Can the California grid handle a gas phaseout?

Source: By Jason Plautz, E&E News • Posted: Wednesday, December 21, 2022

Workers install solar panels on the roof of a home in San Francisco in 2018.

Workers install solar panels on the roof of a home in San Francisco in 2018. Justin Sullivan/Getty Images

As California focuses on electrifying residential and commercial buildings as part of its goal of becoming a zero-carbon economy by 2045, the state is facing questions about its ability to handle rising electricity demand.

An updated building code taking effect on Jan. 1, along with a variety of new incentives, will move the state’s homes and businesses away from gas-fired appliances in favor of electric stoves, heat pumps and water heaters. It’s a way to address a sector accounting for roughly 25 percent of the state’s greenhouse gas emissions, even as the flood of new appliances could add stress to the state’s already taxed electric grid.

At the same time, a controversial new rule passed last week will slash incentives offered to homeowners who install rooftop solar systems, leading to concerns that California could lose out on new solar at a time when the grid needs it most.

State officials, however, say, that policies seemingly working against each other are, in fact, meant to usher in a unified clean energy future for the state. In a statement, commissioner Clifford Rechtschaffen said the solar policy “strikes the right balance between many competing priorities and advances our overarching goals of ensuring California meets its climate and clean energy goals equitably.”

Here are five questions answered about where California’s policies to phase out gas are headed next:

How does California want to use buildings to meet its clean energy goals?

A new scoping plan approved by the California Air Resources Board (CARB) last week laid out a nation-leading pathway for the state to become zero-carbon by 2045 and cut greenhouse gas emissions 85 percent by 2045, compared to 1990 levels (Energywire, Dec. 16).

Notably, that plan has no regulatory authority, but it lays a groundwork for other agencies to pass rules and identifies opportunities to cut emissions from buildings alongside transportation and power generation. It says that homes should be made all electric, with 80 percent of appliance sales being only electric by 2030. All appliance sales would be electric in 2035 under the plan.

That’s in line with other moves the state has made. New building codes set to take effect Jan. 1 will require new buildings to be “all-electric ready,” so electric stoves, water heaters, space heaters and other appliances can be installed without upgrades. It also sets heat pumps as the performance standard baseline for water and space heating in single family homes and for space heating in multifamily homes, while encouraging builders to adopt all-electric designs. Homes with solar panels will also be required to have storage.

On top of that, a September decision from CPUC eliminates natural gas line subsidies for new natural gas hookups, effective July 1, 2023. That, the commission said, would encourage electrifying by removing incentives for gas use in buildings.

What does that mean for the grid?

Those measures are intended to get rid of natural gas in homes and businesses, while also encouraging them to use more efficient appliances that could reduce a household’s electricity use.

But they also come with a clear side effect, said Duncan Callaway, an associate professor of energy and resources at the University of California, Berkeley: the potential for higher electricity demand.

“Clearly the basic mechanics are not disputable. We can decarbonize by switching fuels to electricity,” Callaway said. “But the tremendous uncertainty comes around the grid impacts and that’s something we have to grapple with.”

In a June study, Callaway and other researchers projected the grid effects of electrifying certain heaters and transitioning to electric vehicles. The state has a mandate to sell 100 percent zero-emission vehicles by 2035.

In a scenario where more than 50 percent of buildings are electrified by 2050, the study estimated that Pacific Gas and Electric Co. would need to upgrade more than two-thirds of its circuit feeders that distribute electricity locally to accommodate a higher load. An added challenge for grid reliability, Callaway said, is the fact that heaters and electric vehicle chargers largely run in the evenings and at night — when demand is increasing already but renewable generation is low.

California’s electric grid is already showing signs of strain as a growing population increases demand and fossil fuel retirements shift the state’s generation mix. During a heat wave in September, the California Independent System Operator set a system record for peak demand and issued conservation calls for customers, but did not experience any blackouts.

The state’s scoping plan says the state should phase out existing natural gas-fired power plants and not build any new ones. Gov. Gavin Newsom (D) is working in the short term to shore up the power grid, with a request to keep the Diablo Canyon nuclear power plant online and establish a set of emergency reserve gas plants to prevent blackouts during heat waves. The state is adding utility-scale solar and wind power, but it remains an open question how much power and from what sources will be added as demand rises.

Why is the state cutting solar incentives that could boost the grid?

The effects of the electrification push could be lessened by having more homeowners produce their own power, which would by nature reduce the demand on the overall grid. But the new net metering rules passed last week seemed to make that prospect less likely.

California first instituted a net metering program in 1995, offering to pay new rooftop solar customers for the power they generated and returned to the grid. That program was successful in helping solar boom across the state, but critics — including the state’s investor-owned utilities — complained that net metering was compensating wealthy homeowners who could afford expensive panels at the expense of low-income customers.

