Resource Adequacy in California: Options for Improving Efficiency and Effectiveness
Prepared for Calpine
We have been asked by Calpine, a generation owner and developer in California and nationally, to evaluate the efficiency and effectiveness of California’s approach to attracting and sustaining investments for electric resource adequacy. Our analysis focuses on: (1) the Local and System Resource Adequacy Requirement (RAR) that the California Public Utilities Commission (CPUC) imposes on retail suppliers; and (2) the Long Term Procurement Plan (LTPP) process through which the CPUC oversees the procurement of new conventional generation by investor owned utilities (IOUs) on behalf of all CPUC-jurisdictional load serving entities (LSEs) as well as the IOUs’ procurement of new and existing resources on behalf of bundled customers. These interrelated but uncoordinated mechanisms were initially introduced in response to the Western power crisis and have evolved over the past decade with changing circumstances and policy goals.
Looking out over the coming decade, California faces two pressing challenges to meeting the State’s environmental and reliability objectives that were not anticipated at the time the current framework was developed. The first challenge is the once-through cooling mandate that will require approximately 16,000 MW of existing generators, representing one-third of California’s fleet, to either retire or invest in costly environmental upgrades over the next decade. The second challenge is California’s renewable portfolio standard (RPS) to procure 33% of customers’ energy from renewable resources by 2020. Bringing these large quantities of intermittent wind and solar generation into the system will suppress energy market prices and require additional resources that can operate flexibly enough to balance the variable renewable generation output.
