San Francisco Rides New Wave of Energy Planning with the Help of the Rocky Mountain Institute

San Francisco Rides New Wave of Energy Planning
with the Help of the Rocky Mountain Institute

By Jenny Constable

Solar Panels on a San Francisco rooftop. Image courtesy of SFPUC.

Editor's Note: This article first appeared in RMI Solutions Newsletter, a publication of the Rocky Mountain Institute. RMI is a 20 year-old entrepreneurial nonprofit organization. RMI's staff shows businesses, communities, individuals, and governments how to meet their goals in ways that create more wealth and protect the environment simultaneously - often by meeting goals more efficiently. For more on RMI's work, visit the website at www.rmi.org.

"Distributed generation and energy efficiency can be a major, if not the most important, part of a plan that improves reliability, reduces emissions, and provides local jobs."
—Ed Smeloff, Assistant general manager, San Francisco Public Utility Commission.

In late 2001, the City of San Francisco was faced with the real possibility that it would soon run out of power if demand continued to grow, and that it would have to rely on old, unreliable, polluting sources to meet existing demand. At the time, the only proposal under consideration was for a new 540-megawatt gas-fired power plant. City leaders were un-willing to be hostage to the power market manipulation that they experienced during the power crisis earlier in the year, and they called Rocky Mountain Institute (RMI) to help them chart an alternate course. Joel Swisher, Ph.D., team leader of RMI's Energy and Resources Services, explains, "When we started advising the city, its default plan would have left it utterly dependent on one independent owner of generation, building one huge new plant."

An Antiquated System
San Francisco's energy system has unique challenges. The city is located at the end of a peninsula on the west side of San Francisco Bay. Electricity generated outside the city must be imported via a single transmission corridor up the peninsula. The city's location at the end of a long transmission system helps make it the part of California most vulnerable to power outages, according to a report by the California Energy Commission.

To offset potential problems with the transmission lines, the California Independent System Operator, a state agency that sets reliability criteria, mandates some electrical generation inside the city. Currently, there are two generating facilities: forty-five-year-old Hunters Point and thirty-eight-year-old Potrero Hill.

According to Ed Smeloff, assistant general manager for power policy and planning at the San Francisco Public Utilities Commission (SFPUC), the "generation that's currently in the city is needed but antique. If you had a car like that, you wouldn't recognize it."

In addition, the Hunters Point plant sits in a low-income, minority community that bears an unequal share of the pollution for San Francisco's electricity generation. A second city goal was to right a longstanding environmental wrong by closing that plant, but how to make that happen was unclear.

"Utilities in California haven't been able to build new power plants since electric industry restructuring took effect," explains Swisher. Independent developers are finding that they can't build coal-fired plants because of the state's emission standards, and it's risky to build a gas plant because of volatile fuel prices.

In addition, power lines are hard to site, especially in cities where most land is developed. The alternatives are energy efficiency, distributed generation, and renewable resources—and that is exactly how the city wanted to proceed.

An Whole-System Plan
Since no one had really done it before, the first step was to create a detailed plan to meet San Francisco's increasing demand for electrical services without a large power plant. RMI's first report to the city, completed in early 2002, showed that other options existed. The next phase of RMI's work was to give the city a portfolio of best options and complete data. Since the California Independent System Operator, the California Public Utilities Commission, and the California Energy Commission have regulatory authority over San Francisco's electricity system, the city must propose the options it wants, and back them up with compelling analysis, to win support for its plan.

RMI's team worked toward consensus on typically controversial and political issues by incorporating the city's electricity planning goals. These goals came out of a process initiated by the SFPUC and the San Francisco Department of Environment (SFE) in 2001 and 2002. The agencies held a series of neighborhood meetings and established a list of eight goals, which call for the city to maximize energy efficiency, develop renewable power, support environmental justice, and reduce air pollution, among other targets.

The RMI team subsequently produced An Energy Resource Investment Strategy (ERIS) for the City and County of San Francisco. This product grew out of the Integrated Resource Planning (IRP) that had been utilities' key tool for meeting demand while minimizing costs before restructuring. IRP helped utilities examine how their resources fit together—what would be needed where and when—and find profitable ways to meet their obligations.

"When the wave of restructuring came along, planning became a bad word," says Swisher. "Some people thought Adam Smith's invisible hand would take care of it.... There's a window in time now where people are seeing that restructuring didn't fulfill its promise, creating both a risk and an opportunity. The risk is that the progress in energy efficiency, distributed generation, and renewables brought by IRP will be lost. But there's now an opportunity to get it right—to combine the powerful market forces of procuring generation at the lowest cost while planning for the best portfolio of energy efficiency, distributed generation, and renewable resources."

