The most equitable way to socialize the cost of microgrids across the state of California and get the best value for the cost is for the Commission to create a statewide microgrid tariff that all utility customers can take service under. This could be developed so that microgrids that can respond to price signals for grid services in blue sky conditions and provide resiliency during black sky conditions. This will ensure that microgrid projects get built widely, quickly and leverage private investment by developers and customers to minimize the cost to ratepayers. This is how we achieve resiliency in California.
It’s simple – why are we making it so hard? And why tariffs and price signals?
There are severe issues with utility interconnection that developers and customers face when attempting to combine multiple technologies that include both electric and thermal energy resources under one interconnection application and review. For example, it is currently extremely difficult to pair solar, storage, and fuel cells together under one interconnection process. The same is true for renewable generation and combined heat and power facilities. Many critical facility customers, such as water treatment facilities or schools, have central plant systems or cogeneration that could integrate high penetrations of renewables and storage, but are unable or unwilling to attempt to do so because of the complicated and cost-prohibitive interconnection process with the utility.
This tariff could be created, and others modified to specifically address combining electric and thermal technologies under one cohesive interconnection process. Building world class interconnection teams would be a great investment for the utilities to make to achieve this. Let’s make it faster and less administratively burdensome for all involved in the process. Fun fact: it would create lots of jobs that are well-paying, stable and offer opportunities for career advancement. I’m pretty sure most or all of those utility jobs are union or prevailing wage with amazing benefits too. All these utility-created interconnection jobs are valuable contributions that the utilities should give to their communities given the severe economic and personal hardship they have suffered.
The more cost-effective pathway to resiliency is for the state is for the utilities to create a price signal that 3rd party developers and customers can respond to by building microgrids. The cost of building the project is then borne by the customer and developer instead of the ratepayer. Microgrids can be financed at a much lower interest rate than the utility. Interest rates are at historic lows and many project developers can secure financing from banks on behalf of customers for projects at a very low cost. Public agencies specifically are able to access special types of financing that are tax free, such as a tax-exempt lease purchase and other financing mechanisms that utilities are simply unable to access. Many developers are willing to finance projects completely on their own balance sheets and recoup costs via energy savings. Most critical facilities are public agencies. Not to mention that there is $250M designated in the Governor’s budget for community resiliency that could also help jumpstart critical facility microgrid projects.
California let’s face it – utility financed ratepayer funded projects are simply not the most cost-effective option for the state in its pursuit to build microgrids in an equitable and expeditious manner today. The reality is that TODAY and likely well into the future, the utility cost of capital is much more expensive that 3rd party cost of capital. Approving projects with this high cost of capital is simply not in the best interest of the public. That’s the reality we face today. A uniform tariff that is created and administered by the IOUs statewide is the most cost-effective path forward. It will allow them to recover some costs, such as hiring more staff and IT resources to create and manage the tariff, while saving money for ratepayers by allowing customers and developers to share in the cost of building microgrids that provide the local resiliency solutions that are in the best interest of their communities so they can better respond to emergencies and outages like PSPS events.
Resiliency is inherently local, and the state should be empowering local communities to build microgrids and letting the IOUs invest in interconnection resources for these projects. I’m happy to let them spend $400M this year on building world class interconnection teams with top notch IT resources. The utilities have a very important role to play in our grid of the future: interconnection. They should embrace being the conductor of the orchestra and integrating all these smart and innovative DERs into the grid. Utilities should focus on T&D, DERMS and the opportunity of hosting the DER marketplace. Being the host and maintaining the highway also ensures utility business model longevity. Creating tariffs and improving interconnection will get us to that dynamic and futuristic grid we all seek to build together.