Successfully Managing the Growth of Renewables with Elliot Mainzer, CEO of CAISO
This is our last podcast of 2024! We will be back in the new year with a look back at 2024 and the energy themes we will be watching in 2025.
For the last podcast of the year, we welcome Elliot Mainzer, President & Chief Executive Officer, California Independent System Operator (CAISO).
California has integrated a large share of renewables into its electricity supply. As of 2023, almost 50% of California’s power generation came from renewables. Renewable power generation includes solar (19%), hydro (15%), wind (6%), geothermal (5%), and biomass (2%).
Jackie and Peter asked Elliot: What is your expectation for future renewables growth? What is the future of natural gas generation? Is transmission able to keep up with the addition of new power supply? Do you expect changes under the Trump administration could speed up the permitting for new transmission projects? Are you concerned about the pace of demand growth and what is driving the acceleration? Is it fair to say that high renewables penetration has caused California to have expensive power prices? Alberta is making market changes to address the growth of renewables; how did California address these issues with market design in a way that continued to create a compelling investment opportunity for renewables? How much electricity does California currently receive from Alberta and British Columbia?
Content referenced in this podcast:
- Statement from CanREA on concerns about punitive market and transmission changes in Alberta, including a link to a Direction Letter from Minister Nathan Neudorf (December 10, 2024)
- Opinion: Alberta needs solar and wind to meet demand by Vittoria Bellissimo and Evan Wilson, December 12, 2024
- 2023 Total System Electric Generation for California (California Energy Commission)
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Episode 265 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian :
And I’m Peter Tertzakian. Welcome back, this, Jackie, is our last podcast of the year. It’s been a tumultuous year and I think the tumult has really just begun.
Jackie Forrest:
Yeah, lots of breaking news today. We’re finding out that this fall economic statement, which we were expecting today at the day of recording, December 16th, which by the way was already very late. I’m not even sure why you can call it a fall update.
Peter Tertzakian :
That’s the winter economic statement.
Jackie Forrest:
December 16th.
Peter Tertzakian :
We’re at the solstice here almost in a week.
Jackie Forrest:
But we’re finding out Minister Freeland is no longer in the job so it’s a big question mark in terms of who will be actually delivering it, and I’m sure it’s going to bring a lot of changes that we can’t even predict right now. But I am betting an earlier election.
Peter Tertzakian :
Yeah, I think so. Late breaking news again, the NDP leader, Jagmeet Singh has called for the Prime Minister to resign or something. I don’t know. We’re just recording here and watching the news flow, so we’ll respond to that. But we’re going to take a couple of weeks off.
Jackie Forrest:
We are, and when we come back, we’re actually going to do something a little different. Normally our last podcast of the year is a look back on 2024, but because so much is still changing, we’re going to defer that until next year and will have the benefit of hearing everybody else’s, so we’ll do that in the start of the year and we’ll also do our 2025 themes that we’re watching for, which might be a pretty long list.
Peter Tertzakian :
And we’ve got an amazing guest today, so stay tuned here for a couple more minutes. But it’s not only our own internal political turmoil, there’s all sorts of turmoil with the 25% tariff discussion that’s going on back and forth.
Jackie Forrest:
Yeah. And we had the comments last week from Premier Ford that maybe just cut the electricity if they charged the tariffs on us, which actually when you stand there, it’s like, well, we need some negotiation leverage. So I can get that stance. However, when you start to think it through, there’s a lot of room for tit-for-tat here. One just general comment is throughout this country, whether it be electricity, natural gas or oil, we are completely integrated. We have lines crossing the border, some importing, some exporting, these very vital commodities. And that was all done because energy was the most efficient, most economic thing to do. But going forward, if we have threats like this, even the mere threat, it can change how new investments happen or new regulations and it may result in more high cost energy for people on both sides of the border.
Peter Tertzakian :
Well, I think that’s already happened here. The investor stasis and given the events of the political landscape here, just as in real time as we discussed, that’s going to have to get sorted out. We need an election, we need to resolve these things and move on forward with a much greater sense of clarity on who’s running the show and a united front across this country.
Jackie Forrest:
Yeah, I totally agree, Peter. Hopefully all these events that are unfolding right now will give us that clarity and get us on a good foot going forward to negotiate with the Americans.
Peter Tertzakian :
All right, well let’s move on. We’re approaching the winter solstice here in a few days. It’s dark and cold, especially where we are here in the northern latitudes of Canada and Calgary in particular. That means the need for electrical lighting is at its peak. Heating is mostly done around here with natural gas, but furnaces and boilers need electricity to run to the pumps and the motors. So we need to talk about electricity again, especially because our electricity systems here in Alberta are undergoing or redesign. Right, Jackie?
