Arnold Leitner, founder and CEO of YouSolar Inc., launched his Emeryville, Calif.-based startup in 2013 to sell residential solar-plus-storage systems in emerging markets around the world that lack reliable electricity. Now he sees that opportunity unfolding in his home state after rolling blackouts hit millions of Californians during a sweltering August heat wave and as concerns mount over a repeat of Pacific Gas and Electric Co.'s widespread October 2019 outages to prevent its power lines from sparking wildfires.

"The Third World just came to roost in California," Leitner said in an Aug. 19 interview. With peak wildfire season looming, the company, which seeks to compete with U.S. home solar giant Sunrun Inc., had already seen sales inquiries jump in recent weeks. Battery-backed solar arrays can be combined with traditional backup generators to provide independence from utilities or aggregated into virtual power plants to deliver on-demand grid support, he added.

Small and large-scale renewable energy sources, batteries and demand response will get a fresh look alongside conventional resources in a just-launched sweeping reconsideration of how the nation's largest state economy can keep its lights on as it continues to advance an aggressive decarbonization agenda. That includes covering 60% of all retail sales with renewable energy by 2030, up from an estimated 36% in 2019, and 100% carbon-free retail power by 2045: a transition that puts in jeopardy natural gas generation, which accounted for roughly 60% of 2020 summer on-peak capacity on the California ISO system.

In an Aug. 19 letter to Gov. Gavin Newsom, the heads of the California Public Utilities Commission, California Energy Commission and CAISO, the state's primary wholesale grid operator, committed to using a forthcoming root-cause analysis of conditions that forced Aug. 14 and Aug. 15 rolling blackouts to inform their reassessment of the state's approach to electric reliability.

"We agree that the power outages experienced by Californians this week are unacceptable and unbefitting of our state and the people we serve," CPUC President Marybel Batjer, CAISO CEO Steve Berberich and California Energy Commission Chair David Hochschild told the governor.

State defends renewables

The state's top energy officials already made one major conclusion. "Renewable energy did not cause the rotating outages," they said, countering a scathing Aug. 19 editorial by The Wall Street Journal on "California's green blackouts."

"Our organizations understand the impacts wind and solar have on the grid," the agency chiefs said. "We have already taken many steps to integrate these resources, but we clearly need to do more. Clean energy and reliable energy are not contradictory goals."

Rather than blaming renewables, CAISO officials have cited various possible causes, from a lack of imports due to the heat wave blanketing the Western U.S. to a lack of planning as the state retires aging natural gas-fired generation and ramps up clean energy alternatives. Those concerns, coupled with California's overall shrinking reserve capacity, led S&P Global Market Intelligence to conclude in a December 2019 investigation that the state's historic capacity glut amassed after its 2000-2001 energy crisis could soon swing to shortfalls.

The agencies will re-examine California's demand forecasting process, resource adequacy requirements, assumptions about resource capabilities, procurement plans and demand response programs.

Grid operators and state regulators have differed on critical resource requirements in the past. Significantly, the ISO in August 2019 identified 4,700 MW of additional capacity needs through 2022, with a potential 1,443-MW shortfall already in 2020. The CPUC, however, ordered load-serving entities, including investor-owned utilities and community choice aggregators, to procure just 3,300 MW by 2023, with the first tranche due in August 2021.

'Flexibility solutions play a critical role'

Demand response at businesses, battery storage and smart electric-vehicle charging played important parts in helping to limit the recent blackouts to only two days, according to Surya Panditi, president and CEO of Enel X North America Inc., an affiliate of Italy-based energy supplier Enel SpA

"Over the past week, we've seen flexibility solutions play a critical role in supporting the grid across California," Panditi said, citing the company's 150 MW to 200 MW of flexible capacity that participate in Pacific Gas and Electric, or PG&E, and Southern California Edison Co. demand response programs.

Residential and commercial utility customers' voluntary demand reductions, especially in the early evening when solar production dropped, were pivotal in preventing outages from Aug. 17 to Aug. 19, according to CAISO. As a result, actual demand came in well below the grid operator's day-ahead forecasts on those three days.

To unlock more potential for demand response to contribute to California's capacity crunch, Panditi called for the state to change some rules, including by increasing emergency demand response capacity and allowing customer-sited battery storage systems to participate in wholesale markets as reliability resources.

More storage 'going to make a lot of sense'

With more than 20,000 MW of distributed and grid-scale solar online in California, developers, grid operators, regulators and analysts see a major role for energy storage.

"I think adding more storage is going to make a lot of sense for the state, particularly as you look out in the future where there's more once-through-cooling [natural gas] plants that are designated to retire," John King, executive vice president for renewables at LS Power Group, said in an interview. "With as much solar resource as there is providing economic carbon-free production during the day, it's going to make a lot of economic sense for the state to build battery storage projects to shift that production and deliver it in the evening peak."

LS Power in August energized 230 MW of its planned 250-MW Gateway Energy Storage Project in San Diego County, making it the largest operational battery storage facility in the U.S., according to S&P Global Market Intelligence data. Southern California Edison recently inked a contract for a 100-MW portion of Gateway, along with six contracts with other developers of battery projects at solar farms.

LS Power has also started work on its 200-MW Diablo Energy Storage Project for PG&E, expected online next summer, according to King.

Bigger battery volumes are planned, including a potential 1,500-MW Vistra Corp. project at a gas-fired plant on Monterey Bay, of which 400 MW is under construction or under contract.

"Storage is providing that firm capacity that right now California really needs," said Daniel Finn-Foley, head of energy storage at consulting firm Wood Mackenzie. "They've identified this capacity shortfall. It's just a question of getting the energy storage up and running and online and on the grid."

After entering 2020 with 136 MW of battery storage, CAISO expects 923 MW by the end of 2020, if developer plans pan out. Beyond that, tens of gigawatts of storage projects are under consideration in California. Can developers convert enough of that into operational projects by next summer to avert more rolling blackouts?

"That's going to be a bit of an open question," Finn-Foley said.