Energy Exchange

This commentary was originally posted on EDF’s California Dream 2.0 blog.

There are many conceptions of the smart grid; what it is and what it should do for us – the “ratepayers” – who will finance the necessary upgrades to California’s electrical system. I find the concept of a “smart grid ecosystem” — with smart customers, smart utilities and smart markets — to be a helpful guidepost as we seek to evaluate what should be accomplished by the utilities trusted to deploy our smart grid.

Ecosystems achieve resiliency through diversity. We want a variety of clean energy resources on the supply side – hydropower, wind, solar photovoltaic, solar thermal – spread across a variety of locations (but never too far from customers). Similarly, on the demand – or customer – side, Californians, buildings, appliances and electric vehicles create an intricate, synergetic web that can be made more efficient and flexible with customer education and empowerment, customer-focused energy pricing policies, and demand response (which allows customers to voluntarily reduce peak electricity use and receive a payment for doing so in response to a signal from their electric utilities).

There are other ways to contemplate diversity in the energy context: Unlike some other states, most Californians can’t choose their power providers, though they can choose among rate “plans” (which are payment schemes, not plans to help manage energy use and costs). EDF recognizes that a smart energy marketplace will thrive with a greater variety of competitors, products and services, and would like to see “3^rd party energy service providers” able to participate (that catch-all term includes organizations that deliver energy services and products to customers at a variety of levels throughout the smart grid ecosystem).

Yesterday’s announcement by Nest Labs (Nest) is more proof that the smart grid ecosystem is alive and well. With utility partnerships in California and Texas, among other places, Nest uses their intelligent, WiFi-connected thermostat to help customers smartly and painlessly trim energy use by learning, and mimicking, their temperature preferences automatically. For example, the Nest’s Seasonal Savings services will alert your thermostat when new rates apply with a change of season and the device will begin slight adjustments to presets to adapt to predictable weather trends. Read More »

In the past two weeks, California’s California Low Carbon Fuel Standard (LCFS) received a heavy dose of positive news: strong support from major companies to develop cleaner transportation fuel options and solid evidence to prove the standard is working.

On April 2^nd, major business interests and non-profit organizations across the state filed four separate briefs supporting the LCFS in the state Appeals Court in Fresno. The briefs, filed in response to a letter from the court in February, say definitively that the LCFS is a necessary program for California because it creates a market signal for new, cleaner fuels and solutions that can grow California’s economy and improve air quality.

The impressive diversity of interests weighing in is a who’s-who list of energy giants, including the nation’s largest supplier of natural gas for vehicles (Clean Energy), a 108-year old utility with 15 million customers (Pacific Gas & Electric), a consortium of alternative diesel companies (National Biodiesel Board and the California Biodiesel Alliance), and a coalition of five environmental organizations.

Notable excerpts from the briefs include:

With the impetus of the LCFS, the biodiesel industry in California is poised to triple in the next few years with substantial investments and new jobs in many of California’s most economically disadvantaged areas.

– The National Biodiesel Board/California Biodiesel Alliance

Companies with the potential to exceed this target… can sell credits to regulated entities who can’t…creating a strong financial incentive for lower-carbon fuel innovation.

This is why the LCFS is so important- it provides a long term investment signal to create a robust alternative fuel market in a reasonable timeframe.

– Clean Energy

PG&E supports the California Air Resources Board (CARB) in its efforts to preserve the LCFS…the LCFS is an important part of the overall California strategy to reduce greenhouse gas emissions, contributing 16 million metric tons of reductions…with a significant disruption to the LCFS program, it will make it less likely that California will reach its GHG emission reductions goals.

– Pacific Gas & Electric

The LCFS encourages companies to invest in low-carbon fuels to meet increasingly stringent performance targets. Based on statements from alternative fueling industries and the CARB LCFS Fourth Quarterly 2012 Update, even at this early stage of implementation, the LCFS has resulted in rising quantities of lower carbon fuels being consumed in California and the market is rewarding investments in cutting edge, low-carbon fuels.

