In summary

The network of utilities and operators running California’s electric grid must create a more flexible, sustainable system.

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By Amit Narayan, Special to CalMatters

Amit Narayan is the Founder and CEO of AutoGrid Inc., a company that provides software for the energy industry, From 2010 to 2012, he was the director of Smart Grid Research in Modeling & Simulation at Stanford University.

California has a power problem that’s only going to keep rearing its head until we solve it.

Over the summer and fall, the state’s rolling blackouts have persistently left residents in the dark during heat waves – in August, the number reached as high as 300,000 homes without power. 

Some were quick to call clean energy the problem – but California’s grid operators, along with many third-party experts, firmly clarified that they are having no issues integrating renewables. 

The true culprits are an antiquated grid and archaic market constructs that are holdovers from a less efficient era, when power moved in one direction: from power plant to consumer. Today, we have far greater and far more complex energy needs – yet we’re still working with a set of tools and rules developed generations ago. 

Like many other states moving forward with energy transition strategies, California is beset by a decades-old system for moving power that lacks flexibility when it’s most needed, as during our recent heat waves that lasted through October.

Skyrocketing demand during heat waves is one challenge facing California’s aging model for delivering power – but there are others. Solving them is a matter of survival for California’s traditional grid.

California energy rates clock in at a whopping 19.9 cents per kilowatt-hour – far higher than the national average of 13.19 cents. Combined with unreliable supply, this high cost of electricity is pushing many larger customers toward solar and energy storage solutions, which allow them to use less grid power. 

Unfortunately, this leaves the middle class and other price-sensitive customers to bear the bulk of infrastructure costs. As electric rates spike, Californians are also exploring options to reduce their reliance on the grid, fight rising electric bills and hedge against emergency shutdowns. 

California’s potential for a middle class exodus from the grid means the remaining citizens have the choice to pay for the increasing cost of electricity or get off utility power. Those who can’t afford to leave the grid will end up footing the bill, putting both these residents and traditional utilities in financial jeopardy.

As Californians explore these new energy options, energy suppliers are answering the call with more flexible models. Consumers are joining community choice aggregators that give customer groups greater control over their energy mix, and solar and battery leases have become much more accessible through energy-as-a-service providers. With more flexible services and differentiated, less expensive offerings, these organizations are attracting Californians away from traditional utilities. 

In addition, a number of large-scale oil and gas companies have entered the clean energy market. Shell, Total and BP have all set carbon neutrality goals and are bringing their increased scale to clean power systems. Shell has also pledged to become the world’s largest power provider by 2030 and made a number of investments and acquisitions to get there. These companies are merely steps away from giving consumers access to flexible, reliable power. 

So what does this mean for California’s traditional grid? If utilities don’t get competitive, the often predicted “utility death spiral” will come hard and fast.

The network of utilities and operators running California’s grid must rethink existing business models to create a more flexible, sustainable system for delivering power or they risk being eaten by faster, nimbler enterprises. Traditional price caps and capital investment incentives will no longer work in this new business model. 

California has a wealth of solar, home batteries, electric vehicles and other grid-connected resources lying in wait to support a power system struggling with reliability. While decades-old traditional utility business models were not designed to bring these technologies into the fold, modern grid flexibility systems can provide the organization needed to increase consumer benefits to 80-90% and smooth out demand as the sun goes down.

Utilities have an abundance of data at their disposal to maximize the value of generated power. By forecasting demand and available resources, utilities can better manage their grids, optimize their energy supply and available resources, and reduce waste to meet consumer demand. 

California is at a crossroads, though one path can be ruled out right away: further delaying the overhaul that will create a more reliable, flexible grid. 

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