California utilities commission rejects solar microgrid proposal

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Last September, a new proposal came across the desk of the California Public Utilities Commission (CPUC) as Energy-as-a-service provider Sunnova Energy announced it applied to install a “micro utility” on a new homes community.

The company seeks to develop largely self-sustaining micro utilities by equipping new home communities with solar and storage. Under the plan, new home construction communities are selected so that Sunnova can work closely with developers to design and implement distributed solar microgrids backed with energy storage.

Microgrids, which connect solar, energy storage, and smart appliances, come with a bouquet of benefits like localized backup power and resilience, insulation from volatile utility rates, and a more efficient use of energy by connecting what would otherwise be stranded assets.

Sunnova filed a formal request for a certificate to construct and operate microgrids under Section 2780 and Section 1001, respectively, of the California Public Utilities Code. The microgrids would be capped at 2,000 connected homes.

In February, the Public Advisor’s Office suggested CPUC reject the application.

A large coalition of industry advocates and environmentalists, called the Microgrid Resources Coalition (MRC), filed a response to the PAO’s suggested rejection. “We believe that the Proposed Decision, if adopted, would become the latest in a long line of decisions in which the Commission does a disservice to the citizens of California by ignoring the contribution that distributed generation, and microgrids in particular, can make to resolving the state’s ongoing crisis of grid inadequacy.”

This April, the CPUC moved forward with a rejection of Sunnova’s application.

Sunnova, dissatisfied with the result, argued that there is not enough time for a rulemaking process to approve microgrids.

“The fact is that we are closing in rapidly on five years since the enactment of SB 1399 and not only has the widespread deployment of microgrids envisioned by the statute not materialized, but the Commission has not taken the necessary actions which would enable it to start materializing,” said the Solar Energy Industries Association in a filing with the CPUC.

Nutting said at this rate, rulemaking processes could push out to as late as 2030. Solar is now required by law on new home constructions in California, at a time the state is embroiled in a housing crisis. This delay results in what Nutting views as a missed opportunity for Californians to have more affordable and more reliable power.

Monopoly

A CPUC representative contacted pv magazine, explaining the rejection, “The Sunnova application sought to provide microgrid power as a monopoly public utility. It sought significant changes in how the state defines the roles and obligations of a public utility. The Public Advocates Office believes that changes of this magnitude are best addressed a rulemaking rather than a one-off application.”

Sunnova pushed back on the argument that it would be establishing a monopoly.

“I find this accusation a somewhat odd,” said Meghan Nutting, executive vice president, regulatory and government affairs in a pv magazine interview. “Californians must take service from a utility if they are in investor-owned utility territory. This microutility application provides customers with an alternative to the monopoly.”

What’s more, on the same day the Sunnova application was rejected CPUC approved a $200 million program for the major investor-owned utilities to run their own microgrid programs.

“It is interesting because that is, in fact, a cost shift. The non-participating rate payers will have to contribute to that $200 million, that the utilities will then have to build the microgrids. Then [investor-owned utilities] will receive a rate of return for any money they spend to build them, causing another cost shift onto nonparticipants,” said Nutting.

The cost shift argument was the lynchpin in justifying NEM 3.0, a rulemaking that slashed compensation rates for residential solar owners exporting excess production to the grid. NEM 3.0 was supported by the major investor-owned utilities, Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric, and heavily opposed by California citizens, solar industry members, and environmentalists. Despite an apparent cost shift from the new investor-owned utility microgrid program, CPUC sided with the utilities in the Sunnova microgrid filing.

Microgrids are a new concept for the power grid that recognizes the strengths of the input (solar energy), building the grid in a decentralized, distributed fashion. This leads to increased resilience in adverse conditions, less transmission bottlenecks and congestion costs, decreases land use or “energy sprawl”, lessens utility monopoly control over a territory, and significantly reduces the need for transmission buildout, relying only on the local distribution grid.

In its 2021 to 2022 transmission plan, the California Independent System Operator (CAISO) announced 23 transmission projects at an estimated cost of $2.9 billion. A significant portion of these costs could be avoided if California instead pivoted to a decentralized model of energy.

Delays

New home communities in California also struggle with interconnection delays from utilities, a process that can take many months to years. Nutting said that some developers in Humboldt County have reported interconnection processing timelines as long as ten years.

The problem is bad enough that California state senator Scott Wiener has introduced Senate Bill 83, which would assess fines on utilities that do not approve grid connection applications in a timely manner. The law would require investor-owned utilities to complete interconnection within eight weeks after a building is “green tagged,” meaning local officials have inspected construction work and approved the project to be processed for interconnection.

“It’s completely unacceptable for completed projects to just sit there gathering dust because PG&E can’t get it together to turn on the power,” said Wiener. “We’re in the middle of a housing crisis.”

Undeterred

Despite the rejected application, Nutting said Sunnova is “undeterred” in its commitment to advancing distributed clean energy in California.

While the rejection was not the result the company had hoped for, there were some silver linings in CPUC’s decision. First, it removed an earlier-issued rulemaking on microgrids that prohibited proposals like Sunnova’s. It also removed a footnote that had deemed that Sunnova did not qualify as a microutility. The decision also highlighted the strong support industry-wide for microgrid buildout in the state.

“In the face of this disappointing decision, we remain resolute in our commitment to developing innovative energy services and solutions that enhance grid stability and provide affordable and reliable energy for customers in California,” said Nutting. “As utility rates continue to soar and grid instability worsens, the end user bears the brunt of the consequences, and the urgency of this reality is not lost on us. As we move forward from here, we will continue to work tirelessly on future applications to advocate for consumer choice and to push for a more competitive energy market that prioritizes the needs of the people over the interests of monopolistic utilities.”

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