Intersolar: Solar Finance and Asset Symposium IV California Grid Outlook, a CAISO Perspective

1. Intersolar: Solar Finance and Asset Symposium IVCalifornia Grid Outlook, a CAISO Perspective Clyde Loutan, Senior Advisor Renewable Energy Integration July 7, 2014 San Francisco, California

2. California ISO by the numbers • 60,703 MW of power plant capacity • 50,270 MW record peak demand (July 24, 2006) • 26,024 circuit-miles of transmission lines • 246 million megawatts of electricity delivered (2012) • $8.5 billion annual market (2012) • 30 million people served • One of 9 ISO/RTOs in North America Slide 2

3. California ISO faces unique challenges driven by success of state initiatives and environmental policies • Greenhouse gas reductions to 1990 levels by 2020 • Limits on availability of air emission credits for replacement generation • 33% of load served by renewable generation by 2020 • Possibly 12,000 MW of distributed generation by 2020 • Less predictable load patterns – rooftop solar, electric vehicles, and smart grid • Scheduled phase out of approximately 12,000 MW of once-through cooling in coastal power plants • Delta bay plan managing water flow affecting hydro availability Slide 3

4. Summary of future grid operations to manage a more complex grid • Increased requirements for regulation up and down • Need to manage increased intra-hour flexibility and multiple hour daily ramps • Approx. 3,000 MW of intra-hour load-following • Approx. 13,000 MW of continuous up-ramp within a 3 hour time period (almost double current up-ramps) • Non-dispatchable resources serving load varies between 10,000 MW to 12,000 MW based on maximum capability of resources • Increased instances of over-generation conditions • Need to comply with a frequency response obligation following a disturbance (Compliance with BAL-003-1) • Impact of DER resources on the BES is still not fully understood Slide 4

5. Wind/solar production is significantly reducing the need for conventional resources on peak summer days Load, Net Load, Wind & Solar --- 06/30/2014 43,000 5,200 40,424 MW 4,634 MW 41,000 4,800 39,000 4,400 37,000 4,000 35,000 3,600 33,000 3,200 31,000 Wind & Solar (MW) 2,800 29,000 Load & Net-Load (MW) 2,400 27,000 2,000 25,000 1,600 23,000 1,200 21,000 800 19,000 400 17,000 15,000 0 Load Net Load Wind Solar Net Load (Red Curve) = Load - Wind - Solar Slide 5

6. The ISO has already begun to experience the need for flexible resources during the non-summer months Load, Wind & Solar Profiles --- Base Scenario January 2020 34,000 9,000 7,000 MW in 3-hours 32,000 6,700 MW in 3-hours 8,000 30,000 Load & Net Load (MW) 7,000 Wind & Solar (MW) 28,000 6,000 26,000 5,000 24,000 4,000 12,700 MW in 3-hours 22,000 3,000 20,000 2,000 18,000 1,000 16,000 14,000 0 Net_Load Load Wind Total Solar Net Load = Load - Wind - Solar Slide 6

7. The ISO faces four related planning challenges 3. Upward ramping capability Thermal resources must ramp quickly from minimum levels during daytime hours and new units may be required to start to meet high net peak demand occurring shortly after sundown. 4. Peaking capability The system will need enough resources to meet the highest net-loads with sufficient reliability 1. Downward ramping capability Thermal resources operating to serve loads at night must be ramped downward and potentially shut down to make room for a significant influx of solar energy after the sun rises. 2. Minimum generation flexibility Over-generation may occur during hours with high renewable production even if thermal resources and imports are reduced to their minimum levels. A system with more flexibility to reduce thermal generation will incur less over-generation. Slide 7

8. Non-Flexible resources creates dispatch issues and potential over-generation conditions Potential Over - generation Conditions Base Load Scenario 30,000 28,000 CAISO CAISO 26,000 Net Load 2020 Net Load 2020 24,000 22,000 20,000 18,000 Regulation Down Load Following Down 16,000 Minimum Dispatchable Thermal & Hydro Resources 14,000 Small Hydro (RPS) 12,000 Imports (JOU & Dynamic Schedules) 10,000 Geothermal 8,000 Nuclear 6,000 Gas (QFs) 4,000 2,000 Qualifying Facilities (QFs) 0 Oth QFs Gas QFs Nuclear Geothermal Imports S_Hydro CCGT & Hydro LF Down Reg. Down Net Load IOU – Jointly Owned Units Slide 8

9. ISO’s net-load vs. actual real-time dispatch energy prices for April 12, 2014 Energy prices were zero or negative (blue dots) for 43% of the 5-minute RTD intervals Slide 9

10. Negative energy prices indicating over-generation risk start to appear in the middle of the day during high renewable production days. Increase in real-time negative prices during some hours due to load and supply variability. Slide 10

11. CAISO proposes to require VERs to contribute to essential reliability services due to its unique operating challenges • Four essential characteristics of conventional generation needed from VERs for stable and reliable bulk power system operations: • Capability to provide reactive power support; • Capability to increase or reduce energy output automatically, in response to system frequency; • Ability to limit power production as needed for the promotion of reliability; and • Capability to provide inertial/frequency response. VER – Variable Energy Resources Slide 11

12. Market Enhancements Help the Integration of Variable Resources Slide 12 CAISO Market Enhancements • Active flexible capacity procurement • Dynamic transfers • Lower bid floor to incentivize economic curtailment • Pay-for-performance regulation • FERC 764, intra-hour scheduling • Proposed enhancements to the California Public Utilities Commission’s (CPUC) resource adequacy program • Energy Imbalance Market(Regional Coordination) • Dispatchable VERs • Reliability Tools • Load Following Requirement Tool • Regulation Prediction Tool • VER Forecast Improvements

13. All of the above including regional coordination Storage Generation Voltage Support Wider Operating Range (lower Pmin) Regulation Fast Ramping Over Generation Mitigation Dispatchable Wind/Solar Frequency Response Dispatchable Quick Start Load Shift Peak Load Reduction DemandResponse Slide 13

14. Questions!