California is currently grappling with significant challenges as policymakers strive to address the rising costs associated with expanding the state’s power grid. This grid expansion is essential in the state’s efforts to mitigate climate change. The state recently concluded its legislative session without passing key bills aimed at curbing escalating electricity rates for major utility customers. Meanwhile, the potential of customer-owned clean energy technologies, such as battery-backed rooftop solar systems and electric vehicles, remains underutilized. While these technologies could play a pivotal role in balancing grid power, existing policies have not fully embraced their potential despite their economic advantages.
California has witnessed fluctuating support for distributed energy resources (DERs) over the years. Earlier initiatives saw significant state support, resulting in California’s leadership in rooftop solar and home batteries. However, recent legislative sessions have failed to advance bills that could boost DER integration. With legislation like SB 1305, aiming to set utility targets for virtual power plants (VPPs), stalling, the state’s distributed energy prospects remain uncertain. This contrasts with previous periods when state policies successfully drove distributed energy deployment, underscoring a need for renewed legislative focus.
The economic benefits of utilizing VPPs and other customer-owned technologies have been highlighted in various studies. An April report by the Brattle Group projected significant savings if virtual power plants could supply over 15 percent of California’s peak grid demand by 2035. Utilizing DERs to manage grid demand peaks could result in consumer savings of around $550 million annually. Despite these potential benefits, current policy frameworks do not sufficiently incentivize utilities to adopt VPPs, as utilities profit more from capital investments in grid infrastructure than from DERs.
The Legislative Challenges
Efforts to pass bills promoting VPPs and DERs have faced setbacks. Proposed legislation aimed at creating procurement targets for VPPs and expanding their market value failed to clear key committees. This legislative stagnation occurs against a backdrop of increasing grid demand and rising costs of centralized infrastructure. Without strong policy support, utilities may continue to rely on more expensive traditional grid investments rather than integrating DERs.
Interconnected Issues of Grid Investment and DERs
As California encourages the adoption of electric vehicles and heat pumps to meet climate goals, grid demand is expected to increase. However, rising electricity rates threaten the viability of these technologies. Policies aimed at stabilizing electricity costs by shifting fixed and variable rates have done little to address core issues. Programs that utilize DERs to alleviate grid stress present clear value but require comprehensive policy support to realize their potential. The challenge lies in balancing new investments with leveraging existing customer-owned resources to optimize grid investments and manage costs effectively.
The complexity of integrating distributed energy resources into California’s power grid is evident. While DERs present a promising solution to rising electricity rates and grid demand, legislative and policy hurdles persist. Addressing these challenges requires a strategic approach that balances the adoption of new technologies with judicious grid investments. By effectively leveraging DERs, California could achieve substantial economic savings while advancing its climate goals. To realize these benefits, both policymakers and utilities need to align incentives and policies to support distributed energy integration fully.
