Distributed Energy Resources in Urban Load Centers

Switchgear that isolates the neighborhood, as shown in Figure 1, is added to the distribution substation. Some battery storage is also added at the substation to keep the substation energized after it is isolated from the grid. Rooftop solar and battery storage located at individual homes and businesses can then feed other loads on the isolated, or “islanded,” neighborhood grid – also known as a neighborhood microgrid – to provide power to all customers on the microgrid.

Microgrids and VPPs maximize the potential of DERs to enhance grid reliability and provide revenue to the battery owners. However, the IOUs and the California Public Utilities Commission (CPUC) have been slow to advance microgrids and VPPs. A limited number of microgrids have been developed by the IOUs at the direction of the CPUC.

Pilot neighborhood-based microgrid projects have been funded by The California Energy Commission (CEC) – Oakland  EcoBlock,  Lancaster Advanced Energy Community VPP, and Port of Long Beach. The final report for the Oakland EcoBlock noted it was “a transformative model for accelerating the rapid deployment of advanced energy communities.” ⁷ But these projects are facing challenges in their implementation, and advocates are calling for policy changes such as creating “Community Microgrid Operator” (CMO) designations that are exempted from Public Utility Code Rule 218 (defines what is an electrical corporation) and requiring IOUs to cooperate in making connections to the main distribution grids they operate. ⁸

There are legitimate issues regarding: 1) needed infrastructure improvements to accommodate VPP and microgrid development, 2) interface with the larger distribution network, and 3) resource adequacy and assignment of “qualifying capacity” issues, some of which are the subject of CPUC proceedings. The Federal Energy Regulatory Commission (FERC) issued a rule last year to agencies like the California Independent Systems Operator (CAISO), the state’s non-profit that controls the operation of the California electrical grid system, to require them to revise tariffs to ensure that its market rules facilitate the participation of DER aggregations. ⁹

The main obstacle continues to be that IOUs see no financial upside to encouraging DER development. Without a financial structure that rewards utilities for promoting the development of DER projects, such as aggregations of apartments and multifamily homes, neighborhoods and local business districts into VPP and community-based microgrids, these projects will be difficult to realize at a meaningful scale.

 Traditional and Current Utility Models

How can and will traditional utility models – publicly owned and operated utilities (POUs), publicly-regulated for-profit investor owned utilities (IOUs), and the increasing number of community-choice aggregation (CCA) entities address the opportunities and options of a DER-based energy future?

POUs, like the Los Angeles Department of Water and Power, the Sacramento Municipal Utility District, and a variety of municipalities like the City of Anaheim, have traditionally prioritized low-cost power and high reliability. They have varying governance models, from including elected city councils, independently elected boards of directors, or and designated representatives. The POU commitment to expansion of DERs varies but it has generally not been a priority. Most POUs follow the same approach established by the IOUs when it comes to renewable energy, with predominant reliance on remote utility-scale solar and wind resources. Sacramento Municipal Utility District (SMUD) reported recently that they are locating “the largest combined solar and battery energy storage system in northern California” in their service territory.¹⁰

The three major California IOUs regulated by the CPUC dominate the energy landscape in California and have been resistant to the expansion of DERs. That resistance is due in large part to the current regulatory IOU financial model which rewards investments in “steel in the ground” infrastructure with a guaranteed rate of return on assets. IOUs want to promote the expansion of infrastructure that they will own and control. They see DER as competition and continue to set up barriers to its expansion.

California IOU resistance to rooftop solar with onsite battery storage is evidenced in the current CPUC net energy metered (NEM) solar proceedings. IOUs and their allies are working vigorously to undercut the value of NEM solar by imposing much higher fixed minimum charges and by substantially decreasing the value of NEM solar power exported to the grid.

This has been met with vigorous response from non-profit organizations like the Solar Rights Alliance, rooftop solar industry trade groups, solar homeowners, and other DER advocates. This pressure contributed to Governor Gavin Newsom calling for a reappraisal of the CPUC’s December 2021 proposed decision that heavily favored the IOUs and that would have devastated the residential rooftop solar market in California.

