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California aims to curtail 'speculative' bids that threaten resource adequacy

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Speculative supply deals could lead to shortfall, price spikes

'Behind-the-meter' systems eyed for resource adequacy

Houston — Hoping to address concerns about speculative supply offers, California regulators imposed new requirements on marketers and suppliers who promise to import energy into California during times of high electricity demand.

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The California Public Utilities Commission on June 25 decided that in the future, such marketers and suppliers must identify the generation resources that will be available to supply customers of the state's utilities and other load-serving entities.

The commission's resource adequacy program was designed to ensure that load-serving entities secure sufficient generating capacity to meet anticipated peak demand needs so that grid reliability is maintained.

However, some marketers have bid resource adequacy capacity at prices at or near a $1,000/MWh bid cap, which means the California ISO is highly unlikely to actually call upon them to provide the energy. The CPUC in its decision said that has raised significant concerns that market participants could bid in supplies they do not have, wagering that they will be able to avoid CAISO dispatch calls while still collecting capacity payments. Moreover, the Federal Energy Regulatory Commission has decided to increase the bid cap to $2,000, which will provide even more incentive for such speculative behavior, the CPUC said.

"As capacity continues to tighten in the West, the commission is concerned that the use of speculative supply contracts could lead to supply shortfalls and price spikes in the short-term markets that will undermine reliability and render the [resource adequacy] program ineffective," the CPUC said. "All the while, marketers utilizing this tactic could continue to collect significant revenue from California ratepayers for supply that [they do] not deliver."

In 2019, the vast majority of imports to meet resource adequacy obligations were connected with contracts that did not specify what facilities the power came from, the CPUC said.

The CPUC said it is aware that its new resource adequacy import rules requiring the identification of committed generation resources may increase costs and discourage some suppliers from participating in the capacity market. However, the CPUC said it must determine the best way to balance costs and reliability, noting that failure to do so would undermine reliability at a much more significant and detrimental cost to California ratepayers.

The identification of resources will address double counting as well, thereby avoiding commitments of the same resource to more than one load-serving entity, the CPUC said.

Rooftop solar, storage

In another June 25 resource adequacy decision, the commission said it would try to come up with ways to provide incentives for owners of hybrid rooftop solar and battery storage systems to provide capacity that can be called upon during peak demand periods to support the grid.

The commission declined to count such "behind-the-meter" systems for resource adequacy for now, despite calls from distributed generation supporters asking it to do so.

However, in a decision to adopt local capacity obligations for 2021 through 2023, the commission said it will work with CAISO and the California Energy Commission to establish "net qualifying capacity" values for these systems.

Commissioner Liane Randolph, who took the lead in preparing the decision, expressed concern during the CPUC's June 25 meeting that those resources are counted in demand-side management programs and CAISO includes them when forecasting energy loads.

"We need to make sure that these resources are not counted in the load forecast, and then counted again in the resource adequacy program so that you end up with less resources overall because you counted these particular resources twice," Randolph said.

In addition, CAISO needs to be able to "see" these resources and dispatch them to meet load, she continued, noting that the grid operator does not have the ability to do that now. These issues must be resolved before metered hybrid solar-plus-storage systems can participate in the resource adequacy market, Randolph said.

"The commission is interested in furthering this discussion and, to that end, the decision requests CAISO and the CEC participate in a joint public workshop later this calendar year," she concluded.

So-called "in front of the meter" hybrid solar-plus-storage systems that provide energy directly to the grid already participate in the resource adequacy market, Randolph noted.