California Pays DERs Too Little in Attempt to Curb Blackouts

April 11, 2021
California took a step in the right direction in a decision designed to reduce blackouts because of hot weather, but compensation still falls short for DERs.

A decision from the California Public Utilities Commission (CPUC) that aims to reduce the potential for blackouts because of hot weather this summer falls short for distributed energy resources (DERs) in California, industry members said.

The ruling, “Decision Directing Pacific Gas & Electric Company, Southern California Edison Company and San Diego Gas & Electric Company,” directs the utilities to take action to prepare for potential extreme weather in the summers of 2021 and 2022 (20-11-003). Approved March 25, the ruling focuses mostly on expanding utility demand response efforts, including incentives for rate-based utility programs.

“Overall, the decision is underwhelming for third party demand response,” said Matt Duesterberg, co-founder and president of OhmConnect, which aggregates storage, microgrids and customer appliances and offers them to the market.

A separate part of the decision implements the Emergency Load Reduction Program (ELRP), which is available to third parties.

The ELRP takes a small step in incentivizing the use of DERs to help avoid blackouts this summer. It provides distributed energy with the same payment made to traditional resources for doing so.

Small win for microgrids

“It’s a small win for microgrids and DERs, a step in the right direction,” said Samantha Reifer, director of special projects at Scale Microgrid Solutions.

Under the ruling, those eligible for the ELRP include virtual power plants, third party distributed resource providers, and nonresidential customers and aggregators who are not participating in demand response programs. The California Energy Storage Alliance successfully argued for including behind the meter solar plus storage, vehicle-to-grid resources and other distributed energy resources, according to the proposal.

Providers will be compensated at a rate of $1,000 per MWh, but industry members thought $2,000 per MWh would be more appropriate, said Reifer.

“This starts to move the needle in terms of creating value for DERs to be more on par with other resources,” said Duesterberg. DER providers such as OhmConnect will be paid the same amount as operators of coal power plants in Utah selling into the California market. But OhmConnect won’t get any credit for being local or carbon-free, he said.

The amount of power OhmConnect, Scale Microgrid Solutions and others provide is determined in advance. However, if DER operators can provide more than the prespecified amount — or net qualifying capacity — when the utility is short of power, they will get paid for that. “DERs have more variation in how much they can create,” said Duesterberg.

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“Under this ELRP, we’ll get paid for whatever we deliver beyond the specified amount,” Duesterberg said.

DER operators can deliver more than expected because they may be aggregating resources that produce more than they agreed to, he explained. For example, OhmConnect customers — homeowners whose DERs the company aggregates — can deliver more, depending on their power needs on the day of the event. Operators of natural gas plants, on the other hand, can’t exceed their stated capacity.

Both Duesterberg and Reifer said that the CPUC ruling may open the door for increased use of natural gas and diesel generators that will emit carbon and other types of pollution.

“If you have a gas generator behind the meter, you can use it during these events to keep the lights on. It’s good to keep the lights on but goes against the goal of renewables. It would be better to allow DERs to thrive so you don’t have to rely on gas generators,” said Duesterberg.

Riefer said she understands that using diesel in the short term would be better than a blackout and added that fossil fuel use is supposed to be a last-ditch option. Even with natural gas and diesel generators in the ELRP, the effort may lead to lower emissions by avoiding blackouts. This is because so many people use diesel generators during blackouts, she said.

“California has been sold out of diesel generators for the past three years. The generators are emitting an insane amount of carbon,” Reifer said. “But if this program reduces the need for rolling blackouts, the hope is we would use less diesel than during blackouts.”

RPS-like standards for DERs?

By gopixa/

The March 25 CPUC decision aside, both Duesterberg and Reifer hope to see measures that incentivize microgrids and other distributed energy resources. 

“We want better incentives for DERs,” said Duesterberg. His company would like to see a measure for distributed energy resources that’s similar to solar renewable portfolio standards (RPS). “Our goal is to get 20% of resource adequacy coming from DERs. When there’s no sun or wind, DERs can step in and fill the gap.”

In addition, under the ELRP, OhmConnect would prefer no cap on the amount of capacity distributed energy resources can provide. The ruling now imposes an 8.3% cap on how much DER suppliers can contribute. “Instead of relying on gas generators, we could increase the cap. We pushed for that in this ruling and didn’t get it,” Duesterberg said. “There’s a cap because regulators don’t understand the resources. This is the challenge DERs face. They’re scary for the regulators.”

OhmConnect also argues that third parties should have access to utility data in order to provide their services. In addition, the utilities should be held accountable for not providing the data, if, for example, they take their websites offline, which is what Southern California Edison did for two weeks recently.

“That stops the flow of data to customers and third parties managing customers’ energy,” said Duesterberg.

Stop chipping at resilience

Reifer said she would like to see California take a more holistic approach to providing resiliency. Right now, the state is trying to chip away at the problem in a piecemeal manner, with numerous dockets. The CPUC should open a docket that looks at grid resilience in general, she said.

Helping the state avoid blackouts is a tricky juggling act between ensuring resilience while adding clean energy. And the state has more work to do to strike a balance, according to  Duesterberg.

“At a high level, it comes down to two things: Keep the lights on and get to 100% clean energy,” he said.

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About the Author

Lisa Cohn | Contributing Editor

I focus on the West Coast and Midwest. Email me at [email protected]

I’ve been writing about energy for more than 20 years, and my stories have appeared in EnergyBiz, SNL Financial, Mother Earth News, Natural Home Magazine, Horizon Air Magazine, Oregon Business, Open Spaces, the Portland Tribune, The Oregonian, Renewable Energy World, Windpower Monthly and other publications. I’m also a former stringer for the Platts/McGraw-Hill energy publications. I began my career covering energy and environment for The Cape Cod Times, where Elisa Wood also was a reporter. I’ve received numerous writing awards from national, regional and local organizations, including Pacific Northwest Writers Association, Willamette Writers, Associated Oregon Industries, and the Voice of Youth Advocates. I first became interested in energy as a student at Wesleyan University, Middletown, Connecticut, where I helped design and build a solar house.

Twitter: @LisaECohn

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