The Next Chapter in Decarbonization
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SVCE Policy and Strategy Workshops
June 10, 2022
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2£) Intro:Policy and Strategy Workshops
Welcome to SVCE’s 5 Year Policy and Strategy Workshop Series! Workshop Goals:
Educate the Board and SVCE Community on key trends in energy and climate Identify SVCE’s role within the California energy policy and market ecosystem Explore challenges and opportunities resulting from changing market and regulatory conditions
Prime the Board for future decisions on SVCE policies and priorities 3 •
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D Today’s Agenda
Day 1: Energy 101 + The Changing Grid
Intro (10 Minutes)
About the Workshops
Why We’re Here: The Changing Grid
The Changing Grid (30 Minutes)
Renewables and Storage
Resource Retirements and Reliability
Demand Side Innovation
Energy 101 (15 Minutes)
Energy Basics
SVCE and the Grid
SVCE Integrated Resource Plan Update (5
Minutes)
Recap and Discussion (30 Minutes)
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TRIVIA QUIZ #1:Power Users
Which of these appliances uses the most power (watts)?
A) 30 LED Light Bulbs
B) Desktop Computer
C) Heat Pump Water Heater
D) L1EV Charger
E) Pool Pump (Filter Pump)
F) Vacuum
G) Window Air Conditioner
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CD What is the Electric System?
The electric system powers our society 24/7 365.
Generation The electric system is a complex machine built to provide reliable, stable on demand power to millions of customers.
Energy is generated by power plants -hydroelectric, natural gas, coal, nuclear, and increasingly, renewables: solar and wind Transmission
Energy is transmitted across the transmission and distribution system -
poles, wires, transformers, substations, and other
electrical equipment-from power plants to customers
Distribution
Energy is consumed by load -light bulbs, air conditioners, ovens, dryers, factory motors, water pumps, electric cars, and thousands of other electrical end uses powering society Load
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CD What is the Electric System?
SVCE’s role on the grid is focused on buying clean energy for its customers.
Generation
hdihtal SVCE Clean Energy Portfolio
Transmission
PG&E Grid Distribution
m
Load
SVCE Customers
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Balance:The Fundamental Rule of the Grid
Supply and demand must be balanced in real time every moment of the day.
Overfrequency:
If supply exceeds demand,
frequency can exceed safe
limits (>60hz)
Underfrequency:
If demand exceeds supply,
frequency can fall below safe
limits (<60hz)
60 Hz
0 Key Takeaways:
Grid operators require flexible resources to balance grid.
Grid must be built to meet peak demand
Today we largely balance the grid utilizing the supply side; demand side management hold potential value
9 Learn more: Understanding Inertia Without the Spin, NREL, 2020 ➢
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Energy Demand
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The Cycle of Energy Demand
Electricity demand has both daily and seasonal cycles.
Residential Energy Loads on a Summer Day (Illustrative) Customer electricity use changes throughout
the day and throughout the year, with higher
usage during evenings and summer months.
Electricity demand typically has a morning and
evening peak
“Peak loads” typically occur during summer
evenings as customers return home to turn on
air conditions and other appliances
Changing when and how customers use
energy is challenging, but can have significant
environmental and economic benefits
Time of Day
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15000
20000
25000
30000
35000
40000
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0:000:351:101:452:202:553:304:054:405:155:506:257:007:358:108:459:209:55 10:3011:0511:4012:1512:5013:2514:0014:3515:1015:4516:2016:5517:3018:0518:4019:1519:5020:2521:0021:3522:1022:4523:2023:55 Geothermal + Bio Nuclear Solar Wind Batteries Hydro Fossil Imports Item 1
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CD The Cycle of Energy Supply
Increasingly, energy supply also changes across days and seasons.
Power Sources on a Summer Day (July 1, 2021)
Clean energy resources have unique, weather-dependent operating characteristics.
Solar energy is predictably available during
solar hours, but is offline for peak hours
Wind energy is often available during peak
and overnight hours, but varies considerably
between days and seasons
Determining how resources fit together to
form a holistic, reliable portfolio is critical
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SVCE and the CAISO Market
CAISO is the energy market through which SVCE buys and sells energy.
