California’s New Interconnection Policies First to Address Cost Certainty and Storage
With the recent long-awaited decision issued on its Rule 21, California once again cements its leadership position on several cutting edge clean energy issues.
The comprehensive Rule 21 Order adopted by the California Public Utilities Commission (CPUC) provides numerous innovations to mitigate costs associated with connecting clean energy to the grid, facilitates a clear process for interconnecting energy storage systems, and enables implementation of smart inverter functionality.
Since the outset of this proceeding, begun in 2011 and grown from landmark statewide interconnection standards adopted in 2000, IREC has worked extensively alongside the utilities, ratepayer advocates, and clean energy industry representatives and advocates to get to this point. What started as a fairly contentious proceeding without much stakeholder alignment, became a highly collaborative effort with largely consensus based outcomes. What’s more, the main California investor-owned utilities helped to develop and support the adopted innovations.
The ruling sets a new high bar for interconnection best practices for other states to emulate, while making needed improvements for the benefit of California energy customers.
Cost Certainty
The commission decision addresses what is arguably the most important question for interconnection customers: exactly how much is it going to cost to interconnect my clean energy project to the grid? While interconnection standards are generally designed to address what needs to be done to connect a project to the grid, most interconnection standards fall short on being able to address how much it will actually cost to accomplish that work.
Typically, interconnection customers receive a rough estimate of costs at some point in the study process, but the utility can alter that estimate at any point, including many months after the original estimate is provided, and after customers may have already purchased equipment or made other concrete investments in the project. This cost uncertainty impacts the ability of interconnection customers to obtain low-cost financing for their projects and, as a result, may increase the overall ratepayer costs associated with procuring distributed clean energy.
The involved parties have grappled with how to improve the accuracy, predictability and certainty around the costs associated with upgrades necessary to interconnect projects. This decision helps answer the “how much?” question with the adoption of three new policy tools.
The first is something known as a “cost envelope” approach, modeled off a similar cost cap used in Massachusetts and which IREC first recommended the commission consider in California in 2012. As the name implies, this approach requires the utilities to provide cost estimates that fall within a specified range; in this case, the commission adopted a “cost envelope” of plus or minus 25 percent. That means that interconnection customers are only responsible for costs up to 25 percent over the original estimate provided by the utility. If actual costs exceed 25 percent, the utilities will incur those additional costs, which they can either absorb or seek to recover from their rate base. However, in the latter case, the commission clarified that the utilities are only allowed to recover any additional costs beyond their original estimate from their rate base if they can demonstrate reasonable rationale for not being able to accurately estimate the costs.
If the costs are less than 75 percent of the original estimate, the utility’s rate base will retain the difference after a similar showing of reasonableness in an attempt to balance out the impact on all ratepayers. This approach maintains the basic principle that interconnection customers should be responsible for the costs associated with connecting their projects to the grid, while recognizing that utilities are solely responsible for developing accurate estimates, and without any commensurate responsibility there is little motivation to ensure accuracy. The cost envelope approach strikes a good balance and is working well in Massachusetts.
The second policy tool is a utility published cost guide to show standard prices for typical interconnection upgrades, and to increase the data they track and share on interconnection costs. Interconnection customers will be better able to predict in advance the likely costs associated with interconnection upgrades.
The third policy tool is an update to the pre-application report process first adopted in 2012. An additional pre-application report will enable customers to get more detailed site information from the utility in exchange for a fee, to help inform system designs based on likely costs associated with interconnecting at a particular location.
IREC is strongly supportive of these provisions and looks forward to working with the utilities and other parties to ensure their smooth implementation in the coming months.
Interconnecting Energy Storage Systems to the Grid
The Rule 21 Order also sets a new process for reviewing interconnection applications for non-exporting energy storage systems (i.e., storage systems connected to the grid that do not provide stored electricity back to the grid). Energy storage systems are different from typical “generators” applying for interconnection because they have both load and generation functions. It logically follows then that the interconnection process reflect this distinction. The commission decision clarifies the need for a defined process to review both the charging functions of energy storage systems (load) and the discharging (generation) functions.
As in most other states, the interconnection procedures in California are solely designed to review the potential impacts to the electric system from generation, they are silent with respect to impacts associated with changes to load. There are a separate set of rules (Rules 2, 3 15 & 16) designed to address the review and costs associated with new load or changes to customer load.
The commission’s decision helps clarify and streamline the review of energy storage systems, such that both the load and generation functions can be reviewed together, Any associated costs, however, will still be handled according to the respective rules that govern each.
This clarification has important financial implications for energy storage customers. The decision helps to ensure that changes to a customer’s load that result from the installation of an energy storage system will not be treated differently than other similar changes to load that might arise as a result of installation of new appliances or changes in operating practices. It also identifies how much review will be required for energy storage systems based upon their anticipated charging behavior.
There is still more work to be done to facilitate easy interconnection of energy storage systems, but this decision is a positive first step. All involved parties committed to continued work on additional steps to further streamline review of energy storage systems.
More to Come
The recent decision provides timely and relevant clarification on several key issues. However, we anticipate that the state will revisit Rule 21 again later this year or early in 2017, as it moves toward full rollout of the Integration Capacity Analyses that are under development in the Distributed Resources Planning proceeding. As California and other states continue to work toward more comprehensive reforms to the way the distribution system is planned for and operated, interconnection standards remain a foundational policy deserving of ongoing attention and regular updating.
IREC commends the commission for its leadership on interconnection, and we extend our appreciation to the California utilities, ratepayer advocates and many stakeholders who have worked together over the last five years to make Rule 21 the most innovative and progressive set of interconnection standards in the country. We look forward to continuing the dialogue about how to efficiently interconnect all types of distributed energy resources in an efficient manner that keeps costs down while also maintaining system safety and reliability.
