By Keith Casey
The California Independent Service Operator is a nonprofit, public benefit corporation chartered under the laws of the State of California for the purpose of ensuring efficient use and reliable operation of the electric transmission grid under its operational control. The California ISO operates wholesale energy and ancillary services markets to reliably manage the high-voltage transmission system that serves approximately 80 percent of California electric load.
Since start-up, we have almost 20 years of operating experience and have evolved our markets since the Western energy crisis occurred 17 years ago. Without question, the crisis shook public confidence in the integrity and value of an organized market in California and cost ratepayers billions of dollars.
The experience triggered significant market design and regulatory rule changes. The crisis also triggered much stronger rules and enforcement against market power and manipulation enabled largely through the Energy Policy Act of 2005.
Over the many years that have passed since the crisis, we have continually evolved our market design to ensure we can efficiently balance supply and demand and meet the changing needs of the system. Consequently, the California’s ISO’s electricity markets have matured significantly, and are in far better shape now than they were then to serve electric demand in an efficient and reliable manner. Indeed, our success has encouraged other transmission providers in the West to join our real-time energy market and form the Western Energy Imbalance Market. That market currently serves five entities comprising approximately eight western states and half the electric load in the Western Interconnection, and seven additional entities are planning to join the Western Energy Imbalance Market over the next three years.
Since its inception in 2014, the Western Energy Imbalance market has created significant benefits, both by allowing economic transfers of energy among participating entities and by enabling greater integration of renewable resources by using a larger geographic footprint to balance oversupply conditions. The California ISO’s work to help foster the Western Energy Imbalance Market has also resulted in greater situational awareness of grid reliability and greater ability to respond to major contingencies.
In recent years, California environmental energy policies are dramatically transforming the resource portfolio that serves electric load. California’s renewable portfolio standard, greenhouse gas emission reduction goals, policies concerning the use of ocean and estuary water for power plant cooling, as well as distributed energy resource and rooftop solar goals have all contributed to a dramatic shift away from conventional power plants and to the deployment of new technologies such as battery storage and demand response.
Today, renewables comprise about 30 percent of total energy produced in our markets and are on track to meet 50% by 2030 – if not sooner. The dramatic growth in renewables has improved fuel diversity by reducing our reliance on natural gas plants from 40% in 2015 to 32% in 2016.
This transition -- from large central station power model to a more diverse and decentralized system – has created a new value proposition for the California ISO. Our centralized energy markets can successfully integrate and manage a diverse fleet of grid resources. The market efficiently commits and dispatches all types of resources (including gas-fired generation, demand response, as well as renewable resources to balance the system and maintain reliability.
In addition to operating the wholesale market, the California ISO has provided and continues to provide significant value to its market participants as the transformation of the electric grid occurs. We have developed a process a transparent and effective process for interconnecting new resources to the transmission system.
The California ISO has used these processes to approve over $7 billion of transmission infrastructure to help facilitate the development of a large increase in renewable resources in its planning area while maintaining electric grid reliability.
Since 2011, the California ISO’s transmission planning process has included criteria to approve new transmission to support federal and state policies. This feature was reinforced by the final rule of the Federal Energy Regulatory Commission involving regional transmission planning and cost allocation, known as Order No. 1000.
Order No. 1000 included requirements to allow for competition for building new transmission. As such, the California ISO has awarded four projects to independent transmission developers, two projects to incumbent utility participating transmission owners, two projects to collaborations between incumbent utility participating transmission owners and independents, and one project to a public power entity that was not an existing participating transmission owner.
Notwithstanding the success of the California ISO’s markets and infrastructure development processes, there remain significant challenges to enable the transformation of the electric grid.
Two significant challenges are 1) to maintain resources needed for essential reliability services during the transformation of the electric grid and 2) to ensure the infrastructure needed to access a more diverse set of resources across the West to satisfy state renewable portfolio standards.
Reliably integrating high levels of renewables into the power system represents a significant challenge. Not only must the ISO focus on meeting peak load, but it now must also ensure sufficient ramping capability, both upwards and downwards, is available over relatively short periods to meet the sudden swings associated with variable energy resources. To this end, the California ISO has focused on resource adequacy enhancements to ensure that sufficient flexible resources are procured and offered into its market.
In addition, the California ISO still needs essential reliability services such as voltage support and frequency response to support a reliable electricity grid. The California ISO must ensure it has adequate dispatchable resources to provide these essential reliability services. For the near future, the California ISO expects these resources will primarily be natural gas-fired generation.
We have another significant challenge: how to tap into the benefits of an expanded western region. To date, the majority of California’s renewable resources are located within the state – and the vast majority of new projects going forward are solar photovoltaic resources located in the California ISO’s system. Relying too heavily on these resources will exacerbate renewable integration challenges because the California ISO must balance demand with supply in real-time.
When the California ISO system has too much supply during peak solar hours and cannot export its excess to other entities through the Western Energy Imbalance Market it has to curtail renewable energy. As California looks to achieve a 50 percent renewable portfolio standard and beyond, it could take advantage of the opportunity to tap into other high quality renewable resources in the West, such as wind in Wyoming and New Mexico or solar in Arizona and Nevada.
The benefits of an organized market in the California and other western states have included both economic savings and help in meeting ambitious clean energy goals. Going forward, we continue to look for opportunities to enhance our markets and services and to work with policymakers and all stakeholders to overcome the challenges and further realize the benefits.
Keith Casey is Vice President of Marketing and Infrastructure Development at the California Independent System Operator Corporation. His remarks are excerpted from recent testimony before the U.S. House of Representatives subcommittee on energy.