The Energy Market Cycle
SVCE (and all other suppliers) bid their energy resources into the CAISO market
The CAISO selects the most economic portfolio of resources needed for reliability, which changes continuously throughout the day and year
CAISO sells energy to SVCE to reliably serve SVCE’s
customers’ needs
SVCE collects costs for energy from customers through bills SVCE uses revenues to buy long-term energy resources
ASVCE Contracts for
Long-Term
Resource Portfolio
CAISO Sells Energy
to SVCE for
Customer Demand
Customers Pay
SVCE for Energy 1 f
The price SVCE pays for resources may not be the same as the value it gets when those resources are sold into CAISO
In turn, the value of SVCE’s portfolio may not be the same as V
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Energy Market Overview
A primary function of the CAISO is to operate the energy markets economically and reliably Energy market prices are set by the most expensive unit needed for reliability at any given moment.
Illustrative Marginal Cost Stack
Key Takeaways:
300
For supply (power plants), when your
resources are available matters - sell
high (evenings)
250
£
^
200
% 150
o
Solar/Wind
^
^
—Hydro
Nuclear
22 For demand (LSEs with load), when your
customers use energy matters - buy
low (solar hours, overnight)
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CCGT
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SVCE is both a supplier and an LSE,
and must manage both sides of the
portfolio efficiently
50 o
Supply 13
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CD SVCE and the Grid: Key Takeaways
Supply and Demand Fluctuate, but Must Always be in Balance:Daily and seasonal cycles impact how much energy customers use, as well as how much energy is available -particularly from weather-dependent renewable resources.
SVCE is One Player in a Larger Ecosystem: SVCE buys and sells all of its energy through a centralized market operated by CAISO (quasi-state agency) on infrastructure owned and operated by PG&E.
Addressing the The Fossil Gap:While solar, wind, and storage are making a major dent in grid emissions, a majority of energy is still served by fossil resources (including imports) -moving forward, the focus will be on decarbonizing evening and overnight energy needs.
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The Changing Grid:Three Key Trends
Resource
Retirements
and
The Power Grid is undergoing massive change
along three dimensions:
Solar, wind, and storage are growing rapidly
Conventional reliability resources are retiring
across the West
Electrification is increasing customer demand,
while distributed resources are changing how
much and when customers need energy from
the grid
Changing
Grid
Each of these trends has important implications for SVCE and state policy. How can SVCE leverage opportunities and mitigate risk in this dynamic environment? 16 ➢
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CD Climate Change: An Important Overlay
The effects of climate change -including drought, extreme weather, and wildfires -forms a critical overlay on the energy system transition.
Climate Change
Climate change impacts the potential output of both traditional and renewable resources and elements of the transmission and distribution grid
Climate change increases the risk of prolonged, regional drought-impacting both in-state and regional hydro supplies and removing a key carbon-free resource
Climate change increases the risk of extreme heat- which increases electricity demand during summer peaks
Climate change increases the risk of wildfires which can result in Public Safety Power Shutoffs (PSPS) events often during periods of extreme demand
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The Changing Grid:
Renewables and Storage
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CD Renewables and Storage
The massive growth in renewables and storage is a key
driver of grid change:
Nearly 10,000 megawatts of utility-scale solar - nearly 15% of total system capacity - have been added to the
CAISO grid in the past decade i
Renewables
and Storage "20,000 megawatts of storage are projected to come online in the next decade
Solar, wind, and storage are having a massive impact on The emissions reductions Changing
They are also fundamentally reshaping the economics
of the electric sector in both predicted and unexpected ways
How does the growth in solar, wind, and storage impact the grid? How does it impact SVCE? How can it inform SVCE’s future strategies? 19
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0 TRIVIA QUIZ #2:Renewable Energy
After solar and wind, which renewable energy technology provided California the most electricity in 2020?