Jackie Forrest:
Right. And we had Vittoria Bellissimo come on from CanREA a couple of weeks ago. I did want to let you know there’s been a new twist in what she had to say. There’ve been some changes that have been announced in the last week. I will put a link to that in the show notes, but she’s been quite vocal over the last week. She’s been in the media. She wrote an op-ed about the new concerns she has about the proposed changes and how they may really hurt the economics of existing projects as well as new investments. So we want to put that in, but we’re very excited today because we also want to learn about how other jurisdictions are tackling growing renewables and how they’re able to allow renewables to grow and still keep reliable electricity.
Peter Tertzakian :
Yeah. So what better place to go than a place that has a high level of renewables, has thought about this a lot? Well, I won’t keep you in suspense. That place is California and so we are delighted to have as a special guest, Elliot Mainzer, who’s the President and CEO of the California Independent System Operator, otherwise known as the CAISO. Welcome, Elliot.
Elliot Mainzer:
Thank you. Nice to be with you. Appreciate it.
Jackie Forrest:
Okay, well, before we start, just give us a quick bio about how you came to lead the CAISO and how long have you been there?
Elliot Mainzer:
Well, I’ve been here now for about four years. I grew up in California, actually spent an extended period of time up in the Pacific Northwest. I was actually, before coming to the California ISO, I was the administrator of the Bonneville Power Administration, so have had a lot of interaction over the years with Canadian market entities, et cetera. During my time as the Bonneville administrator, I worked quite closely with the CAISO as they were building out what is known as their western energy imbalance market, which spans a pretty good fraction of the west.
And so got to know the CAISO team and when my predecessor announced his retirement in early 2020, I thought it would be a great opportunity to come back down to California and be part of all of the interesting work happening within the state. It just so happened that I ended up coming down about six weeks after a pretty rough chop in August of 2020 with some rotating outages. So from the very outset I’ve been pretty focused on resource adequacy and new capacity and helping stabilize things. Have made some progress, but we still have lots ahead of us and I look forward to the discussion today.
Jackie Forrest:
Okay. And I’ve already learned something. It’s CAISO.
Peter Tertzakian :
CAISO, not CAISO. Okay.
Jackie Forrest:
So we’re already learning things, Elliot.
Peter Tertzakian :
Well, we’ve…
Elliot Mainzer:
No problem.
Peter Tertzakian :
Phonetics are challenging. Okay.
Elliot Mainzer:
Yep.
Jackie Forrest:
All right. Well, let’s talk about the renewable penetration that you have. I looked at your report, we will put a link in the show notes, but almost 48% of your electricity in 2023 was generated by renewables, many different sources, solar, wind, geothermal, biomass, hydro. So how did these technologies get to be half your state’s generation and are they still growing, like you’re expecting them to be a larger share over the next few years?
Elliot Mainzer:
Yeah, I think that the foundational thing to understand about the growth of renewables in California is that it’s been very heavily policy driven, right? You go literally back to over 20 years ago, 2002, when California passed its first renewable portfolio standards mandating a certain fraction of clean energy coming on the grid, those policy positions have been updated and strengthened over the years to the point that we’re now operating off of what’s known as Senate Bill 100, which actually mandates the California gets to 60% renewables by 2030 and then actually fully decarbonizes all retail sales by 2045. So it’s been very much a policy driven environment. The last several years we’ve seen even really rapid growth driven both by the ratcheting up of the renewable portfolio standards, California’s greenhouse gas targets, and the need to replace a lot of aging generation.
So just in the last four years alone, we’ve seen a 25% increase in solar in California and of course another area that I’m sure we’ll come back to is just a really just incredibly rapid increase in battery storage. I think when I started at the CAISO in the fall of 2020, I think we had about 200, 250 megawatts of four-hour batteries on our grid. We’re now at almost 11,000 megawatts. So it’s been very much driven by policy with a steady over time and then now increasing to the point that we’re going to bring another close to 15,000 megawatts of generation online in the next several years. So very rapid development on our grid.
Peter Tertzakian :
Yeah, so we’ve been talking percentages here for the most part. I think it’s important to also set some context because California is a pretty large country on its own. So within the United States, Texas is the largest in terms of electrical power, 475 terawatt hours or 475,000 megawatt hours. California is about half that at 250,000, then equal to that is about Florida. So that just sets the context. And by the way, Alberta here is about 90, so we are about a little over a third of the size of California.
