Grid Regionalization: a Boon or a Boondoggle for California? New Report Illuminates Key Issues as Legislature Considers State’s Energy Future
Nonpartisan think tank Next 10 launches first in series of reports
on issues facing California’s grid
As the California legislature debates the state’s energy future, a new
study takes a fresh look at the pros and cons of creating a Western
regional grid, and illuminates the complexities that have helped stall
bills addressing the issue over the past three years. Grid
regionalization could change how and where renewables are built, bought
and sold, with ramifications for energy markets in California and across
the West.
“Regionalization raises a lot of issues, and we hope policymakers and
other Californians who have questions about it can find answers in our
new report,” said F. Noel Perry, businessman and founder of Next 10. “A
carefully crafted regional transmission organization could be a
game-changer for clean energy in the West. But as always, the devil is
in the details.”
The new report, A Regional Power Market for the West: Risks
and Benefits, lays out arguments for and against expanding the
western electricity market through the formation of a regional
independent system operator (ISO). ISOs act as air traffic controllers
for electricity, independently coordinating the planning and
distribution of energy in a given area. Regional ISOs are common in most
of the U.S., but in the West, the region is divided into a patchwork of
individual operators, including the California Independent System
Operator (CAISO). Pending legislation would set the rules for how
California utilities could join a regional market.
Supporters of regionalization — including Gov. Brown, CAISO, and many
clean energy industry associations and environmental groups — say
setting up a vast regional market would accelerate the scale-up of clean
energy while reducing operating costs, enabling California to meet its
climate goals even as energy bills come down. Detractors, including
labor and consumer groups, say that a Western RTO could reduce the
state’s control over clean energy and climate policies and shift
construction jobs to other states.
After evaluating arguments on either side of the expanded Western RTO
issue, the report offers takeaways on key topics of concern, including:
-
Jobs — A Western RTO could result in some renewable energy
construction jobs moving from California to other states, but it would
likely create a much larger number of California jobs overall. That’s
because increasing renewable generation across the region would lower
electricity prices for all Californians, lowering costs for businesses
and broadly encouraging job growth.
-
Governance — While opponents worry that a regional transmission
organization would force state policymakers to give up control, the
state’s existing independent system operator, CAISO, is already
independent of state control. All RTOs, including CAISO, are subject
to FERC regulations and federal law. RTOs have limited ability to
affect state policy decisions, and their actions are subject to FERC
oversight. FERC, meanwhile, is subject to oversight by the courts.
-
Policy — Because most court challenges to state policies happen
under interstate commerce rules, a change to a Western RTO would not
substantially change the threats to California’s pioneering climate
and clean energy policies. As for FERC, their primary mandate is to
provide “just and reasonable” rates through fair competition. As long
as California clean energy policies don’t interfere with competition –
and they generally haven’t so far – joining a Western RTO would not
subject the state to additional risk from FERC.
-
Integrating renewables — There are many ways to integrate
renewables into the grid, including distributed energy resources,
whose costs are falling rapidly. But bulk solutions — such as
transmission lines and regional markets — remain the lowest cost
option.
-
Coal — Despite concerns about the Trump administration’s
support for propping up the coal industry, coal generation is in
decline nationwide due in large part to being subject to competition
with more affordable natural gas power, renewables, and energy
efficiency. A Western RTO with truly competitive market rules would
likely increase pressure on aging Western coal plants. However,
policymakers must be sure to avoid market rules that allow old coal
plants to survive, such as capacity payments.
“It’s a complicated conversation, and advocates on both sides want to
simplify it to make their points,” said Bentham Paulos, independent
energy analyst and founding principal of PaulosAnalysis, who produced
the report for Next 10. “But this can introduce a lot of
misunderstandings of what regional markets are and are not.”
“The debate about a Western regional market has been going on for
decades,” said Paulos. “But it seems more timely now. CAISO’s energy
imbalance market (EIM) has helped increase trust and cooperation among
states and utilities. And the advent of cheap wind and solar power in
all Western states has helped create a shared vision of the future:
coal’s time is limited, and a low-carbon future doesn’t look very
expensive any more. A bigger regional market is a good way to integrate
renewables for all Western states. But it will require collaboration, as
well as ongoing work.”
A Grid Primer
Next 10 is releasing its regionalization report along with Transforming
the Grid: An Introduction to California’s Electric System in the 21st
Century, which explains how the state’s power system and grid work,
lays out environmental and social issues, and provides visions of the
future as the grid evolves in concert with economic and environmental
trends. The two reports kick off a series of five briefs examining
California’s electric grid at a pivotal time in its history.
“As California strives to slash its greenhouse gas emissions by
switching to clean, renewable energy, the state’s power system faces an
era of rapid change,” Next 10’s Perry said. “We hope Transforming the
Grid and the other papers in this series will help Californians
— especially policymakers — to understand fully the issues involved, so
they can make informed decisions that position our state for clean
energy success.”
About Next 10
Next 10 (next10.org)
is an independent, nonpartisan organization that educates, engages and
empowers Californians to improve the state’s future. With a focus on the
intersection of the economy, the environment, and quality of life, Next
10 employs research from leading experts on complex state issues and
creates a portfolio of nonpartisan educational materials to foster a
deeper understanding of the critical issues affecting our state.
About PaulosAnalysis
PaulosAnalysis (PaulosAnalysis.com)
provides energy policy, communications, and consulting services to clean
energy businesses, nonprofits, foundations, research and consulting
firms, trade associations, and media. Recent clients include the Clean
Energy States Alliance, the Illinois Power Agency, and the Electricity
Markets & Policy Group at Lawrence Berkeley National Lab.
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