A) Bio (Biomass / Biogas)
B) Hydrogen
C) Renewable Natural Gas
D) Geothermal
E) Small Hydro*
*ln California, large hydro (over 30MW) is considered non-renewable 20 ➢
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0:000:401:202:002:403:204:004:405:206:006:407:208:008:409:20 10:0010:4011:2012:0012:4013:2014:0014:4015:2016:0016:4017:2018:0018:4019:2020:0020:4021:2022:0022:4023:20 Residual Emitting Resources Clean Firm Solar Wind Batteries Hydro Item 1
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Renewables and Emissions
Impact of Renewables on the California Grid The massive growth in renewables and storage is a key driver of grid change:
Renewable energy represented 33% of
California’s energy sales, led by 13% from solar
and 11% from wind
Renewable energy will grow to 60% by 2030 -
with 100% of sources to be carbon-free by
2045
California’s emphasis on solar and wind has
made a huge impact, but leaves significant
clean energy gaps during peak and overnight
hours
What is the best strategy for California to fill its non-renewable energy gaps? 21 Item 1
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Resource Attributes
Each resource provides a unique set of attributes but no resource provides the ideal mix of clean, firm, flexible and affordable energy.
Resource Clean Firm Flexible Energy Source Affordable
Solar/Wind s/ X $
— s/ X
— s/ v/
s/ WMs/ MM N/
$
Storage
Depends on Source Energy
Energy net loss ~15%
N/ $
Solar +
Storage
Fossil $ $
v
'
N/
Geothermal
Potentially
v/
$ $
Biomass
Cleaner than fossil v/ Potentially
v $$ $
'
X
Hydrogen
Depends on Source Energy J2
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-$40
-$20
$0
$20
$40
$60
$80
$100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Pre-Solar Post-Solar Post-Storage
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Renewables and the Markets
Renewables and storage are fundamentally reshaping
markets for energy and capacity:
Illustrative Impact of Renewables and
Storage
on Energy Prices Solar - a “zero marginal cost resource” -is significantly reshaping energy prices on sunny days
In contrast, peak hour prices are rising -reflecting the need of gas resources to recoup their operating costs
over fewer hours
A
V
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-V-Storage is expected to significantly “flatten” prices between mid-day and evening periods
s
Flattened prices reduce the revenue case for storage as flattened prices eliminate arbitrage opportunities
How should California decarbonize energy needs during evening and overnight hours? 23 ➢
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Preferred Resources: Strategic Issues
SVCE has made significant progress in creating a portfolio of carbon free resources but the next phase for renewable development will have new challenges The Renewables Revolution: Clean energy resources are growing rapidly on the system - fundamentally changing the operations and economics of the electric system:
How should SVCE plan for these changes
Integration Will be Critical: Renewable energy resources have tremendous potential to reduce emissions, but need storage, transmission, and flexible load for effective integration:
How can SVCE support renewable integration, including storage, firm resources, and load flexibility? Need for Continued Innovation: To reach 2045 goals, complementary resources will be needed - storage, geothermal, regional and offshore wind, hydrogen, and other technologies will be critical:
How can SVCE support the development and commercialization of emerging technologies? 24 Item 1
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The Changing Grid:
Resource Retirements and
Reliability
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0 Resource Retirements and Reliability
Resource
Retirements
and Reliability
Much of California’s conventional generating fleet is
reaching retirement age:
California’s natural gas, hydro, and nuclear fleet is
readying for retirement -with similar trends
occurring throughout the western market
These retirements are straining both the reliability
and economics of the system, resulting in rotating
The outages and extreme market prices
Changing
Policymakers are deeply concerned with the
potential for upcoming resource retirements in 2024
to further strain grid reliability
How do conventional resource retirements impact the grid? How do they impact SVCE? How can SVCE support a managed transition away from natural gas? 26 Item 1
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TRIVIA QUIZ #3:The End of Gas
Since 2000, what percentage of California’s in-state natural gas fleet has been retired?
