On June 1, the California Public Utilities Commission (CPUC) released its proposed decision regarding the state’s Resource Adequacy (RA) program.[1] The decision centered on Local Capacity Requirements for 2027-2029, Flexible Capacity Requirements for 2027, and program refinements to the RA program scoped for Track 1. While there is still an opportunity for this ruling to be revised following stakeholder comments, let’s dive into the key proposed decisions and takeaways for developers in California if it is approved.

Key Decision #1 – Energy Storage RA Must Exclude the Foldback Region

CPUC has determined that the current Qualifying Capacity (QC) calculation for storage does not properly reflect the maximum continuous energy a resource is able to provide over a four-hour period due to the “foldback” characteristics of batteries. Foldback, or nonlinearity, describes how certain battery technologies experience a reduced charge or discharge rate when approaching the resource’s state of charge (SOC) limits. The proposed new calculation for storage QC is as follows:

“The storage QC value is clarified as the output level at which a resource can discharge for four or more continuous hours without being affected by nonlinearity (or foldback).”

What it Means for Developers – 

There is general acknowledgement of this nonlinearity issue in the storage industry, and most participants seem to be in agreement with the decision. But it does have a meaningful impact for both developers and Load Serving Entities (LSEs) in California. By removing the foldback region from the RA calculation, storage’s QC may be significantly lower. As an example, a 100 MW 4-hour battery may only qualify for 90 MW of RA, considering foldback in the bottom 10% of the discharge. 

The developer has less RA to sell, but the same revenue requirements. This could lead to higher RA pricing across the state as developers push to protect their investments. From the LSE’s perspective, its existing RA stack is suddenly reduced, leading to a crunch in the market as all LSE’s are looking to meet their compliance requirements.

Key Decision #2 – Accreditation for Long-Duration Energy Storage

One of the main points of contention in the implementation of the Slice of Day (SOD) RA framework was the fact that long duration energy storage (LDES) cannot be properly accounted for if charging/discharging cycles exceed 24 hours. In the SOD framework, storage resources must be able to identify the excess energy that will be used to charge during the forward charging period (FCP), or the prior hours in the 24-hour SOD window. Considering efficiency losses, this current methodology makes it impossible to identify enough hours of charging for a 12+ hour storage resource to qualify for the full 12+ hour RA it expects.

The CPUC set out to remedy this issue with its new ruling. They introduced a sliding scale that extends the FCP depending on the duration of the storage. In other words, the number of days over which the LDES is assumed to charge will be extended for longer duration storage such that it can reach an SOC that supports showing its full duration on LSE supply plans. This FCP multiplier varies by storage duration, as shown below:

Storage Duration (hours)FCP Multiplier
[≥8-<12)2
[≥12-<16)3
[≥16-<20)4
[≥20-<24)5
[≥24-<48)6
[≥48-<72)7
≥72+8

What it Means for Developers – 

While there is some contention over the exact approach the CPUC took, this is progress for how LDES is valued in the context of California RA. Logically, it makes sense that LDES would be able to charge to a higher SOC and provide more value to an LSE’s reliability than a 4-hour battery. The FCP multiplier method provides a technology-agnostic approach to calculating that value without significant additional computational requirements, making it a beneficial improvement without major added burden for the LSEs and CPUC staff. 

The next step for developers is determining the appropriate pricing for their RA offering given the added value that LDES can now provide. It also creates more incentive for longer-durations, but determining the optimal balance between capital cost and RA + wholesale revenues remains a difficult challenge without credible forecasts. 

Key Decision #3 – Incremental Changes for Energy Only Resources for Charging Sufficiency

Members of the clean energy industry have long pushed the CPUC to include Energy Only (EO) resources in the RA program in some fashion in order to support the development of solar and wind resources to meet the State’s clean energy goals. However, the CPUC has always excluded EO resources from RA capacity since they are by definition not deliverable, thus including them would pose a risk to the system reliability. A compromise approach has been suggested, where the energy from EO resources could be used to count towards co-located storage’s charging sufficiency test. Since the EO energy is not counting towards an LSE’s RA obligation, that energy is free to use for charging – or so proponents suggested.

While the CPUC has declined to include all EO capacity for charging sufficiency, noting the deliverability risk and performance uncertainty, they have agreed to allow EO capacity to count up to the Point of Interconnection (POI) limit. Effective beginning in the 2027 RA compliance year, the charging sufficiency value from co-located EO resources will be calculated as follows:

Energy Available for Charging Sufficiency = [Total energy produced (subject to hourly POI

limits)] – [On-site paired storage energy sufficiency need]

What it Means for Developers – 

For developers that already own and operate co-located EO resources, this is a great change that will immediately add value to their project. It does not reach the full benefit that the industry was looking for (namely, counting all EO capacity towards charging sufficiency), but developers with larger solar-to-storage ratios behind a shared POI get more charging sufficiency credit than before, potentially allowing them to show more storage hours in their off-taker’s SOD filing.

This ruling also creates new opportunities for developers to potentially site storage at EO solar resources. By adding storage to these underutilized projects, the solar’s value would immediately rise as it provides the key charging sufficiency need for storage to count towards SOD.

Next Steps –

The CPUC is currently taking comments, and the earliest adoption is the July 2 Business Meeting. While it is expected that most of the ruling will pass relatively unchanged, it will be important to monitor the exact final language for each decision point. Once the decision becomes law, that’s when the real work begins. Developers will need to consider how the changed rules should impact their business model in California, and how the value of their projects will change. CES can support the evaluation of market rules on project viability and provide strategy recommendations for development. Contact Devin Gaby at devin.gaby@ces-ltd.com to discuss your project.

[1] https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M608/K058/608058096.PDF