Jackie Forrest:
And that’s in a year, right?
Peter Tertzakian :
That’s in a year. Yeah. So in terms of the supply-demand balance, which in electrical power is usually one for one. So tell us about the challenges of bringing on such a tremendous quantity of renewables in such a short period of time.
Elliot Mainzer:
It’s been a number of different dimensions. I think in the latter part of the two-thousand-teens, California started retiring quite a bit of fossil generation just at the same time starting to bring on more solar. And then of course, I think you guys have seen it, I know weather patterns have stretched across the west, extreme heat, wildfires, I know Alberta grappled with significant wildfires just this last summer, deep cold in the winter. So just as the transition was really starting to happen and we were really ratcheting up in the RPS, we also started running into very, very extreme weather events. And we started running into in California what’s known as our net peak problem associated with the decline of solar energy in the evenings just at the time that loads were still very, very high.
So back in 2020, 2021, 2022, these were really acute issues for our grid. And really the arrival of four-hour lithium-ion batteries, which are able to absorb a significant amount of energy during the middle of the day and then reinject it back in the grid has been a major game-changer for us in terms of reliability. But we are still very much, I would say maybe in the second quarter of this transition. And so we are still having to rely on our entire portfolio of resources, our hydro, our natural gas, geothermal, our wind, our solar, imports from out of state to be able to keep the lights on. So I would say that the very, very short-term acute problem of sunset net peak has been addressed pretty heavily, but we still have a lot of fossil fuel generation that we’re going to have to displace in the coming decades and I think the strategy for that is still very much evolving.
Jackie Forrest:
Now, I think you’re still using about, is it 44% in 2023 of your total generation coming from natural gas, which is massive because you’re such a big market, that’s about 40 gigawatt of natural gas plant capacity. Do you think that has a future in California? Do you think you could put carbon capture storage on that or are you looking at replacing that with nuclear or other clean energy zero-emitting?
Elliot Mainzer:
There’s a few elements of it. In the very short term, the next several years, we have a number of very old natural gas plants which are slated for retirement. We’re actually running them for a few more years in what’s known as the strategic reliability reserve. But the state in general by policy is trying to displace as much of that natural gas generation as possible. I think there’s still very much a recognition by the state’s resource planners, which are largely at the California Public Utilities Commission, the California Energy Commission, the utilities, that gas, particularly gas capacity and flexibility is going to continue to play a role in the system for a number of years to come. And as we start looking at other forms of firm dispatchable, whether it’s geothermal, whether it’s small modular nuclear reactors, I think the state, like many other parts of the country is trying to figure out which combination of those resources will be available to displace gas.
And I don’t think honestly that we have absolute answers to all of that. In California, nuclear has been a controversial issue for a long time. A couple of years ago, we made the hard decision, our governor made the hard decision to extend the life of the Diablo Canyon nuclear plant for several more years. It was actually slated for closure, but because of the reliability issues you ran into, the decision was made to extend it for another five years. I think in California, the future of nuclear I think is still very much a question mark. We are noticing and watching very carefully other states, other parts of the world that are experimenting with small modular nuclear reactors, building some of the older technologies as well. But I would say that that is probably the single biggest question that is still facing our energy planners is how do you replace the energy density and the flexibility of the natural gas fleet with a combination of both supply side and demand side resources?
Peter Tertzakian :
Yeah. Actually, let’s talk a little bit more about the nuclear and the geothermal because nuclear now is about 8%. Diablo Canyon, the geothermal, which I was looking at. It’s interesting, it’s 5%, which is quite a bit, and the benefit of being in a fault zone I imagine is you’ve got some pretty good quality geothermal heat that you can drill into. Can you talk about that?
Elliot Mainzer:
Yeah. California has actually had a fairly robust fleet of geothermal resources for quite some time. The largest concentration is up in northern California around Clear Lake, the Geyser facility. I think it’s about 1,500 megawatts. There’s actually a total of only 40 individual geothermal facilities in California. They’re scattered around northern California and the east side of Sierra and then down by the Salton Sea in Southeast California. And there is some interest in continuing to develop out, particularly in that Salton Sea area. We also look to Nevada as a potential source of geothermal, so certainly there is going to be some additional build out of geothermal, but I don’t know if it’s going to be at the scale that’s going to be sufficient to replace the generating capacity you talked about from our gas fleet. So it’s going to take some other technologies to be part of the solution as well.