A) 100%
B) 85%
C) 65%
D) 35%
E) 15%
F) 0%
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Resource Retirements
The massive growth in renewables and storage is a
2025 key driver of grid change:
ssr I
retirement B
i
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2 000 From 2010 to 2020, 11GW of natural gas and nuclear resources retired in California
3700MWs of
OTC retirements:
2 2 4.000 - Redondo Beach J 834 MWs
6,000
An additional 6.2 gigawatts of firm resources are
expected to retire in the next three years
1,137MWs
|8.000
ington Beach
Ws
- Hunt
226M
4 10,000
1 - Ormand Beach
1,491MWs In addition, several thousand megawatts of
conventional gas and coal on the broader western
grid will retire -impacting the ability of California’s trading partners to supply energy when needed
|12.000
14,000
Upcoming Power Plant Retirements
How do conventional resource retirements impact SVCE? What can SVCE do to mitigate the risk of reliability concerns or extreme market prices? 28 ➢
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0 Drought Risk
In addition to fossil and nuclear retirements, there is growing concern that the hydro fleet will have reduced capacity due to drought:
Hydro resources - both in-state and across the west- are critical D1 [Moderate Drought)
for serving energy and reliability needs in California
D2 [Severe Drought)
D3 [Extreme Drought)
D4 (Exceptional Drought)
IV Prolonged drought, made more likely by climate change, risks reducing hydroelectric capacity or even taking resources out of service entirely
Regional hydro resources which were long available to California for import are now needed by their own states for reliability Understanding reliability risks and drought is a critical area of analysis for state regulators
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Western Drought Conditions, May 2022
To what degree can California count on hydroelectrical resources to meet its current and future energy, reliability, and decarbonization needs? 29 Item 1
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CD Policy Impacts
Reliability is the current “hot topic” in the policy realm driving changes in the regulatory space Future Risks
CPUC / CAISO/ CEC may
change resource counting
rules and resource
requirements, including
for imports and hydro to
account for impact of
climate change. Other
resources such as
solar+storage hybrids may
also receive different
resource crediting
RA IRP CPUC is requiring LSEs
show adequate capacity
to meet their load’s
resource requirements
each hour of the day
starting in 2025.
Current policy has LSEs
show only for peak hour.
CPUC has ordered nearly
15,000 MW of new
capacity.
All CPUC jurisdictional
LSEs have been required
to procure, regardless of
portfolio need.
SVCE must manage regulatory risk when making portfolio decisions. 30 ➢
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0£) Retirements:Strategic Issues
SVCE is contracting for Geothermal and LDS-including exploring new LDS technologies- but such firm, clean resources will continue to grow in importance The Role of Natural Gas: Resource retirements of legacy resources have highlighted the critical reliability function of existing natural gas resources:
How can SVCE support the development of firm and flexible resources which can displace the grid’s reliance on natural gas and other fossil resources during evening and overnight periods?
Hydroelectricity and Drought: The changing climate, growing demand, and policy concerns create complicate the role of large hydro in the clean energy transition:
How should SVCE adapt its planning to mitigate reliance on hydroelectric resources? 31 Item 1
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Prosumers and Electrification
Rooftop solar, back-up storage, heat pumps, and electric vehicles are fundamentally changing how consumers use and purchase energy:
“Prosumers”
and I Electrification
California now has over a million electric vehicles and solar homes -with millions more in years to come
Electrifying heat- both space and water heating -will be a key part of the decarbonization of remaining building
emissions
The Electrification is likely to significantly increase demand on the electric system, with a wide range of implications for SVCE
Changing
Encouraging customers to “shape” new electric demands to high-renewable periods will be critical in mitigating
emissions impacts
How can SVCE support its customers’ electrification transition? How can SVCE ensure electrification supports, rather than hinders, reducing emissions on the electric grid? 33 Item 1
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TRIVIA QUIZ #4:Clean Cars
Electric vehicles produces less carbon dioxide than gasoline cars, unless the energy source is...
A) The US Grid
B) A Natural Gas Power Plant
C) The California Grid
D) Coal Power
E) Biomass
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Addressing Emissions Across the Economy
California’s efforts to address greenhouse
gas emissions have been most effective in
the electric sector
Harder to decarbonize sectors such as
transportation, buildings, and agriculture have
remained generally stagnant despite state-wide efforts
New strategies and funding will be necessary
to bend the curve to achieve long-term goals High GWP
Recycling & Waste
How can SVCE influence the trajectory of
decarbonization in Silicon Valley and beyond?
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California Emissions Trends, 2000-2019 35 Source: CARB, "California Greenhouse Gas Emissions for 2000 to 2019 Trends of Emissions and Other Indicators"
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Electrify Everything!
Electrification is required to address residential
energy demand and lower building emissions:
Electric vehicle options and adoption are rapidly
expanding but"35% of emissions in the SVCE
territory are estimated to come from vehicles
Electric space and water heating is becoming
mainstream but still represent"25% of SVCE territory
emissions
Induction cooktops, which are faster and more
precise than gas, are gaining in popularity but many
customers continue to prefer gas cooking
How can SVCE support residential electrification and electric vehicle adoption? How can SVCE ensure new electric demands are served with reliable and renewable energy? 36 •
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CD Regional Leadership In Efficiency
Emissions are driven by infrastructure choices, infrastructure is driven by policy.
