Newly adopted RA framework might impact solar and wind value in California

The California Public Utilities Commission (CPUC) recently adopted a new Resource Adequacy (RA) framework for load serving entities (LSE’s) that holds the potential to impact solar and wind value in the state.

Seth Hilton, partner in the San Francisco office for the Stoel Rives law firm, told NPM that the June 27 decision is the result of reliability challenges seen across the state in the summer of 2020 that highlighted structural issues with the current RA framework.

“We were experiencing some shortfalls in capacity not at gross peak, but at net peak,” Hilton said. “That means the net of solar and wind generation, especially solar generation, when it comes off the system in the evening, doesn’t have sufficient alternate capacity to replace that solar capacity.”

He explained that the CPUC solicited proposals for a new framework in 2020 and this resulted in Southern California Edison’s (SCE) 24-hour-slice proposal and a two-slice proposal from Gridwell Consulting. The CPUC selected SCE’s proposal to establish the new RA framework, which is intended to maintain some continuity in how resources are valued.

Hilton stated that with the new RA framework, the state may change how wind and solar resources are valued by moving from a monthly measurement to an hourly one. While existing contracts for RA capacity may require small or no modifications under the new framework, wind and solar valued under an effective-load-carrying-capability (ELCC) “would be valued under an exceedance methodology.”

What that value will look like is still to be determined through workshops between now and October. Hilton explained that, at the end of the day, this to-be-decided value may influence how much capacity from resources qualify to meet RA obligations or how much RA value can be sold to LSEs.

“So, it could have a real impact on the value of various resources and also meeting your contractual obligations to provide RA to your offtaker if you have an existing contract,” he said. How this may happen is still unclear, as how wind and solar resources may be valued due to the new framework is still up in the air.

The upcoming workshops are to establish these details prior to the CPUC’s implementation decision anticipated to come out early 2023.

According to Hilton, the idea is to have a test run of the new framework in 2024 and then have a compliance year begin in 2025.

The new RA framework

The new framework is intended to address California’s reliability issue. While the current framework focuses on gross peak and meeting that need for each month, this new framework focuses on meeting the gross demand in each hour of the “worst day” during a month. This means that not only would there be a need to show sufficient capacity to meet growth peak in the middle of the day, but also at the time of net peak.

But there are challenges. According to Hilton, some of these challenges around development of the new RA framework relate to how existing capacity contracts, or RA contracts, could be implemented by a change in the framework. This includes a change in the valuation of RA resources, both generation and energy storage, under the new framework.

“Say you have a contract for a certain amount of RA capacity and all of a sudden how your resources are valued changes,” Hilton said as an example. “That can create some challenges, but we’ve seen a lot of attempts to deal with that issue in contracting in terms of an RA change in law and how that would be handled in specific contracts.”

However, he said it will remain a potential issue moving forward, “maybe less of an issue than it might have been because the new framework is intended to preserve, to the extent possible, existing contracts.”

Hilton said that both developers and LSEs should be watching this process carefully, especially as key implementation details get developed over the course of the workshops to ensure nothing pops up that could impact resources.

One of the points of contention discussed at the end of June included whether LSEs would have an opportunity to trade their RA obligations or resource values on an hourly basis.

“A lot of LSEs contended that this would make it easier for them to comply with their hourly obligations under the framework, but the CPUC was concerned about how complicated that would be if you allowed hourly trading,” he said.

The CPUC decided not to immediately allow hourly trading but may revisit it in the future to determine if there should be development of an hourly trading framework.

“Load serving entities are paying close attention and developers should have their finger on what’s going on in this proceeding, making sure they understand what’s developing in the workshops,” Hilton said.

*This story was originally published exclusively for NPM subscribers last month.


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