Jackie Forrest:
And then transmission is a big issue. And I know we’ve heard about the fires in California and unfortunately I know there’s a fire right now, this Franklin fire, so we’re hoping that everything is okay with that and that gets resolved. But how big of an issue has building transmission lines been in terms of keeping up with the growth of demand in California?
Elliot Mainzer:
It’s a big issue. I think it’s a big issue everywhere. I think there’s been a couple of really, I think positive developments on the transmission front in California in recent years. I think first of all, at the CAISO, we have really embraced the value of long-term transmission planning. A couple of years ago, we put out a 20-year outlook to take a look at the fundamental architectural needs of our grid, both inside the state, offshore and into other parts of the west. We’ve also been able to establish really outstanding, I think, operational planning coordination with the state’s planning agencies and the utilities so that we take the policy and load growth information from the state planning agencies and really weave that into our transmission plan. We’ve had about $13 billion worth of new transmission approved in just our last couple of planning cycles over the last two to three years.
And so we are very actively building out the grid both inside California. We’re also involved in three major interregional transmission projects. One is a major line that’s going to extend out into New Mexico, known as the SunZia facility. There’s another line that’s going to extend out to Wyoming known as the TransWest Express project. And we’re also working with Idaho Power to build an additional line that we cross over to Nevada up into the east side of the Columbia River Plateau to access wind resources. So we are very active in trying to stay ahead of the curve on transmission. Of course, the other element of this is interconnection queuing. I’m sure you’re familiar with that issue. We’ve had thousands of megawatts of new projects lined up to get access to our queue.
We’ve actually just earlier this year had a major package of interconnection queue reforms approved by the Federal Energy Regulatory Commission to try to take some of the friction out of the system there. And then of course, we all know that the permitting and siting continues to be a major issue and it really extends all the way from the federal permitting requirements, state permitting requirements, and also the continued concerns in local communities about having new power and transmission infrastructure in the backyard. So I would say there’s still a lot of work to be done on permitting and siting. I do feel as though we’ve gotten ahead of the curve and are really making some major progress in transmission development in California.
Peter Tertzakian :
Boy, you’ve raised a lot of issues just in the last minute of what you’ve been talking about. I want to focus in on the queue to get on the grid, the congestion because I know we’re experiencing that, right, Jackie? So talk a little bit more about that, there’s a lot of projects that if you get through the permitting and so on, you still have to queue up to be able to basically plug in and get into the grid. How have you handled that?
Elliot Mainzer:
Yeah, well first of all, this is a problem as you know, all across North America, and it’s something that’s been with us for many, many years. And I think over the last couple of years, I think the Federal Energy Regulatory Commission recognized that we needed significant reform in this area. As a matter of fact, their order 2023, which was promulgated a couple of years ago, was designed to give the transmission operators and owners some latitude and also some responsibility to take these issues on. We looked at that piece of regulation, said it really takes some positive steps forward, but we felt as though we needed to go even further because at the end of the day, power planning, transmission planning, interconnection queuing, and even the procurement of new resources all have to be synchronized. They’re one set of gearing that for many, many years in the early ages of our industry, literally all the way through into the 1980s and ’90s, I think were largely integrated.
But the separation of those functions and responsibilities has created a lot of problems. And so what we’ve done with our interconnection queuing is we literally operate off of a memorandum of understanding now with the California Public Utilities Commission, the California Energy Commission, to make sure that our transmission plans are reflective of the state’s planning needs. We’ve actually zoned out our transmission system and we’ve identified demand at different zones on the system. And we’ve actually updated our interconnection queuing requirements, that those projects that are actually lined up with the transmission planning that are located in areas where we’re planning additional capacity that have relatively modest impacts on the grid and for whom our load-serving entities have expressed some level of interest. Those projects are going to get scored and are going to get advanced through the planning process at a higher priority than projects that aren’t lined up there.
So we’ve synchronized all of these different processes and already since these reforms were approved back in October, we’re working through what’s known as our Cluster 15. We’ve already seen about half of the projects that were in that cluster come out of the queue because they aren’t really lined up with the criteria that we’ve established. So we’re hoping to take some of the friction out of the system, but we still, as the ISO and the utilities, we need to continue looking for ways to process the studies as efficiently as possible. We’re investing in new software technology, looking for potential applications of artificial intelligence there, but this onboarding of new resources and taking friction out of the queue and making sure that projects line up with where we’re headed on infrastructure because transmission has to be a leading indicator of procurement and queuing rather than a reactive indicator. So we’ve changed the order of operations and so far it’s starting to work.
