Pay microgrid owners to boost California’s grid? Credits and “price machines” proposed

June 27, 2022
Two separate proposals floated last week before California regulators open the door for financial incentives that would encourage microgrid owners to step in and help out when the electric grid is falling short.

Two separate proposals floated last week before California regulators open the door for financial incentives that would encourage microgrid owners to step in and help out when the electric grid is falling short.

Fuel cell company Bloom Energy offered the California Public Utilities Commission (CPUC) a specific plan to provide credits to those who use their microgrids, fuel cells and other distributed energy resources (DERs) to bolster the grid.

Meanwhile, the staff of the CPUC Energy Division published a white paper calling for creation of a “unified, universally accessible, dynamic economic signal” that would spur use of microgrids and DERs in flexible demand practices.

The proposals come as power outages continue to besiege the state, many related to wildfire-related shutoffs by utilities. Stanford University, for example, lost power for three days last week, forcing the cancellation of summer classes. 

The state also has been urgently seeking more electric capacity with state officials warning of a potential 1,700-5,000 MW shortfall this year.                                                                                                     

Capacity delayed                                                                           

Bloom Energy noted that the state has undertaken a range of efforts over the last three years meant to bring thousands of megawatts of additional power on line. But several of those projects face delays for a range of reasons, including supply chain disruptions for those that rely heavily on solar and batteries, Bloom said.

“There is every reason to believe that delayed and failed projects, in combination with extreme weather, drought and increasing congestion on the transmission grid, could pose a serious risk to grid reliability over the next few years,” wrote California-based Bloom Energy in the CPUC filing.

At the same time, California is quickly adopting renewable energy, which is changing the grid’s dynamics. A mismatch is occurring between when renewable energy is produced and when it’s needed, forcing the grid operator to curtail renewable production at a “significant opportunity cost,” according to the CPUC Energy Division white paper.

Fortunately, the state also is moving quickly toward electric vehicles, electrified buildings, microgrids and other DERs which “offer significant demand-side potential,” the paper said.

“With widespread adoption of demand flexibility management equipment and techniques, customers would have the potential to shift significant load to counterbalance the projected curtailments,” the paper said. “This could provide significant support to California’s clean energy goals by: (a) increasing renewable integration and reducing greenhouse gas emissions, (b) reducing system ramping requirements and improving system reliability, and (c) reducing or minimizing cost of service system-wide.”

Bloom Energy’s tariff idea

Under Bloom’s proposal, the state would leverage customer on-site energy investments for use during grid emergencies. Microgrids, fuel cells and other DERs that provide reliable power for extended periods would be eligible for credits via new tariff if they:

  • Are at least 100 kW and no larger than the peak load needed by their host
  • Have a capacity factor of at least 80% and be capable of continuous operation for a minimum of 120 hours and can operate when alerts are issued to reduce power usage
  • Meet microgrid emissions standards set out in an earlier CPUC decision (D.21-07-11)

Resources that meet the requirement could receive a $30-$40/kW-month load reduction credit and $2/kWh for exporting energy to the grid when it is under strain. In addition, DER and microgrid owners would be eligible for $9.50-11.50/kW-month if they commit annually to exporting a particular amount of capacity when alerts are issued to reduce energy use. Payment would be 120% higher in certain areas where the need for capacity is great.

The credits would run for 10 years.

Creating a California price machine

The CPUC’s Energy Division takes a broader approach, forming a kind of new market for demand flexibility transactions with DER and microgrid owners choosing to participate, or not, based on transparent price signals. Called CalFUSE, the program is meant to encourage investment in customer-sited DERs, including vehicle-to-grid integration and microgrids, without cost-shifts to non-participating customers. 

The white paper proposes a “price machine” that would calculate composite electricity prices for each customer at any point in time. The information would be made available through a statewide Internet-based portal. Knowing what their compensation will be, DER owners would decide whether or not it’s worth it to them to shift energy use or import or export energy. 

Those who do not want to track prices would have other options. They could choose, for example, a predetermined price under a monthly subscription. This would allow them to hedge against price volatility. The price would be based on their historic usage and load shape. 

The program also allows for future contracts. A DER owner could execute contracts to import or export energy at some future time at a pre-set price. 

Who would participate? 

Initially, the CPUC program would be voluntary or “opt-in” for all utility customer classes. But the white paper envisions the possibility of eventually “defaulting” certain subsets of customers or DERs into the program to advance policy goals.

The CPUC Energy Division foresees third parties playing a “major role” in the program, with some providing one-stop services to customers, managing multiple smart devices on their behalf and possibly pooling them together to leverage DERs offered in aggregate to the grid.

To achieve widespread adoption of demand flexibility, the process would need to be automated for most residential and small commercial customers, with third party vendors providing the automation, according to the paper.

The Energy Division staff called on the CPUC to open a rulemaking to consider their proposal.

Now and later

In its filing, Bloom Energy praised the Energy Division’s approach, describing it as ambitious and offering “a powerful vision for California’s long-term utilization of demand-side resources.”

The company advocated for the CPUC to pursue both approaches; Bloom’s tariff as a “rapid response” to be undertaken while the commission works on the longer-term vision laid out by the white paper. 

Fuel cells and other DERs can address the grid’s problems quickly, Bloom said, with installations in some cases taking no more than a long weekend.

“If these highly reliable and resilient DERs are sited at critical facilities, such as hospitals, water supply and treatment works, supermarkets, dialysis centers, communication centers and other critical infrastructure with substantial load, their deployment will not only reduce load on the system but also help ensure that the public can depend on the availability of critical services, food and water during disasters, without disruption from energy system failures,” Bloom Energy wrote. “No pun intended, but this tariff will quite literally lighten the load on the system and help ensure continuity of critical services.”

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About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is the editor and founder of She is co-founder and former editor of Microgrid Knowledge.

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