Thought Leadership

Resilient Solutions Require an Updated Regulatory Framework

 

By Stephen Gunther

December 16, 2020

Energy storage for resilience in California presents challenges for commercial customers looking to justify the significant investment. Many of the engineering obstacles can be overcome through cooperative approaches and creative system configurations. (Learn more.) However, such approaches face regulatory barriers and economic hurdles, many of which are being considered within the California Public Utilities Commission's (CPUC) Microgrid Rulemaking.

The following should be addressed to encourage innovative engineering solutions to grid resilience while maintaining the state’s commitment to decarbonization.

Enable Pathways to Community Microgrids

Existing rules, which were developed to ensure safety, reliability, and protect ratepayers, limit how customer-owned energy assets can be shared and how they can interact with the grid. As a result, energy storage and on-site generation that involve multiple properties and/or customers, often referred to as community microgrids, face significant barriers.  

For example, each investor-owned utility has an electric rule stating that if a premise receives electricity from the utility it cannot supply electricity to a different premise (Electric Rule 18 or 19 depending on the utility). Because electrons can’t be sorted within the grid, this means that even when a customer primarily charges their battery with their own solar photovoltaic (PV) system, if the utility also delivers electricity to that battery, the customer would be prohibited from supplying their neighbor with electricity during an outage, even if the energy system could safely island from the grid.  

In a different scenario in which a microgrid owner wants to use its own wires rather than rely on the utility’s distribution infrastructure, Public Utilities Code (PUC) 218 prevents a microgrid from serving more than three adjacent customers or connecting any users whose property is separated by a public right of way or another parcel of land without them becoming subject to all regulations that apply to utilities. This code limited the City of Berkeley’s Energy Assurance Transformation (BEAT) project from owning and operating its own microgrid because, ideally, it would share solar PV generation and storage capacity at multiple city‐owned (and potentially non‐city owned) buildings that are near one another but separated by public rights of way.

These limitations leave little room for the development of community microgrids. They are restricted technically and administratively depending on whether they use the utility’s assets. The CPUC’s Energy Division identified such barriers in a recent staff proposal and concept paper. However, revisions to Electric Rule 18/19 outlined in the CPUC’s Proposed Decision issued on December 7, 2020, are limited in scope, and changes to PUC 218 would require legislative action. Broader revisions are needed to correct the disconnect between a decades-old regulatory framework and the technological advances of distributed energy resources. Creating exemptions or pathways for resilience projects involving creative configurations of resources and customers will maximize benefits and justify investments needed to sustainably address modern challenges to the energy system.

Properly Value the Benefits of Resilient Solutions

Addressing the regulatory barriers discussed above will help the economics of a project pencil out by loosening engineering and administrative constraints. Commercializing resilience projects, however, will likely require reforms to compensation structures as well. To make significant investments in community microgrids economically feasible, the added value of resilience needs to be reflected in electricity rates, tariffs, and/or additional incentives. Existing valuation frameworks do not fully account for the resilience benefits of microgrids or other distributed energy resources, and a wholistic appraisal of resilience is needed to improve the economics of a microgrid installation.

While determining the value of resilience is incredibly difficult and often varies across customers, standardized approaches would help customers better understand the added value of microgrids. Such appraisals should look beyond the customer-specific benefits and instead include a framework for valuing the potential resilience benefits provided to the community and power grid during disruptive events. These broader resilience benefits need to be considered within the creation of tariffs, valuation of rates, and/or additional incentives to ensure they are tied to the common good of resilience and make it economically feasible for projects to provide such societal benefits. Similarly, a holistic valuation of microgrids also should include other benefits provided to the load-serving entity, such as through additional load management, resource adequacy, and grid services. 

The updates needed are nuanced. The CPUC will need to ensure safety and reliability while also fostering creative solutions to enhancing community resilience. While any regulatory process needs to be thoughtful and intentional, this should not limit California to incremental, narrowly applied updates when it is clear wholesale reform is needed to prepare our energy system for future disruptions.

Stephen Gunther

Distributed Energy Resources Policy Manager

Stephen engages at the regulatory and legislative level to inform policy on energy efficiency, demand response, building decarbonization, building codes and standards, and other demand-side programs. He serves as the subject matter expert on policy areas related to DER and supports the programs…

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