California’s Electrification Study – Part 1

Kevala releases Part 1 of an Electrification Study for CA’s 3 IOUs

This blog provides an in-depth analysis of the High Distributed Energy Resources (DER) proceeding. A blog providing a short overview intended for all to understand will be released next week. Please contact Stephanie Doyle for questions at sdoyle@votesolar.org.

Where the study came from – High Distributed Energy Resources (DER) proceeding overview 

In the summer of 2021, the High DER proceeding (Order Instituting Rulemaking (OIR) to Modernize the Electric Grid for a High DER Future) was launched at the CPUC. The proceeding is intended to prepare for the impact and potential investments to the grid of California’s electrification goals and consider changes to the current distribution planning process (DPP) in order to improve how Distributed Energy Resources are incorporated into deferral options at the three Investor Owned Utilities (IOUs). The proceeding will also look at possible “non-wires alternatives,” such as energy storage, demand response, and enhanced energy efficiency, which could obviate the need for massive investments in the IOU’s grid infrastructure, to mitigate such impacts. For a description of Vote Solar’s efforts in the proceeding as a whole, see our opening Blogs on California’s High DER Future. 

One of the major deliverables of Track 1 in this High DER proceeding was an Electrification Impacts Study, that was contracted by the CPUC to be completed by analytics company, Kevala. The EIS is intended to have two parts, and EIS Part 1, was released on May 10th, 2023 with an all-day webinar hosted by Energy Division staff and Kevala the following week on May 17th to discuss its findings and Kevala’s recommendations. 

Why is Vote Solar involved?

Vote Solar is a party in the High DER proceeding because we see an opportunity to improve how DERs are incorporated into distribution planning, and because of the ongoing inequities in how grid upgrades and planning are currently approached. We are hopeful that through this proceeding, there can be a deeper involvement of communities in the planning process for when and where DERs are incorporated into the grid, as well as a better valuation process of how DERs can provide benefits to the grid and the many issues we face, rather than solely being seen as a burden and increase to our peak load.

Vote Solar is also concerned that substantial capital investments by the IOUs in grid infrastructure may result in stranded costs, which would be borne by all customers. Under the current IOU business model, their rate of return (essentially, the IOUs’ profits) are largely based on the value of capital investments in the grid. This discourages them from leveraging customer or third-party owned DERs to mitigate or avoid infrastructure investments, which increase the rate bases on which their rates of return are calculated. Without changes to the IOU business model, which could include moving to an Independent Distribution System Operator (DSO) structure (to be addressed in a later phase of this proceeding), there is a significant financial incentive for them to maximize grid investments.

EIS Part 1 

The EIS is intended to help determine if there are new and improved approaches to distribution planning and how to accommodate the growth of DERs in California in a more cohesive, data-driven manner. The study is seen as a tool to help open a discussion on how DERs may impact the grid, and what mitigation strategies and policies could be deployed to reduce grid infrastructure costs incurred over the next few years and decades.

Kevala used a novel, highly granular, bottom-up approach for identifying where and when the distribution grid will need upgrades under specific scenarios. The study is intended to help determine the when and where of California’s electrification (although the electrification scenarios are narrowly defined in Part 1) through preliminary estimates of the scale of electrification impacts for the three IOUs. By using premise level predictions for 12 million properties across California to determine a baseline load and model DER adoption for specific technologies including solar, batteries, EVs and some building electrification, the hope is to achieve two objectives: 

1. Estimating Grid Infrastructure Costs: The study aims to assess the unmitigated costs associated with achieving California’s electrification policies over an extended period by examining infrastructure requirements at a system level.
2. Evaluating Planning Methods: The study seeks to explore new planning and analytical techniques, including scenario planning, to improve forecasting accuracy and assess the impact of DER growth on load predictions. 

Part 1, which was the most recently released and completed, analyzed customer and grid infrastructure from the three IOUs (SDG&E, PG&E and SCE) and then Kevala used AI computing to create customer net-load profiles. These net-load profiles are granular models looking at how customers currently use energy and how that will change across each household in California over time with the adoption of various technologies. Part 1 was intended to show the potential upgrades that would be necessary using traditional grid planning, with no mitigation measures included, to show a worst-case scenario if electrification continues with little policy or technological intervention or innovation. While this makes for an interesting, though unrealistic baseline, there are major issues with modeling electrification with zero mitigation measures. 

The EIS results highlight the rapid changes happening in California’s electricity grid, driven by various factors such as customer behaviors, technological advancements, energy policies, and climate change impacts. The study estimates that up to $50 billion in traditional electricity distribution grid infrastructure investments may be needed by 2035. This estimate reflects the potential distribution grid needs across the service territories of PG&E, SCE, and SDG&E. 