Jackie Forrest:
Well, I think we can learn something. That’s one of the big issues here in Alberta is we had a zero congestion policy, and so if you were to put up a project, you were guaranteed to get your transmission, but now that’s changed. That was actually one of the pieces of new information put out by the minister last week that we’re not going to have that anymore and they need to come up with some sort of process. Of course, for projects that were already developers that were developing projects, it’s a big uncertainty if they’re going to get transmission or not now. But some sites in Alberta are seeing curtailment in their electricity production because they don’t have the transmission that they need. I think we could learn a lot from maybe what you’ve done if you’re having success.
Elliot Mainzer:
No, thanks, and we’re engaged in conversations with all of the different ISOs and RTOs around the country on this issue. I think we’re all trying to crack the nut. There are different circumstances in different places, but I think what we’re finding in California is that some level of planning coordination, and synchronization between the different entities that have responsibilities between the state planners, the utilities and the ISOs is pretty essential so that resources aren’t getting stranded.
Peter Tertzakian :
I want to get back to the permitting and siting that you mentioned because it’s no secret that your president-elect is looking at relaxing all sorts of regulations, including permitting and siting of energy projects. And I know things are very much controlled at a state level, but do you expect any of the federal level relaxation of regulations to trickle down into the state level?
Elliot Mainzer:
I think that certainly, clearly there’s going to be some focus on this topic. It’s hard to tell how much state-level impact that will have. California just in general has had a very, very strong set of state-level policy positions and choices and goals for many, many years. And they’ve been pretty persistent through different presidential administrations, right? Just in the last several years, we managed through Obama administration, then a Trump administration. Then in Biden administration, the state’s generally kept on track with its clean energy goals. I think the area where some of the federal side may open up opportunities is going to be for these big interregional lines that span multiple states, the Bureau of Land Management, et cetera, that could potentially help take some of the friction out of the system on both the transmission side and the resource development that could have there.
But many of the issues that we’re grappling with inside the state really are state-level jurisdictional issues. They deal with the purview of the energy commission and the PUC, and some of them really come down to just very, very local county-based ordinances. So we have to be willing to be able to work at all different levels. And I think part of the issue too is I can understand certainly as a transmission, we have the transmission planning responsibility inside California, and I know that when you’re building infrastructure in people’s backyards or on their property, that’s a sensitive issue. So it takes a lot of outreach, it takes a lot of time, it takes a lot of hard work and you need to be sensitive to those issues. But certainly I think the country in general, I think even under the previous administration, even under the Biden administration, has really recognized how important transmission infrastructure is going to be to onboarding new generation.
And I’ve been encouraged, you saw it just this week here in the United States, a major major transmission plan approved by the Midcontinent Independent System Operator. I think it was a $30 billion package of transmission. In California, I mentioned we’ve already had about $13 billion in just the last couple of years. Every region in the country is looking at this, and I think whether it’s this administration or the next one or the next one, we’ve got to find additional ways to take friction out of the system so we can onboard this new capacity. Because as we all know, the amount of load growth and the amount of resources that we need to get on the system in the next couple of decades is in many ways unprecedented. So we have our work cut out for us.
Jackie Forrest:
Well, and those interconnects with other jurisdictions I think are really valuable. That’s one thing Alberta doesn’t have much of, but most models would tell you that you can get a lot more renewables and clean energy if you have more of those. So those are going to be important to incorporating more renewables. But let’s hit on that demand comment you made.
Elliot Mainzer:
Yeah.
Jackie Forrest:
Tell us how fast do you think demand’s going to grow over the next five, 10 years relative to what you’ve seen over the past decade? Is it really accelerating and what’s behind it? Is it the AI data centers? Where’s it coming from?
Elliot Mainzer:
The current load forecast that we’re working on from the California Energy Commission that’s been incorporated back from February 2024 calls for I think a 20% increase in peak demand growth in California in the next 10 years, and I think a 27% increase in annualized load growth over the next decade. Those numbers are now being refreshed just in the next couple of months. We’re expecting an update on those numbers. And yes, data center, vehicle electrification, heating electrification, all of these issues are really driving demand growth. And I think as we know, I think we are doing a lot of work in partnership with the utilities, in partnership with the regulatory agencies to try to figure out in particular just how big the demand growth is going to be from data centers.
