Late in May, California installed its 4,000th megawatt of rooftop solar. The rapid deployment of rooftop solar isn’t just helping California meet its aggressive decarbonization goals, it's also lowering system costs. For example, $192 million in proposed transmission system upgrades were recently canceled, thanks to the reduction in demand for electricity caused by efficiency and rooftop solar. And late last month, the same trend led the California Public Utilities Commission (CPUC) to reject a contract extension for an aging gas plant.
Earlier this year, Southern California Edison (SCE) and the California Independent System Operator (CAISO) requested approval of a four-year capacity contract for Mandalay 3, a 130-megawatt gas plant owned by NRG that has been polluting the city of Oxnard -- a community long overburdened with industrial pollution -- since the Eisenhower administration. Absent the revenue from the capacity contract, NRG stated there is a “substantial risk” that Mandalay 3 will retire.
What’s a capacity contract? In California, capacity contracts are used to ensure that sufficient electricity generation is available to meet energy needs on days of high demand. For power plants that don’t run very often and therefore don’t earn much revenue selling energy, capacity contract payments provide the monetary incentive and obligation to be on call in case they are needed. While capacity commitments are important for grid reliability, the cost of these contracts, and particularly those in transmission constrained areas like Oxnard, can be substantial. (Pricing for specific contracts is confidential.)
But reductions in peak demand can reduce the need to have so many power plants standing by. In the case of Mandalay 3, CAISO and SCE asserted a four-year capacity contract was needed to meet growing energy demand in the area. However, as the Sierra Club argued, CAISO’s estimate of future need was based on an outdated forecast. The more recent load forecast showed significant declines in peak demand -- largely attributable to more accurate estimates of deployment of rooftop solar. When the updated forecast was used to estimate local capacity needs instead, Mandalay 3 was no longer needed.
Accounting for the benefits of local clean energy to push out the oldest and least-efficient fossil generation is exactly what California should be doing. There is no reason to continue to throw money at polluting generation when clean energy is here to take its place.
One final point: Much of the debate here in California and elsewhere over rooftop solar has focused on the extent to which benefits flow to those that do not have their own solar systems. As shown by the CPUC’s rejection of the Mandalay 3 contract, when the grid contributions of rooftop solar are properly recognized, all Californians benefit from lower bills and a healthier environment.