DERs) and virtual power plant structures, did not enjoy the same unanimous support from the panel. Mr. Mellon pointed out how, despite incredible optics, “Decentralization always costs more than centralization.” Where DERs and virtual powerplant structures do generate excitement in supply-side participation, reliability concerns and complicated tariff structures associated with their implementation often become cost prohibitive. At a base level, having decentralized resources provides marginal value to the grid; these resources cannot be easily integrated and managed within the confines of the grid. Thus, they provide diminished value in increasing reliability and decreasing costs through managed time of use/supply. Mr. Mellon did note that DERs can serve load in places with limited transmission infrastructure. However, until resource management techniques become more sophisticated, most decentralized demand strategies lack feasibility for CFP.

Lessons Learned from Carbon-Free Planning in California

As a first mover, California contains a variety of lessons learned for other markets embracing CFP. Dr. Perkins expressed the importance of educating consumers as to the benefits of trickle charging, for example, or to the counter-productiveness of hourly RECs. These direct interactions allow electricity providers to build trust with customers and align enthusiasm for CFP with desired impacts.

The biggest lesson of all, perhaps, came in the form of a call to action. To close the panel, Mr. Xu encouraged CCAs, municipal utilities, and other carbon-free advocates to stay united. Grid expansion requires a united front. Policy reform requires a united front. Creating interoperable CFP structures requires a united front. According to Ascend Summit panelists, the challenges facing CFP today must be overcome together, through the coordinated efforts of communities, electricity providers, and other stakeholders working toward inclusive, affordable, and environmentally conscious solutions.

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