The hyper scaling is a major, major issue. California, like other regions, wants to continue enabling that type of development in the state. We already have the Silicon Valley, California major centerpiece, but we are still trying to get a handle on just how big that growth is going to be. The other thing that we’re seeing is we’re seeing a change in the pattern of demand. California has traditionally been a summer peaking system. Some of the data that’s coming out now is showing that with the electrification of transportation, electrification of home heating and some of the industrial heating processes, that we could become more of a winter peaking system as well by 2040.
So the delta between summer and winter peaks is starting to tighten up in the outer years. So this is an issue that we at the California ISO, particularly with our transmission planning responsibilities, are very vested in trying to collaborate and figure out with the state planning agencies. And then also having to have a lot of face-to-face discussion with the big tech industry representatives to try to figure out just how big is the demand growth going to be? How much efficiency and flexibility will they be able to engineer into those projects? What are the optimal places to locate them on the transmission system? And then of course, what are some of the big commercial cost allocation issues that need to be grappled with? Who’s going to pay for the transmission power resources that these projects require to get onto the grid?
Jackie Forrest:
And are you thinking that some of these might be off-grid? We’re talking about that here in Canada, that if you want to come here, we’ll build your thing off-grid and you can do it quickly. Is that something that you’re contemplating?
Elliot Mainzer:
It’s certainly a variable that’s at play. I think that pretty much everything’s on the table right now to figure out just what is it going to take to get these resources on the system. Our focus, of course, at the CAISO is much more on the grid planning, particularly on the wholesale grid, the high voltage system. But I know that the hyperscalers are looking at all kinds of different models for how they might be able to get onto the system, co-locating with existing generation, building off-grid, interstate collaboration, et cetera. So these are issues, as you know, are extremely dynamic, and I think we’re in a period of time where the next couple of years, the answers will come into better focus. But right now I would say we’re in a major due diligence phase.
Peter Tertzakian :
Major due diligence in a rapidly changing environment. You’ve got the load or the demand side changing, as you said, there’s the seasonalities of peaks and so on and so forth on the supply side with the rapid introduction of intermittency and renewables and batteries and so on. Detractors of California’s rapid push into renewables point to high power prices in California as a consequence of the renewables push, although it’s just even in this conversation we see it’s a complicated supply-demand dynamic, but is that a fair criticism, that the rapid introduction of renewables and battery storage and things like that is causing the price to go up for electricity?
Elliot Mainzer:
I don’t think that’s entirely fair, and I’d be frank with you guys, I’m not a leading expert on this issue because quite frankly, retail rate design and retail rate affordability are largely the purview of the California Public Utilities Commission and our regulators. What I will say, because I’m obviously invested in this, managing the grid in California, we have a huge interest in ensuring reliability and affordability and environmental sustainability for electricity customers. And certainly there’s a great deal of recognition both inside the state of the affordability challenges. Just a couple of months ago, Governor Newsom of California issued an executive order to all the state agencies to take a hard look at all the programs and all the different elements that may be contributing to rising electricity costs.
This is not a totally new issue. I think I read somewhere that I think California’s had relatively high electricity rates all the way back to the late 1970s, right? The state’s always been on the leading edge of energy efficiency and low-income energy assistance and putting a lot more than just the marginal cost of generation into electricity rates. We also know in recent years with the wildfire experiences, had to put a lot of dollars into hardening of the transmission system against wildfires. And certainly the incremental costs now of renewables are another factor, but I don’t think by any stretch of the imagination you can say that it’s just California’s clean energy goals that have been responsible for the growth and electricity rates. It is an issue, I’ll just add that for us at the CAISO, the things that we focus on to try to bend the curve in the right direction is it’s three things.
First of all, we’re a nonprofit organization, so we’re very motivated to ensure that when we develop a transmission plan, we come back with the most cost-effective, efficient transmission solution we possibly can. That includes new wires, non-wire solution, and the use of grid enhancing technologies. The second thing is we want to make sure that our market design sends the right price signals to make really efficient use of all the new resources. The big experiment we’ve had to conduct in the last few years has been going from 250 megawatts to 11,000 megawatts of batteries and figure out how to dispatch those batteries efficiently so that they can really provide the necessary sink for electricity during the middle of the day, and then provide a source of power in the evening to manage the duct curve and to manage the big evening ramps.
