California governor floats 5-GW, $5.2B ‘reliability reserve’ amid possible electricity shortfalls

Source: By Kavya Balaraman, Utility Dive • Posted: Tuesday, May 17, 2022

Dive Brief:

  • California Gov. Gavin Newsom, D, has earmarked $5.2 billion in a revised budget proposal released Friday to fund a “strategic electricity reliability reserve” – an up to 5,000 MW resource that the state can tap into when the grid is particularly stressed.
  • In total, the revised budget includes $8 billion over five years to boost the state’s energy system reliability and help customers with increasing electricity rates. 
  • The proposed reserve will better prepare California for extreme climate-related events, “but will not take the place of the longstanding obligations of all load serving entities to procure sufficient resources to maintain reliability,” according to the revised budget.

Dive Insight:

The $8 billion allocated to the energy system in Newsom’s May budget revision comes on top of $2 billion in the original budget allocated to support clean energy technologies and deployment. In remarks made while unveiling his proposal on Friday, Newsom noted that a combination of reduced energy production due to drought, increased demand due to heat and decreased electricity availability due to wildfires are creating stresses for the grid. 

“We also need to be mindful we need to accelerate projects, particularly because we have been changing our modeling and we are now recognizing some new factors and challenges,” Newsom said. 

These include the U.S. Department of Commerce’s anti-dumping circumvention investigation into solar cells from certain Southeast Asian countries, which are now impacting the availability of solar materials in California, as well as COVID-19 related supply chain constraints that are changing the timelines for procurement, he added. 

To cope with this, Newsom is requesting that the state legislature create a strategic electricity reliability reserve, which he referred to as “a fancy way of saying putting together 5,000 MW that’s available at a moment’s notice.” The reserve could include “existing generation capacity that was scheduled to retire,” as well as new storage projects and diesel and natural gas back-up generation, according to the revised budget. 

Last June, the California Public Utilities Commission ordered the state’s power providers to collectively procure 11.5 GW of clean energy resources that could come online during the middle of the decade, in a bid to replace the 2.2 GW Diablo Canyon nuclear plant as well as 3.7 GW of natural gas plants that are slated to retire in the coming years. 

However, in a briefing last week, California energy officials said the state is facing the prospect of electricity shortfalls, particularly around the “net peak period” – roughly around 8 pm, when electricity demand is still high but solar production is starting to ramp down. 

After taking into consideration the CPUC’s preferred system plan – a look at the expected resources that will be needed over the next 10 years to meet demand – as well as forecasted demand and authorized procurement, “what we see now is that we are still falling a bit short, about 1,800 MW short” of reliability metrics in 2025 during that net peak period, Mark Rothleder, senior vice president and chief operating officer of the California Independent System Operator said at the briefing. 

Now that Newsom has put out his updated budget proposal, lawmakers will be tasked with hashing out the details, said Emilie Olson, Advanced Energy Economy’s California policy lead. 

Earmarking funding for reliability makes a lot of sense given the strain that California’s power grid has experienced from heatwaves and wildfires, Olson added. That being said, more details remain to be seen about which projects and technologies this funding could go toward.

“From our perspective, the details really are going to matter,” Olson said, adding that as the legislature hashes out the details of how reliability-focused investments could be spent, it’s important that the emphasis is on the best available clean technologies today, rather than uneconomic power plants.