Expanding the Energy Imbalance Market Is the Right Way to Regionalize California’s Grid
Clean Coalition’s Doug Karpa and Craig Lewis argue that combining regional integration with a system of DSOs is a lower-risk approach to save ratepayers money and integrate renewables.
To meet its ambitious renewable energy goals, California needs to make its energy system more flexible.
In a previous article, we touched on how this can be accomplished through a combination of regional markets and smart management of our distribution grids. The key question is how to strike the right balance of regional integration with distribution management, while maintaining the state’s control and supporting renewable energy.
That right way is to:
Fix the massive market distortion that exists around transmission cost allocation in Participating Transmission Owner utility service territories in California
Expand the existing, proven approach of our Energy Imbalance Market to additional energy import and export products
Develop a system of distribution system operators (DSOs) to reduce needs for imports and exports
The combination of an expanded Energy Imbalance Market and distribution system operators is a lower-risk approach than jumping into a fully integrated regional transmission organization — which could give greater influence over our energy markets to interests that may be unfriendly to California’s renewable energy goals — and driving increasing costs by over-expanding interstate transmission infrastructure.
Addressing market distortions and expanding the Energy Imbalance Market
The first step in getting the system right is to address transmission cost allocation. We must fix the serious market distortions in California’s energy markets stemming from the Transmission Access Charge that promote excessive transmission spending, before making the problem even more intractable by spreading it across an entire region. California has already seen the difficulties of reining in out-of-control transmission costs for even a forward-thinking agency such as the California Independent System Operator (CAISO), and this would get worse with a larger, less accountable organization.
Despite transmission costs that will likely surpass generation costs within a decade, CAISO has struggled to remove the distortions that penalize those load-serving entities and utility distribution companies that mitigate their impacts on the transmission system with distributed energy resources. If a renewables-supportive CAISO is slow to develop a market-neutral Transmission Access Charge to unleash local renewables, imagine the challenges California ratepayers would face with a regional transmission organization (RTO) spanning states with far less advanced distribution energy sectors.
Second, our existing regional markets should be expanded to provide the regional integration that is likely needed to integrate renewable energy and provide wider opportunities for California’s renewable energy. Recent analyses confirm that an expanded Energy Imbalance Market and sophisticated distribution management together can achieve the flexibility California needs. For example, a 2015 study by the Union of Concerned Scientists suggests that 9 gigawatts of non-generation flexibility from all sources will be enough to eliminate the need for curtailment of solar resources. Similarly, a 2016 study by CAISO demonstrates that alternative approaches, such as expanding the existing Energy Imbalance Market (EIM) or deploying significant energy storage, will provide comparable benefits to an RTO.
An expanded EIM, coupled with more effective management of the distribution system, will achieve most of the benefits of an RTO, with real flexibility of generation, dispatch and load to integrate renewable energy, as we emphasized previously. In that role, the EIM has already been highly successful in addressing short-term energy imbalances, and the addition of day-ahead and other products can provide the bulk of the potential benefits from regional integration, while opening wider markets to California’s renewable energy.
The EIM has been proven to work. In 2017, the EIM provided a small but critical fraction of the state’s overall imports and exports, generating over $30 million in savings, more efficient use of solar energy, and substantial greenhouse gas emission reductions. Expanded day-ahead, longer-term, ancillary services, and other products will allow cost-effective trading with out-of-state resources. By removing barriers to participation, the region’s balancing area authorities can coordinate to facilitate renewable energy integration across western North America. CAISO’s own sensitivity analyses suggest this approach will save as much as a fully integrated RTO-managed market.
On the flip side, this approach will also reduce the risks of renewables-unfriendly market rules and much higher transmission costs.
The risks of an integrated RTO and the benefits of distribution system operators
There are several downsides to developing an integrated regional transmission organization.
First, an RTO would necessarily dilute California’s influence over its own electricity system, potentially opening the door for market rules that would subtly disfavor cost-effective renewables. Although the California legislature can attempt to establish commonsense standards at the launch of an RTO, any RTO board can amend its own bylaws to abolish those standards — with California’s ability to leave the RTO at a later date remaining an unsettled legal question.