And then finally, we are just big believers in the value of wide area coordination, right? Over the last decade, we built out what’s known as the western energy imbalance market that now spans 23 different balancing authorities over 12 states in the western United States. And by being able to leverage all that transmission connectivity that exists between California and the Northwest and California and the desert Southwest and in the intermountain West, we’ve been able to save electricity consumers over $6.5 billion in lower dispatch costs. And also we’ve been able to use that market to really help out with reliability during extreme summer and winter weather events by moving power to where it’s most needed in real time. So efficient transmission development, efficient market dispatch and wide area market coordination have been the three pillars of our efforts to support affordability in California.
Jackie Forrest:
Well, I want to talk about that. You’d said you designed the market in a way that you think would be efficient. Of course, here at Alberta, we are making market changes to address concerns around reliability. And a lot of it because of the concerns around renewable generation and how that may be affecting things. There’s a concern because we have an energy-only market that the only way you actually make money is selling energy, that as more renewable generation comes on, it reduces the utilization of these baseload power plants, which for us is mostly natural gas today. And therefore the returns for those generators are less, and they’re not incented to make new investments because of that. And so this is made worse by concerns about tightening of greenhouse gas policy that may also give those fossil-fuel generators a reason not to build. So how did California address this issue to bring on those renewables but still create an environment where the baseload generation, which you still have 40 gigawatts of capacity, is still making money?
Elliot Mainzer:
I think that the answer to that is by trying to build out both a very efficient market design with a really strong planning and procurement paradigm. I think we’ve learned very much over the last few decades that markets that are built on weak foundations of resource adequacy can have major problems and markets can very quickly price scarcity in the same way that they can price surplus and have untoward consequences. And so I think in California, the state has really invested heavily, particularly in the last 10 years, 15 years in strong integrated resource planning to really take a look at the generation portfolio and think about all the different elements that are required for reliability, capacity, energy, and flexibility. And we also have a strong resource adequacy requirement for the utilities, right? We have a planning reserve margin, and we have a strong procurement program where every year the utilities have to go out and procure the majority of their generation on a forward basis so that they can come into the energy market, particularly in the day ahead, real time, largely sufficient.
And the market is responsible for efficiently dispatching those resources and making sure that power can be moved across the system with the transmission technology that’s available with the transmission capacity that’s available. But the market and the planning and the procurement all go together. And by having a strong resource adequacy program, which generators can get compensated for a significant fraction of their embedded costs, you’ve solved some of that missing money problem for those generators because they’re getting paid for being available, they’re being paid for bidding into the market for a resource adequacy requirement, and then they can operate close to their marginal costs and generally do well. So we’ve been able to maintain our gas fleet, we’ve been able to incentivize a lot of new generation, and we’re now, I think, doing a good job of meeting the traditional 1 in 10 loss of load planning requirements. So planning coordination, strong procurement, and then efficient market dispatch to make best use of all those resources has really been the way that California has accomplished this.
Jackie Forrest:
So to be clear, in here in Alberta, we have an energy-only market. There’s no procurement going on. So what you’ve done is a bit of a hybrid where you’re saying “Certain generation, I’m going to pay you a certain amount of money over the next many years to just be available.” That’s what you mean by that.
Elliot Mainzer:
Yeah, it is. And we have not gone down the path of the central capacity markets of PJM and some of the other areas in the United States. We have effectively a state level capacity market, and then our day ahead market picks up any additional deficits or surpluses. But certainly the longer term procurement requirements and longer-term planning have been helpful in making sure that we’re onboarding the necessary capacity to maintain reliability.
Peter Tertzakian :
It’s really a harmonization, if I could an analogy, you can get the best architect to design a house, but that’s almost like theoretical. You need to include the construction people to make it happen and be on budget and so on, and really plan holistically not only about the market design, but also how the whole thing is going to be procured and operated. And it’s a much more holistic model. And Jackie, what you’re saying, energy-only or not, regardless, you need to make all parts of the electricity, I’ll call it ‘complex’, work together. Otherwise, it’s just theory.
Elliot Mainzer:
I can’t speak at all to the market design in Alberta. I know you got a lot of smart, capable people working on that, and we continue to make adjustments to our market on a regular basis. We’re always fine-tuning and always trying to make sure that the energy component of our market is as efficient as possible, sends the right price signals, deals with scarcity, deals with imports, deals with exports, et cetera. But I do think that some level of focus on the planning and the procurement responsibility is very helpful, and I think it also can send strong incentives for existing generators and for the value of making new investments, which is always important for attracting new capital.
Jackie Forrest:
Well, at the end of the day, you’ve got a lot of natural gas capacity still in your market, and you’ve brought on a lot of renewables, and it seems that everyone must be making enough money to stay around.