However, It’s important to remember that the EIS Part 1 results reflect the cost of unmitigated loads. This means that the high dollar amount of $50 billion in traditional electricity distribution investments by 2035 reflects an unrealistic, worst-case scenario, if nothing was done to help reduce the immense new load expected from electrification. Luckily, we are already committed to many mitigation measures, such as using batteries to store energy when it’s less expensive then discharging them during periods of peak demand, demand response, and other new measures that are being proposed at the legislative and regulatory levels in order to address these projected high costs. In fact, the Public Advocates Office recently released their own study, which predicted $15-20 billion in costs of upgrades by 2035, a significantly smaller (though still high) cost than what Kevala has put forward. 

The EIS study also shows a big need for infrastructure related to transportation electrification, which is expected to escalate rapidly by 2030 and increase even further by 2035. This shows the importance of planning for transportation electrification-related infrastructure in advance. Kevala models show that without mitigations, system-peak load will increase between 2025-2035 by 56% on average across the three IOUs. Kevala predicts transportation electrification will result in significantly greater grid impacts than behind-the-meter tariffs (such as NEM). 

There are admitted issues with the EIS Part 1, as Kevala and Energy Division pointed out both in the study and in the webinar that was held to go over the results. The EIS Part 1 was conducted before the Net Energy Metering tariff was finalized in January of 2023, which meant that the version in the study’s assumptions is incorrect. The scenarios used for PV were based on Nem 2.0 and the Proposed Decision in December 2022, which included a grid access charge as well as inaccurately represented the final export rate used in the new Net Billing Tariff (NEM 3.0). This makes it hard to say that the study is accurately representing how solar customers, or those looking to go solar, will respond to electrification. There are also issues with using the proposed PD and not the newest version of the Net Billing Tariff (NBT), since NBT necessitates purchasing energy storage storage with solar in order to be beneficial. The modeling that Kevala did, while assuming those with PV would eventually get batteries, may not have fully incorporated how closely tied these will be adopted going forward under the new regime. In addition, there is no indication that increasing efficiency over time for appliances and electric vehicles was taken into account in this analysis, such as increasing battery density mileage so less electric power is needed. There are also admitted issues with how Building Electrification and Transportation Electrification was modeled. While models are never perfect, especially when policy and technology updates happen almost monthly in California, there could be improvements to the assumptions used for Part 2 to improve the likely outcomes.

When it comes to considerations for equity, the EIS uses historical data from customers who’ve installed  solar and batteries, as well as EVs, to predict who is likely to adopt in the future. This is a reasonable assumption for modeling, but also leads to a repeating of existing inequities in the adoption of clean energy technologies, where those who can most afford to adopt do so, and ignores programs and policies that exist to counter those historical patterns. If we want electrification to be a more equitable transition than would naturally occur, we should be modeling the future we want to see, not solely what is expected to occur based on income and historical adoption rates.

Kevala includes a short section on energy burden, defined as the percentage cost of electricity relative to household income, including the quote, “(f)or all three IOUs, electrification of transportation could result in higher electricity burden under the current study assumptions”. They also suggest finding ways to incorporate impacts of electrification on energy burden for certain census tracts into Distribution Planning. While energy burden is one way to understand the equity implications of electrification and proliferation of DERs on communities, there needs to be a more holistic approach to how DERs can also offer benefits for communities. Consideration of the local impacts of reduced load from gas peaker plants due to more  non-wires alternatives in communities, or impacts on resilience compared to traditional utility infrastructure are two additional things to consider in Part 2 of the study to truly begin to dig into the equity implications and mitigation solutions available.

What Comes Next?

As described by Kevala, Part 2 of the EIS is intended to build on these preliminary findings and include updated forecasts from Part 1 to create a framework for investment in the grid. Part 2 is also intended to be where mitigation measures are investigated in more detail, including identifying opportunities to use non-wires alternatives instead of traditional electric infrastructure in order to reduce costs and improve DER integration.

While the EIS Part 1 is an impressive first step in understanding the future impacts of electrification on the California grid, we are most interested in how DERs can be viewed and modeled as solutions to mitigate and avoid excess cost and buildout, rather than solely as a burden on the grid. Kevala and the CPUC have expressed that Part 2 of the EIS should look at just this, and are accepting comments from stakeholders to understand the types of mitigation measures (as well as general updates to the model) that should be conducted. Part 2 of the EIS, we believe, should also look at how California’s inequality when it comes to our grid infrastructure will play out in any electrification scenarios going forward. Without planning for the inequity we know is baked into our decision making and current grid infrastructure, we are likely to repeat the same processes that have resulted in abysmal resilience and reliability for our lowest income and most disadvantaged communities. 

While understanding the worst case scenarios of electrification cost on the grid is an interesting endeavor,we know we currently have ways to mitigate and avoid those costs and we also know that with the correct policies in place, we can continue to create an equitable electrification process that brings all Californians to the decarbonized future we need and want.