Rate design for a decarbonizing grid

Abstract

The Western U.S. electric grid has undergone vast changes since the pre-renewables era. For example, renewables now comprise nearly 30% of California’s electric supply portfolio, and recent CA legislation mandates 50% renewables by 2030. As a consequence, intra-day variation in hourly net loads is rapidly steepening, as shown by the California Independent System Operator (CAISO)’s now famous ‘Duck Curve”. In 2015, CAISO recommended a four-season TOU pricing period design, with peak hours between 4 PM and 9 PM on summer weekdays, and a “super-off-peak” period in spring mid-day hours. We present an aggressive four-season time-of-use (TOU) rate design based on CAISO’s recommended TOU periods, and some illustrative impacts of implementing such TOU rates.In Western U.S. energy markets, high wholesale prices generally correspond to high marginal carbon emissions, and conversely. Properly designed TOU rates can help reduce GHG emissions by discouraging energy use during times of high marginal carbon emissions. However, demand charges, a feature of many commercial rate designs, can negate the benefits of TOU rates if applied during off-peak hours. We show that overuse of non-coincident demand charges can discourage customer investments that would benefit both the customer and the grid if rates were correctly aligned with cost. We recommend the following pricing strategies to support long-term efforts toward decarbonization of the electric grid: (1) More widespread use of aggressive 3- or 4-season TOU rates (or RTP where feasible); and (2) Reduced dependence on demand charges that apply during off-peak hours. Widespread utilization of retail rates that are aligned with temporal variation in carbon intensity, by both residential and nonresidential customers, is essential, for achievement of decarbonization goals. DisclaimerOpinions and recommendations stated herein should be attributed to the author alone, and not to the California Public Utilities Commission or its Staff.