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California has taken a critical first step towards creating a cheaper, cleaner and stronger grid through the creation of a western regional electricity market. By working more with its neighbors, California can unlock new clean energy technologies across the West, including offshore wind, long duration energy storage and other clean options that can take a long time to build. This type of cooperation will be essential to keep costs low as California both cleans up its existing electric grid to cleaner options and triple its size to help decarbonize the rest of the economy.
California State Senator Josh Becker has introduced SB 540, which authorizes the state’s electric providers and its grid manager to participate in a western regional electricity market. That market would be governed by a new independent organization. The state would be permitted to join only if certain conditions are met, including the strongest consumer protections of any electricity market in the nation.
Supported by EDF, along with a large cross section of groups including organized labor, large buyers of electricity, consumer advocates, technology providers, utilities, community choice aggregators (non-utility providers of electricity) and independent energy producers, this bill is something to be excited about. It puts California on a pathway to help catalyze the expansion of electricity markets across the West, providing a way for California to buy and sell electricity across state borders that lowers costs, spurs clean energy and helps to keep the lights on during extreme weather events.
SB 540 was informed by the Pathways Initiative — a stakeholder process established by regulators from California and the other western states to explore prospects for expanded electricity cooperation. EDF played a central role in this process, which has unfolded over the last year and a half. The shared commitment to collaboration and the diversity of the coalition supporting this legislation are unprecedented.
Benefits of a western regional electricity market
The basic premise here is simple: coordinated electricity markets can help customers save money, keep the lights on and make the electric grid cleaner, faster. How, you might ask? Well, there are three basic facts that you need to know.
- The electric grid must always be in balance. If the grid makes too much electricity, there could be a power surge that fries electronics. If the grid makes too little electricity, there could be a blackout. Both are highly disruptive and costly events.
- The wind does not always blow and the sun does not always shine — so wind and solar energy can vary a lot. Sometimes there can be too much or too little electricity from these sources. So California constantly adjusts its power production up and down to help keep the grid in balance.
- The West is a big place — big enough that the power demands in Denver are going to occur at a different time than in San Jose — even though both are roughly equivalent populations. It is big enough that an extreme weather event that impacts one state can be assisted by another.
This is where electricity markets come into play. The West can save money by not needing to build duplicative sources of power in each state. Rather, the West can build clean generating resources where it makes the most sense and then use the market to help optimize and share those resources where it is most needed. In addition, the market saves customers money by more efficiently trading when clean energy resources are producing surplus electricity and displacing duplicative production from existing resources.
The geographic size and resource diversity of the West can also help improve grid resiliency, for example, by increasing availability of resources from across the region to provide critical resources in the case of an extreme weather event, such as a major heat wave, when grid production would otherwise be limited. This was not theoretical — California directly benefited from electricity markets during the summer 2024 heat wave.
Last but not least, electricity markets also help select the cleanest generation option to operate on the grid at any given time, because they efficiently help integrate variable renewable resources, like solar and wind, into the grid.
Existing electricity markets in the West
The current regional electricity market, known as the Western Energy Imbalance Market (WEIM), operates in real time, allowing participants to buy and sell electricity 15 minutes in advance. Not only has California been actively trading electricity with other states in the West for the last decade, its grid operator — the California Independent System Operator (CAISO) — has overseen the market. California has heavily invested in the hardware, software and people power to make this market a tremendous success.
Since its launch in 2014, the Western Energy Imbalance Market has yielded over $6.62 billion in value and displaced over 13,038 MT of greenhouse gas emissions — equivalent to taking over 3,000 gasoline-powered cars off the road for a year. It has been widely successful. CAISO is currently in the process of extending this real-time market into a day-ahead market (hence the name of the “extended day ahead market” or EDAM) starting in 2026, so that electricity can be bought and sold 24 hours before it’s needed.
Extending electricity markets into a day-ahead time frame will give advanced warning to the slowest (and dirtiest) power plants that they will not be needed, further saving customers money and reducing climate pollution and local air emissions. A recent analysis by the Brattle Group indicates California could save nearly $800 million each year and further reduce climate pollution from fossil power plants by 31%. In addition, a recent study by Stanford University indicates that there are significant grid reliability benefits to regional cooperation, especially during extreme heat events.
One way in which regional electricity markets make clean power more available is by more efficiently utilizing existing clean energy sources and reducing curtailment, or the deliberate reduction in clean electricity generation below what could be produced. Curtailment of renewable electricity is a growing problem, especially for solar and wind power generators in California. This curtailment wastes precious clean electricity, but this can be avoided through expanded use of markets, which by expanding geographic and temporal diversity of both clean electricity generators and load can improve integration of clean electricity into California’s electricity supply, providing a more solid financial foundation for a cleaner electric grid.
The need for a regional solution
Both existing markets — WEIM and EDAM — are great for helping optimize the dispatch and operations of existing power production facilities. However, neither market was designed to help finance and build new clean power resources.
This is where SB 540, introduced last week, comes into play. SB 540 enables California to leverage the use of electricity markets as it plans on this longer time horizon. It lets the state’s electricity providers participate in a market that is designed to help build new clean resources that will yield lower costs for their customers. The market rules recognize each state’s clean energy goals, and their individual mandates, ensuring that the market will spur more clean energy. The bill authorizes CAISO to engage in a regional electricity market, if a series of robust market protections are established. Amongst those protection is ensuring that California can still set and meet its own clean electricity goals.
It is important to note that California still maintains full control of its electric grid, its operations, how it dispatches clean resources and keeps the grid in balance — just as all participants in the market outside of California would. The new market becomes a tool for California and other states to help buy, sell and share new clean resources across geographies.
SB 540 is the next step on the path to a cleaner electric grid
By capturing the benefits of a larger electricity market, the fastest and cheapest options will be available for California to transition to a clean energy future. EDF’s prior work indicates that this transition will be harder and more expensive for California without regional cooperation.
While California has pioneered commitments to climate and clean energy action, the vast majority of the West — 80% of electricity customers — is served by a utility sharing our commitment to a clean energy future.
Regional cooperation is an essential ingredient to creating a cleaner western electric grid. By placing California on the path to a regional electricity market, SB 540 will help keep electric bills affordable, speed up pollution cuts from the dirtiest power plants and provide the West with more predictable access to clean energy resources, all while making the grid more reliable. Simply put — it is the right choice for California. It is time to take the next step on the path to a regional electricity market.