by Jeff St. John
March 27, 2020

California regulators this week approved a key part of the state’s plan to meet its electricity sector greenhouse-gas reduction targets. The decision illustrates just how hard it is to accurately plan today for outcomes a decade out — and just how much uncertainty remains in the methods used to get there.  

On Thursday, the California Public Utilities Commission (CPUC) approved a decision in its integrated resource plan (IRP) that will ask its investor-owned utilities and community-choice aggregators to develop not one, but two, plans for meeting the state’s mandate to reduce carbon dioxide emissions to 40 percent below 1990 levels by 2030. 

One set of plans will use a target of cutting CO2 emissions to 46 million metric tons (MMT) by 2030, the original target proposed by CPUC staff. That’s meant to bring the power sector into compliance with 2015 state law SB 350, which created the IRP, and 2018’s SB 100, which calls for 60 percent renewable energy by 2030 and 100 percent carbon-free energy by 2045, without adding unnecessary costs or threatening grid reliability. 

But the utilities will also need to develop a second set of plans using a more aggressive target of cutting emissions to 38 MMT by 2030. That goal was added in a last-minute revision from the CPUC, which is under fire for what clean-energy industry groups, environmental advocates and even Southern California Edison, the state’s second-largest utility, say are fundamental flaws in how it has modeled the real-world effects of its long-range resource plans.  

According to a letter from clean energy and environmental groups sent to California Gov. Gavin Newsom this week, the original 46 MMT target could leave the state with higher carbon emissions in 2030 than it has today.

They say the original target wouldn’t drive enough investment into zero-carbon alternatives — largely solar power and large-scale battery energy storage — to make up for the loss of zero-carbon energy to come from the closure of the state’s last operating nuclear reactor, Diablo Canyon, by 2025, or to allow for less reliance on the state’s remaining natural-gas-fired power plants, as the following graph from advocacy group Vote Solar indicates. 

Challenges in balancing reliability, cost and carbon commitments

The letter’s signatories have asked for an even more stringent target of just 30 MMT of emissions by 2030 to “ensure California proceeds with timely and sustained procurement decisions now,” rather than further down the road. 

The CPUC didn’t include that 30 MMT target as an option in its Thursday decision, however. Instead, it points to its chosen options as the best way to balance “GHG reductions with reliability and affordability.” 

California's plans to close natural-gas-fired power plants along the coast by year’s end could leave the state without enough “essential reliability services” to prevent grid disruptions from happening. That threat led the CPUC to order utilities and community-choice aggregators to procure 3,300 megawatts of replacement resources by 2023. 

But the uncertainty over grid reliability only increases in future years. In fact, state grid operator CAISO has warned that it is “deeply concerned” that the CPUC’s modeling doesn’t provide enough certainty that the state will have sufficient reliability resources after Diablo Canyon closes. CAISO has asked regulators to issue another set of capacity procurement orders for the 2023-2026 period to fill any reliability gap.  

In terms of cost, the CPUC estimates that its less-aggressive 46 MMT target comes with a revenue requirement of about $45.7 billion per year for the state’s load-serving entities, and thus, the state’s electricity customers. The more-aggressive 38 MMT target would add $1.1 billion per year to that cost, the CPUC estimates, and the 30 MMT target an additional $2.4 billion per year. 

In the view of clean-energy groups, it’s not worth the risk of missing the state’s legal carbon-reduction targets to avoid the possibility of an additional 2.8 percent in annual costs, which is the extra cost for reaching the 30 MMT target. That’s particularly true if choosing a target that allows for an excess of emissions leads to a “future of expensive and ill‐planned ‘catch‐up’ decisions, the consequences of which would inevitably fall on ratepayers,” they wrote to the governor.

Thursday’s CPUC decision attempts to strike a middle ground, by requiring each utility and community-choice aggregator to make the two separate plans, to be submitted by September, and then analyze them to decide which target to adopt, expected by the end of 2020.  

That’s not ideal in the eyes of the clean-energy advocates calling for the more stringent 30 MMT target, but compared to sticking with the 46 MMT target, “it’s a tentative step forward,” Ed Smeloff, managing director of advocacy group Vote Solar’s regulatory team, said in an interview this week. Even so, he added, “It’s still a work in progress.” 

"Ground-truthing" GHG targets and the solar-storage resource mix

That’s because, according to multiple stakeholders, the CPUC’s methods of modeling the state’s future resource needs are rife with problematic assumptions and undermined by a lack of specificity about just where these future resources will be.

That’s a big problem for state grid operator CAISO, which has already told the CPUC that it has “extreme doubt” about using the mix of resources that emerge from CPUC's modeling because the impact of the anticipated resource portfolio on the grid could be too unpredictable.

The biggest issue for environmental groups is that CPUC’s models for predicting total greenhouse gas emissions from future resources have been shown to undercount real-world emissions. For example, while state grid operator CAISO reported 2019 emissions of 51 MMT, the CPUC’s modeling of that same resource mix yielded an emission profile of only 43.1 MMT, a difference of 7.9 MMT. 

Opponents of the CPUC’s original plan point out that, if the same discrepancies remain in its future modeling, its 46 MMT target could well yield a statewide portfolio that exceeds the 30 to 53 MMT targets set by the California Air Resources Board, the legal authority for setting 2030 carbon emissions goals under SB 350. 

“Consider 53 million metric tons to be the absolute upper limit of what the electric sector can be emitting in 2030,” Katherine Ramsey, staff attorney with the Sierra Club, said in an interview this week. The CPUC’s decision to include a 38 MMT target along with the 46 MMT target indicates that “the commission is trying to address that discrepancy” between its models and real-world results. 

“But we still think there are issues...that are not massaged away by the revisions here,” she said. The Sierra Club intends to advocate for more “ground-truthing” — that is, more testing of the CPUC’s modeling against real-world data — in the next steps of the IRP.

Solar and energy storage advocates are pushing for more ground-truthing on another problematic aspect of the CPUC’s modeling, Vote Solar’s Smeloff said: the lack of a "hybrid solar-plus-storage" category of resource. 

The CPUC's models, Smeloff said, rely on assumptions about the costs of different technologies, in order to predict how much of each resource can be expected to serve the state’s needs in the years ahead.

To be clear, the CPUC’s current 46 MMT target is still expected to yield nearly 25,000 megawatts of new renewable energy and storage resources by 2030, including 8,900 megawatts of new battery storage, as this chart indicates. 

But in presuming that solar power and battery storage will be deployed separately, the CPUC’s current method fails to capture the lower costs associated with linking batteries with solar systems receiving the federal Investment Tax Credit as well as the lower costs that come with pairing both resources behind single grid interconnection points, reduced permitting and construction costs and similar efficiencies, Smeloff said. 

Much of the utility-scale solar now being planned in California is being paired with energy storage, and solar-storage systems are likely to make up a significant portion of the 3,300 megawatts of capacity procurement the CPUC ordered last year.

"We're going to see this increase in solar-storage systems," Smeloff said, and the CPUC will "have to correct the model" to account for it.