ERIS goes beyond traditional IRP to reflect lessons learned and to localize the strategy. It's a modern version of IRP with a few twists and some extra whole-system thinking.

First, it looks not just at what costs might be, but also the risks if estimates are wrong. ERIS doesn't assume the status quo, but looks at what the best options would be, for example, if faster economic growth increases demand beyond expectations. This approach reveals that a different strategy can be profitable in the long run.

"Even if renewable resources are more expensive initially, they bring fewer risks. They act as a physical hedge against risks because their price doesn't vary with market movements," says Swisher. "And you can quickly build them as needed, rather than building a big plant and risking being stuck with huge costs if you guessed wrong."

The energy team also looked for the leverage points within the system that would lead to the largest reductions in investment. ERIS differs from other methods by studying the power grid from the bottom up—from the lights and appliances back to the power plant—not the other way around. It begins with the customers, how they use energy, and how the system delivers electricity to them, then delves into grid costs and generation options. This allows one to ask whether it's cheaper to save energy or to produce and deliver it. ERIS also looks carefully at where investment should be focused, right down to the neighborhood level, to defer or avoid the most investment, especially in the costly distribution system. This approach can also result in a more reliable system, since most power failures originate in the distribution grid.

While writing the San Francisco ERIS, RMI also worked with the agencies to write the city's Electricity Resource Plan, which became city policy.

Cal Broomhead, energy programs manager for SFE, explains, "It was an iterative process, so earlier versions of the ERIS helped in the development of the plan." The plan lays out a framework for San Francisco's energy policy. The San Francisco ERIS, which was finalized after the plan, provides the data behind the policy.

Broomhead adds, "I have a piece of the ERIS photocopied and taped on my office wall. It's a table showing year by year how much energy we need to get from which sources. It will show where we're on track, and where we're not making it."

The San Francisco ERIS brought more local challenges to light. Like most of California, the city experiences daily summer peaks in electricity usage in the late afternoon. But it also has daily winter peaks that occur at night. In years with mild summers and colder winters, the winter peaks eclipse the summer peaks. Because of this characteristic, solar power alone can't solve San Francisco's energy problems; energy efficiency is necessary to reduce peak usage. (See image windowabove).

According to Broomhead, this realization proved important. "The project...even changed my activities, so I'm now continuing to make programs focus on peak load rather than overall kilowatt-hour savings."

In the short term, the San Francisco ERIS calls for substantial investments in energy efficiency and the installation of four small city-owned combustion turbines as peak capacity generators. This will allow the closure of the Hunters Point plant by 2005 and significantly reduce carbon dioxide, nitrous oxide, and other pollutant emissions within the city. The new peakers will rarely run but will provide needed insurance against blackouts.

Over the medium term, the strategy deals with the lack of diversity in San Francisco's incoming transmission routes with the addition of the proposed Jefferson-Martin line, which will import electricity from further west than existing lines. When it is completed, the additional capacity should allow Potrero Hill to close, further improving air quality.

"One of the most important findings is that over the long term if we want to end fossil-fuel generation in the city, we will need to advance the technology of fuel cells," Smeloff notes.

By 2020, the city hopes to make that a reality. "When they do that, San Francisco becomes a city without central generation," Kitty Wang of RMI's energy team notes. "It will be based on a distributed model, similar to what RMI proposes in Small Is Profitable [A book published by RMI that describes ways in which the size of “electrical resources”— devices that make, save, or store electricity — affects their economic value].

The San Francisco ERIS presents scenarios to guide decisions toward the city's goals, including scenarios for the uncertain costs and performance of fuel cell technology. Energy efficiency programs are key to the plan, but it's hard to predict how much energy a program will save because so much of its adoption is dependent on variable factors like human behavior. The San Francisco ERIS accounts for this with scenarios that help city agencies manage discrepancies in the effectiveness of efficiency programs. These contingencies make the ERIS more robust.

Above all, the San Francisco ERIS proves that the city does not need another central power plant to meet its needs. "Distributed generation and energy efficiency can be a major, if not the most important, part of a plan that improves reliability, reduces emissions, and provides local jobs," notes Smeloff.

The RMI energy team's next moves include delivering the ERIS approach to other municipalities and states.

"Our thought is that there's a whole new wave of planning reemerging," says Swisher. "RMI wants to stay ahead of this wave and help utilities meet their customers' service needs in the cleanest, most reliable, and most economical way."

Jenny Constable is RMI's media director. She can be reached here.