What Does the Extension of California’s Cap-and-Trade Mean for Microgrid Development?

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California lawmakers voted this week to extend the state’s cap-and-trade program to 2030, a move expected to boost microgrid development, especially when coupled with other climate plays.

Backed by Gov. Jerry Brown, the legislation won passage by a two-thirds vote in the Assembly and the Senate.

By itself the extension isn’t expected to yield a lot of additional microgrid development immediately. But long-term, cap and trade adds to a package of carbon reduction measures in California that create fertile ground for microgrids.

SB 100 even better for microgrid development

An even bigger boost for microgrid development and energy storage may come from  SB 100 — a bill to establish a zero-carbon grid after 2030, when the renewable portfolio standard (RPS) is set at 60 percent. SB 100 is now in committee.

“SB 100 will impact microgrids the most,” said Steve Chadima, vice president, external affairs, Advanced Energy Economy. “It pushes for a zero-carbon grid in the most cost-effective way. That’s when storage and microgrids come into play.” They’ll come into play because the focus will be on all technologies that efficiently contribute to a zero-carbon grid — not just technologies that are deemed ‘renewable energy,’ he said.

California’s RPS now calls for 50 percent of electricity to come from renewable energy by 2030. SB 100 would change that to 50 percent by 2026 and 60 percent by 2030.

SB 100’s importance also lies in its push toward a 100 percent carbon-free grid, which is different than 100 percent renewable energy, he said. Specifically, once California meets the 60 percent renewables goal, it focuses on creating a 100 percent carbon-free grid. Chadima then sees SB 100 opening up opportunities for additional technologies.

“The RPS is strictly defined and a lot of things aren’t counted in the RPS,” Chadima said. “At some point you have to count rooftop solar, which doesn’t count as part of the RPS.” In addition, demand-side resources, storage and microgrids should be counted and would be important players once the focus turns to the zero carbon grid, he said.

What cap and trade achieves

The state’s signature and sometimes controversial cap-and-trade program sets a limit on carbon emissions and establishes allowances permitting companies to release greenhouse gases (GGH). The companies, covered, which generally emit large amount of greenhouse gases, are required to give up emission allowances, or offset credits, to make up for the emissions. If they don’t, they’re penalized.

The cap-and-trade program, along with the state’s aggressive RPS, transportation packages and other measures, are designed to meet the requirements of the California Global Warming Solutions Act of 2006 (AB/SB 32), which created a comprehensive, multi-year program to reduce greenhouse gas emissions in the state.

Having cap-and-trade in place through 2030 reduces pressure on other greenhouse gas reduction programs, like the RPS or direct incentives for distributed energy resource (DER) expansion, to achieve the deep emission cuts required by 2030, said Allison Smith, a Stoel Rives partner who focuses on environmental and energy law.

This could slow expansion of distributed energy, she said. “On the other hand, the continuation of a cap-and-trade by a two-thirds vote and broad coalition of supporters will result in more consistent and long-term revenue from allowance auctions, potentially leading to increased funding for DER and microgrid incentives that will reduce GHG emissions.”

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Microgrids help avoid exceeding cap

Not all industry players are so cautious about the potential effect of the cap-and-trade expansion. More enthusiastic is Mark Feasel, vice president, electric utility segment & smart grid at Schneider Electric.

“The cap-and-trade program provides a clear economic incentive for participants to reduce their greenhouse gas emissions. Program participants have flexibility to choose how best to reduce their emissions and are rewarded for operating as efficiently as possible,” he said.

Cap-and-trade sets up an environment that will favor distributed energy resource development and open the door to microgrids, he said.

“Microgrids increase the functionality of renewables and storage while adding valuable intelligence to monitor and control energy use. Microgrids connect devices, increase automation, and ultimately have the ability to optimize energy use and help cap-and-trade program participants avoid exceeding their ‘cap’ level,” he said.

“Microgrids increase the functionality of renewables and storage while adding valuable intelligence…” Mark Feasel, Schneider Electric

California’s extension of the cap-and-trade program will also spur grants, education and feasibility studies that will help commercialize the microgrid industry, he added.

Like Feasel, AEE’s Chadima sees the cap-and-trade extension offering certainty for advanced energy companies, whether they produce solar, storage, microgrids, electric vehicles or other technologies.

“Companies need market certainty over a longer period of time,” he said. “That’s the most important factor. When California makes a commitment like SB 32 to reduce carbon, it’s great, but it needs an enforcement mechanism. With this in place, the Air Resources Board has the tools it needs to continue to hold everyone’s feet to the fire.”

For energy storage alone, the cap-and-trade extension has a limited and indirect impact in the short term, said Alex Morris, director of policy and regulatory affairs for the California Energy Storage Alliance. That’s because the extension continues existing rules, he said. “Over time, the rules will likely prompt more renewables, which in turn creates a need for clean ramping capacity and for helping absorb or integrate wind and solar, and that is where storage comes in,” he said.

Interested in environmental policy and microgrid development? Join the discussion on our LinkedIn Group, Microgrid Knowledge.

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  1. Terry Hill says:

    When are we going to talk about the role of “deep energy retrofits to the existing building infrastructure” could play in getting to “zero carbon”?