The state also said that the incentives no longer served the purpose they were intended for, which was simply getting more solar panels on roofs. The net metering revisions approved last week, known as NEM 3.0, by the Public Utilities Commission (CPUC) will instead slash those repayments and move new solar customers starting in April 2023 to a rate system known as the net billing tariff that pays more when the grid is under stress. The proposal is designed to encourage the use of zero-emission power at the times of day when it’s needed most, but critics have decried it as a reduction in needed financial rewards for new solar customers.

Customers who install battery storage will get additional electricity bill credits and will be able to take better advantage of those rates and will see a shorter payback period for their investment (Energywire, Dec. 16).

“The decision harms electrification because a lot of people install solar as a way to make increased electricity consumption more affordable,” Bernadette Del Chiaro, executive director of the California Solar & Storage Association (CALSSA), told E&E News. “Make solar harder and it makes increasing your electrical consumption harder. “

Are batteries the answer?

The CPUC has defended the new solar program as a way to move away from compensating any solar investment to rewarding people for displacing dirty fossil fuel generation on the grid. Because of the state’s success in deploying solar and bringing other renewable resources on the grid, the state relies less on fossil fuel generation during the day. But when the sun goes down or during periods of extreme demand, the state must fire up natural gas plants.

As electrification accelerates, that problem could grow worse, said UC Berkeley’s Callaway.

“We’re electrifying things that primarily show up at night, like heating and electric vehicle charging,” he said. “So the benefits you can get from a solar resource in terms of offsetting circuit build-outs is relatively small.”

That could change, however, with battery storage that allows power generated from solar to be used in the evening.

Sam Calisch, head of special projects for the electrification group Rewiring America, said that while the overall net metering benefits may be lower after last week’s decision, it “incentivizes the responsible use of solar electricity” with batteries. Instead of exporting electricity during the day when the dynamic prices will be lowest, Calisch said, the incentive will be to store that power and either use it on electric appliances or export it later, when grid prices are higher.

In a statement, CPUC commissioner John Reynolds said the decision “will bring rooftop solar into a new and more sustainable age.”

“The future needs a solar program designed around the value of solar to the grid and one that encourages true carbon reductions at peak energy times, which is after the sun goes down, by creating better incentives for customers to pair solar with batteries,” Reynolds said. “The Net Billing Tariff will sustain solar and reduce costs to non-solar customers while driving a new era of storage adoption.”

However, that depends on customers being able to get storage. Although the price of home energy storage batteries has dropped and there are new federal incentives available, the price of a solar-plus-storage system remains out of hand for many consumers. In public comments on the plan, CALSSA warned that the cost curve for storage needs to drop significantly for the new net metering scheme to be effective.

Currently, less than 10 percent of the solar projects reported under the NEM program have storage, according to California data.

Notably, the rules also increase the allowable size of a rooftop solar system to cover 150 percent of a customer’s electricity usage. Currently customers can only get an oversize solar system if they attest that they will eventually use the excess energy and there is no standardized limit.

How much will solar decline, and will the climate law change that?

The solar industry has opposed lowering the net metering incentives because they say any reduction in benefits will make consumers less likely to install new panels at a time when the state should be encouraging them.

A projection from Wood Mackenzie and the Solar Energy Industries Association (SEIA) finds that the CPUC decision could cause residential solar to contract 39 percent in 2024, the first full year the changes are in effect. The groups also project the typical payback period for a new project — or the period when savings offset the up-front cost of solar panels — would be four years longer than under current policy.

In an email, Sean Gallagher, vice president of state and regulatory affairs for SEIA, said the decision is “intended to drive storage adoption” that can help fit in with building electrifications. However, with the expected drop in solar installations, “it will be critical for the state to focus on spurring storage adoption to ensure its net billing tariff is successful.”

SEIA had opposed the solar changes as written because of the expected drop in installations, saying before the vote that it would put “solar out of reach for millions of residents across the state.” Critics have also warned that the changes would hurt the state’s climate goals, especially with questions about grid reliability.

However, the Wood Mackenzie forecast notes that state incentives for community solar are expected to help offset some of the decrease by allowing larger projects to be built.

California’s investor-owned utilities had argued that the massive incentives passed as part of the federal Inflation Reduction Act could offer cover for the state to slash net metering (Energywire, Aug. 26) Under the law, 30 percent of the cost of installing solar will be covered under a 10-year extension, dropping to 26 percent in 2033 and 22 percent in 2034. Battery storage will also be eligible for a 30 percent tax credit.

Because of the uncertainties around how customers will fare under the new solar plan, experts say it’s unclear how much federal incentives will offset the changes, though. But Rewiring America’s Calisch said tax credits and other incentives in the climate law to electrify homes and add solar with storage should help make the idea of electrifying, installing solar and a battery as a combination more appealing. More electric devices, he said, can work in tandem to take advantage of the best times of day to charge and the most efficient time to export power.

“The more you electrify, the easier and cheaper it becomes to continue to electrify,” Calisch said. “The more electric load you have inside the house, the better a value proposition you can make rooftop solar even with new net metering in place. And there’s a lot of value proposition to be had.”