A better building code keeps cost of construction low, prevents pollution, and utilizes the grid’s clean energy.
All-Electric Adopters
Santa Clara County
Mountain View
Morgan Hill
Los Gatos
Cupertino
Sunnyvale
State of California
(Proposed)
Without electrification, heating will remain a major driver of emissions in Silicon Valley -the majority of space and water heating is achieved through natural gas combustion.
SVCE led a regional effort to adopt efficiency and electrification building code standards above and beyond the state
requirements (“reach codes”)
SVCE’s efforts were cited and replicated by the California Energy Commission in the most recent building code update 37 ➢
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CD Rooftop Solar and Storage
Rooftop solar is far and away the most common type of
distributed generation:
25,000 SVCE customers have installed rooftop solar.
Customers generate electricity during the day and import electricity from the grid as needed.
2,600 SVCE customers have installed both rooftop solar
and storage, which helps shift customer energy
production from low-value solar hours to high-value
evening hours
i
SVCE is actively seeking policy and technical strategies to use more customer energy resources for its
environmental and reliability policy obligations
An SVCE Solar Home
How can SVCE encourage customers with solar and storage to operate their systems for maximum grid reliability benefits? 38
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0 Efficiency and Demand Response
The most efficient kilowatt-hour is the one you never have to use:
Energy efficiency remains a key pillar of California’s
decarbonization strategy, and has avoided 33% of
California’s expected energy growth*
Increasingly, demand-side management is about when
customers use energy -demand response programs help
shift customer demand away from stressed evening
periods
SVCE is supporting demand response programs through
targeted solicitations from aggregators and direct
customer incentives
A Nest Smart Thermostat
What does it take to get customers interested in shifting their behavior? How can SVCE better engage the community to participate in efficiency and demand response? 39 * Sourced from https://www.cpuc.ca.gov/energyefficiency/ ➢
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Prosumer Value Streams
There are several benefits to electrification and DERs:
Lower emissions than fossil-based alternatives
Electrification increase SVCE's demand - spreading fixed costs and creating additional revenues for reinvestment in programs and customer savings
DERs decrease demand from grid, potentially reducing total system costs "Smart" Electrification/ DER implementation also creates potential to shape demand -improving economics for all customers
Smart Electrification
$180.00
i
/i\
$160.00 700
$140.00
Total Load Up
Total Cost Down
Energy shifted to high
renewable/ low-cost hours
via smart EV charging and
smart appliances
Baseline Load
$120.00
1 _ vf
i
$100.00
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Electrification
$80.00 / \
„1 CAISO Price
$60.00
200 $40.00
$20.00
$0.00
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Evolving
Prosumers
Demand: Rooftop solar
:
and
Strategic
electrification will fundamentally
Issues
reshape SVCE’s load profiles
a
with competing effects; how consumers choose to use their resources can have significantly different impacts.
How can SVCE support and encourage customers to charge vehicles and use batteries in a manner that best supports grid reliability and decarbonization? Early Adoption and Equity: New technology adoption is often skewed heavily towards wealthy communities, which may have significant equity impacts due to subsidies and stranded costs.
How can SVCE support policies and programs that ensure equity is prioritized for distributed generation and the transition away from the natural gas system? Prioritizing Efforts: The vast majority of SVCE’s clean energy investments are focused on developing grid-scale renewables and storage, consistent with state and local policy.
How do we balance between clean energy investments in the electric sector and decarbonizing other sectors?
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Integrated Resource Plan
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IRP Overview
The CPUC addresses system planning issues in the Integrated Resource Planning proceeding Every two years LSEs file their individual IRP to report how they will meet
Energy obligations
GHG target
RA needs
RPS needs
LSEs also discuss key planning issues, including programs and procurement efforts
CPUC “stiches” together plan and runs models and analysis to ensure system reliability and climate targets will be met The CPUC will order new capacity if:
System plan does not meet system requirements
CPUC does not trust LSEs to procure to plans/ emergency reliability concerns
CPUC would like specific resources built (e.g. LDS or offshore wind) Illustrative IRP Requirements
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2022 Cycle
SVCE will file its next IRP on November 1, 2022.