Over the past several years California’s three major IOUs have been required to coordinate with local jurisdictions that have created Community Choice Aggregation (CCA) entities. CCAs are enabled by State legislation and procure electricity supply for their customers while the IOUs continue to transmit and distribute the electricity supplied. CCAs seek to deliver higher renewables content electricity at parity or better pricing than the incumbent IOU.

The aspiration of many activists that fought to establish CCAs in their communities was that CCAs serve as an engine of DER development. For example, the City of San Diego Sustainable Energy Advisory Board recommended several principles for operation of a San Diego CCA in December 2015. They included the goal of “producing all CCA energy from renewables generated within and on developed land or land designated for urban development within the (CCA)…boundary.” “The ideal is that distributed generation, energy efficiency, and compatible storage are heavily promoted to push energy up out of the neighborhoods into the rest of the local grid …” This CCA ideal has not been realized anywhere in the state.

Operational CCAs have generally mimicked IOU renewable energy procurement policies, focusing on remote transmission dependent solar and wind projects and ignoring the inevitable transmission build-out that this policy implies. It remains to be seen whether the CCAs will adopt a more DER-focused development strategy or stay locked-in on the IOU “big and remote” renewable energy procurement approach.

Changing Utility Financial Incentives to Maximize the Advantages of DERs

Is there a regulatory framework that would enable the IOUs to embrace and promote DER-based VPPs and microgrids? Yes - Performance Based Ratemaking (PBR) for DERs. The Hawaii Public Utility Commission initiated PBR in 2021. It financially rewards Hawaii Electric Company, an IOU, for quickly connecting rooftop solar and battery storage systems to the local grid and for providing funding for energy efficiency upgrades. The traditional IOU cost of service regulatory model has been revised to reward the IOU for “exemplary performance” in fast-tracking interconnection of DERs and maximizing their potential grid reliability benefits. ¹¹

 

Energy Independence through Energy Interdependence

Whether the Hawaii PBR model is the best alternative to achieve a DER-centric grid is an open question, but the initial results are promising. Another alternative is replacing the IOU(s) with public power agencies or local energy cooperatives. The City of San Diego is conducting further studies of “community-owned utilities” as a potential alternative to the monopoly franchise granted to SDG&E.

One worthy proposal suggests a progressive implementation of community-based microgrids using municipal facilities and the facilities of other public and public-benefit chartered agencies (school districts, water districts, college campuses, …) as key microgrid nodes. Neighborhoods and business district infrastructure would be converted literally block-by-block into community-owned and controlled microgrids and VPPs.

Charter cities like San Diego, and municipalities with term-limited utility franchise agreements, have a greater ability to implement such a plan. The ability and willingness of CCAs to serve as developers of microgrids and DER solutions in conjunction with such a conversion strategy needs to be encouraged and strengthened.

Three examples of movement towards a DER strategy were reported recently by the Clean Coalition: 1) Peninsula Clean Energy CCA is proposing solar & storage projects on 15 public facilities owned by their member municipalities in San Mateo County and Los Banos; 2) City of Goleta has cleared the way for a solar & storage component of a microgrid to help eliminate dependence on a gas-fired generator and a large transmission line through an environmentally vulnerable area along the central California coast; and 3) Support for proposed East LA Solar Microgrids to be incorporated into a larger Community Microgrid. ¹²

 The real issue boils down to who owns and controls the generation, transmission, and distribution systems, who are they accountable to, how they are held accountable, what are the primary directives they operate under, and who sets those directives and enforces them.

We will need to inform our families, friends, neighbors, and greater communities about the full range of benefits of locally-based DERs in order to build the collective will to move beyond the current “big and remote” renewable energy status quo. DER advocates will need to be coordinating, cooperating, and communicating among each other in these advocacy efforts.

The strategic goal must be to shift from a primarily defensive role, fending off multiple ongoing regulatory and legislative attacks on DERs, to harnessing off-the-shelf tools, like PBR for IOUs, while developing the capacity and viability of CCAs and community-owned utilities to advance the DER approach. The future of Southwest deserts depends on it.