Peter Tertzakian :
Just a couple of quick questions. What is the state of offshore wind in California? You have a lot of coastline, obviously, and I don’t think it’s as much as the onshore stuff, the renewables.
Elliot Mainzer:
The state has very ambitious goals for offshore wind. I think it’s upwards of 25,000 megawatts in the next couple of decades. Right now, the initial focus is the first tranche of offshore wind off of the northern California coast up in the Humboldt area. We’re in the process of doing the transmission planning for that and trying to figure out what sorts of resources would be necessary to get that generation onto the mainland. I think at the same time, we’re working very carefully and very closely with the state regulatory agencies, with the utilities, and also local affected communities because as you guys know, offshore wind, it’s a complex equation, right?
The supply chain, the port enhancements, the supporting infrastructure, the transmission, doing that effectively, doing it cost effectively takes a tremendous amount of coordination. So what we’re trying to do right now is to do some of the initial planning, potentially even some of the initial for early stage procurement to start lining up the transmission infrastructure, but not to go too far down the path before we have confidence that the other elements, the permitting, the procurement, and the siting of the transmission infrastructure is taken care of.
Jackie Forrest:
On that note, you talked about the local communities. Just broadly, have you had issues with all the wind and solar development? Here in Alberta, we’re talking about changing it so that we can’t have as much renewable development on agricultural land or in areas that are viewed to be pristine viewscapes. Have you had to make changes like that to accommodate some of those local concerns that you talk about?
Elliot Mainzer:
Yes, there has been a tremendous amount of discussion inside California in different sub-areas, in different counties about zoning ordinances and zoning limitations. California has a lot of, just like Alberta, a lot of exquisitely beautiful areas, a lot of fertile land. There’s areas where developments can be pretty much off limits, but there are also areas in the Central Valley and other places where land is being taken out of production that has tremendous solar production. So it’s a very much local issue and actually the energy commission, the utilities, local communities do a ton of work in the zoning and locational elements before they ever give us their resource plans. So there’s a lot of work on that. A lot more work will need to be done in the years ahead, especially as population grows and land use patterns change. But it’s very complicated. But so far, I think we’ve been able, just noticing just the thousands of megawatts of new generation that’s come online the last couple of years to do a good enough job to keep a steady pace of development.
Peter Tertzakian :
Yeah. Well, as we head into the final minutes of our podcast, I thought we’d get your perspectives on grid interconnects in the Pacific Northwest in general and all the way up here to Alberta because there are some interconnects and potentially plans for more, right?
Elliot Mainzer:
Yes. I think our experience at the CAISO has been that transmission interconnectivity has just been such an important part of the reliability and affordability equation in recent years. We’ve been very fortunate to have strong interconnections between California and the Pacific Northwest, both AC and DC lines. There’s of course transmission capacity up into British Columbia. We’ve got big connections into the desert Southwest, we’re continuing to grow those out. Strong connections between California and into Utah and the intermountain West. At the moment, there’s relatively modest amounts of transmission connectivity between Alberta and the United States. I think that the MATL line, Montana-Alberta tie line is in operation. I think it’s rated capacity is at about 300 megawatts. I don’t know what it’s exactly operating in at the moment, but certainly I think there’s, from our experience, the opportunities for continued transmission expansion I think are many.
And certainly it’ll be interesting to watch over the coming years how Alberta approaches that issue. We’re going to continue to build out transmission grid in the United States. We’re going to continue to build out our energy imbalance market. We’re actually now developing an extended day ahead market. We’ve had several of our major utilities including Pacific Core and Idaho Power and Portland General, and LADWP and the big investor in utilities in California are all participating in that market. And we’re going to continue to grow that. And I think it’ll be fascinating to watch how Canada, in particular, how Alberta evolves and what its strategy is for inter-ties. But we’ll be down here continuing to build out and coordinate and are always interested in opportunities to collaborate.
Jackie Forrest:
All right, Elliot, We’re just hoping that we don’t have to have tariffs on all that electricity we send you, because I don’t think that’ll increase the amount of power we send.
Peter Tertzakian :
Well, it’s been a fascinating discussion, Elliot, thanks so much for the time you’ve given us. So Elliot Mainzer, president and CEO of California Independent System Operator, and I’ve got the phonetics correct now, CAISO, thanks for your insights again.
Elliot Mainzer:
Well, thanks again for having me. I wish you all the best of luck. I know there’s a lot of important work going on in Alberta, a lot of great people up there, and we’ll look forward to staying in touch.
Jackie Forrest:
Right. And thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
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