– NGO Coalition that includes American Lung Association, Coalition for Clean Air, Conservation Law Foundation, EDF, and the Sierra Club

In addition to the legal filings, California also released its latest progress report on LCFS implementationin March showing growth in low carbon fuel deliveries to the state. Credits from the cleanest biofuels have grown by 300% in just nine months, and the data shows that regulated companies have over-complied with the standard by 45% — that’s more than a million tons over the past two years.

Reports have also begun surfacing that major deals for bulk volumes of low carbon fuels are on the horizon. For example, Neste Oil submitted a letter to the California State Senate stating they have already delivered commercial volumes of renewable diesel from tallow (an ultra-low carbon fuel) to California and “expects to deliver approximately a hundred million gallons of NExBTL renewable diesel fuel into California this year.”

In a similar story, San Diego-based Sapphire Energy recently entered into its first commercial agreement for “green crude” (made from algae) sales – an agreement with oil giant Tesoro. According to Sapphire’s president, “This moment is enormously important for the industry as it validates the benefits and advantages of [our] crude, and confirms its place as a market-viable, refiner-ready, renewable crude oil solution.” In a story on Sapphire’s website, the new partnership with Tesoro was described as potentially helping supply clean energy to meet the demand created by new fuel standards, including California’s Low Carbon Fuel Standard.

Implementation of the LCFS is still in the early stages, but in just over two years the standard has started to deliver tangible economic and environmental benefits. The regulation is poised to change a fossil-fuel dependent transportation system that has been developed over the last one hundred years and that costs California drivers almost one hundred billion dollars every year – most of which leaves our state (and nation) the moment it’s spent.

Using Californian ingenuity and the American entrepreneurial engine, we can change the status quo – toward a more sustainable system that doesn’t poison the air and pinch our pocketbooks.

Three months ago California officially opened its world class cap-and-trade program for greenhouse gas pollution – establishing the first ever carbon price in the Golden State and leading the nation on a path toward true climate change action.

Earlier this week, California’s march toward meeting emissions reduction goals was bolstered with a second auction of carbon allowances in the cap-and-trade program, and just today, the results of that auction were released. All signs point to marked success for the program in the second auction, and suggest California is on its way toward fully realizing the goals of the Global Warming Solutions Act of 2006 (AB 32).

As shown by the results released at noon today, overall participation in the February 19, 2013 auction was high, with almost 2 ½ times more credits bid on than were sold. Initial reports show this has beaten all market expectations, and the clearing price of $13.62 suggests a strong belief in the longevity of the overall program.

By selling more than 7 million state-controlled carbon allowances, California’s second auction also raised about $83.5 million – money that will be used to advance the goals of AB 32. Furthermore, since recent legislation was passed in 2012 that requires at least 25% of the auction proceeds to benefit disadvantaged communities, this auction will inspire more than $20 million in investments that can benefit Californians in need.

With respect to who participated in the auction, market statistics show there was approximately a 25% increase in the number of qualified auction participants as compared to the last auction. This increased participation was no doubt partly responsible for the fact that 2013 credits were purchased by a diverse array of bidders (as opposed to credit purchases being concentrated in a few entities). This diversity of participation, coupled with the strong regulatory oversight being used by state agencies and expert market monitors is an important guard against market manipulation and is yet another example of how this market looks to be strong and diverse, a good sign moving forward.

In addition to auctioning off credits that can be used for emissions obligations in 2013, California’s second auction also offered advance vintage credits that can be used for compliance starting in three years (2016). Based on the sales volume of these credits (greater than 4.4 million sold), there continues to be moderate demand going forward for future vintage credits, another indication of the belief of the programs longevity.

A California carbon price opens the door for cleaner energy and clean air, as the State finally has an ongoing cost that can be attributed to carbon pollution. California’s next auction will occur in 3 months, though investments made now can be assured their carbon reduction value can be both calculated and counted on. As shown by today’s auction results, while much of the nation has waited to take concrete action against climate change, California’s train is out of the station and picking up steam every day.