Two required portfolios:
30 MMT target by 2035 (SVCE share: 420,000 tonnes)
25 MMT target by 2035 (SVCE share: 340,000 tonnes)
SVCE has the option, but not the obligation, to provide additional preferred portfolios Final requirements to be released 6/15, including requirements for reliability showing SVCE expects that CPUC will order additional procurement-likely including offshore wind -at the conclusion of the 2022 cycle
Is there strategic value in providing additional portfolios? Are resources better allocated to other projects and priorities?
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Workshop 1: Recap and
Strategic Discussion
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CD Refresh:The Changing Grid
The Power Grid is undergoing massive change
along four dimensions:
Solar, wind, and storage are growing rapidly
Conventional reliability resources are retiring
across the West
Electrification is increasing customer demand The
Changing Distributed resources are changing how some
customers interact with the grid Grid
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(
2£) The Changing Grid: Four Key Questions
Clean Grid: How to develop an integrated, diverse portfolio of Resource clean energy resources to decarbonize the grid? Retirements
and Reliability Reliable Grid: How to develop clean energy resources that can support reliability and displace the need for natural gas? Prosumers
and
Electrification
Renewables
and Storage
Low-Carbon Roads and Buildings: How to support
decarbonization across the entire economy, including homes, businesses, transportation, and industry?
Customer Choice: How to support customer adoption of emerging distributed technologies (e.g. solar, smart thermostats) in alignment with SVCE’s climate and equity goals?
Strategy Workshop #2 will explore these and other questions in greater depth. Please reach out to Girish with questions or discussion topics in the interim. 47 Item 1
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fijiiiiil
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SVCE & The Market
24/7/365, SVCE’s resources and load are “cleared” in CAISO markets.
The CAISO clears bids and
balances the grid in real time
and pays suppliers for their
product
SVCE (and all other suppliers)
bid energy and other grid
products into the market
SVCE buys energy on behalf
of its customers and pays the
CAISO for the product
S
*
\4 CAISO Market
4k
$
*
All Other CAISO Resources
mu ^
SVCE
^
is both a supplier and source of demand for the CAISO market 49 Item 1
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( S V C E as an Energy Supplier
SVCE acts as a supplier to the CAISO market through its solar, storage, and other PPAs Selling to CAISO, SVCE is Paid: Price (Hourly Price) x Production in Each Hour Buying from Generators, SVCE Pays: Price (Fixed Price) x Production in Each Hour Representative Solar Project
$140.00 180
160
Example:
In hour 12, the market price is $48.65 and
the output of the solar unit is 158 MW.
If the Solar PPA is $30/MWh, the supplier
receives a profit of $2,946 for that hour
($18.65/MWh * 158).
$120.00
140
$100.00
I
120
1 100 I
I$80.00 /
80 5Q
Q- $60.00
60 2 $40.00
40 $20.00
.
20 $0.00 0
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SVCE as an Energy Purchaser
SVCE must also purchase energy on behalf of our customers Representative Load Example:
In hour 18, the market price is $87.86 and
the customer demand is 670 MW.
The LSE will owe the CAISO $58,952 to
cover customer demand for that hour.
$140.00 800
$120.00 N
600
$100.00
i
\
500 5 $80.00 i
J
S
400|
i
I
Note: Significant energy savings can be
realized by shifting load to mid-day or
over-night hours.
Q- $60.00 \
2 $40.00
$20.00
$0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 51 Item 1
PRESENTATION
( H o u r l y GHG Accounting
If an LSE with an 100% clean portfolio leans on the grid for energy in some hours, they are given an emissions allocation under IRP accounting rules
System Emissions
(Co2/MWh)
LSE Net Open
Position
(c) = (a) * (b)
LSE GHG Allocation,
(e)=(c * d)
LSE Load LSE GHG-free Supply Hour (a) (b)
(d)
3:00 pm
4:00 pm
5:00 pm
6:00 pm
7:00 pm
8:00 pm
500 550 -50 0.42 21
550 545 5 0.41 -2
650 800 -150 0.42 64
750 700 -50 0.44 22
850 600 -250 0.43 107
825 400 -425 0.44 189
Total 400
52