On April 1, PG&E raised its electricity rates for the second time since the start of the year, in just the latest of a series of major increases from all three of California’s major utilities over the past several years. Overall, California businesses have seen their electricity rates rise by an average of about 50% since 2020, leading to serious questions about their future in the state – which raises serious questions about the future of California’s economy.

In the face of this pressure on their bottom lines, a growing number of companies are embracing innovation and installing on-site energy systems called microgrids, which reduce their exposure to rate increases while taking pressure off the grid we all depend on. At Scale, we are seeing this trend first-hand, with recent projects including a major grocery store chain in the country, warehousing and logistics providers, and cold storage facilities in agricultural areas.

Why Rates Are Up – And Why They Will Continue To Rise

Before turning to these solutions, it’s important to understand the main driver of these rate increases: utility investments in protecting against the risks of climate change, especially wildfires. Aging utility infrastructure has been implicated in sparking a number of the historic wildfires we’ve seen across California, leading all three of the state’s major utilities to invest in preventive measures including moving power lines underground in high-risk areas. While undergrounding is effective, it is also expensive, with PG&E estimating a cost of about $3 million per mile. 

These investments are ultimately paid for by customers through rate increases. Wildfire mitigation has been a major component of recent rate increases for all three of California’s major utilities – for example, PG&E says that 85% of its recent increase will go towards undergrounding power lines – and this round of wildfire prevention investments won’t be the last. For example, PG&E aims to ultimately put 10,000 miles of power lines underground, and the last several years of rate increases will cover less than the first 2,000 miles. 

Wildfire prevention-related rate increases could even accelerate in the years ahead, as the California Public Utilities Commission (CPUC) recently approved the creation of a new program to fast-track approvals for new utility undergrounding projects.

Distributed Solutions for a Statewide Challenge

A growing number of homeowners are turning towards distributed energy resources (DERs) like rooftop solar and batteries to control their electricity costs – and avoid losing power during blackouts – and so are businesses. Because of their greater power requirements and the importance of reliability for their bottom lines, businesses typically pursue more robust solutions including large solar and battery installations that dwarf typical residential systems, along with high-efficiency dispatchable generation for backup. 

Integrated systems of these DERs are called microgrids, and they effectively augment the utility grid to deliver enhanced electricity service across key metrics. While most businesses retain their connection to the utility “macro” grid for a variety of reasons, the electricity from their microgrid typically provides a significant proportion of their power with lower costs and lower emissions, along with the invaluable added benefit of robust backup power for critical operations during grid-wide outages. 

According to Wood Mackenzie, California is already one of the leading adopters of microgrids, with over 2 gigawatts installed statewide – comparable in capacity to the Diablo Canyon nuclear plant – and at Scale Microgrids we are building a growing number of these on-site energy systems for California businesses. These microgrids will deliver significant electricity cost savings from day one for most customers, and those cost savings will escalate as utility rates continue to rise. 

For energy-intensive operations like cold storage facilities, EV fleets, and data centers, these microgrid-generated cost savings can make an enormous difference to their bottom line, helping them stay in business and stay in California long-term. 

How Microgrids Help The Macrogrid

While microgrids are a clear win for the growing number of businesses installing them, what does this trend mean for the rest of the grid that we all depend on? Will it impact the cost, reliability, or emissions of utility electricity supply? There’s good news here too. 

In terms of costs, microgrids effectively cover a significant proportion of a business’s energy demand for most or all of the day and reduce or eliminate the need for utility service upgrades – for instance, more power to supply a facility expansion or a fleet of electric vehicles. This reduces the need to add more generation and power lines to the utility grid, which reduces the need for investments paid for by the entire utility customer base. 

Imagine if logistics companies like Amazon and UPS built their own roads for delivery trucks, thus taking vehicles off public highways, reducing traffic, and avoiding the need to build new lanes. The utility grid we share benefits in the same way.

In terms of reliability as well as emissions, this reduction in electricity demand relieves pressure on the grid during summer heat waves, when utilities text customers to ask them to turn down their air conditioners. At a minimum, these microgrids reduce the need to run natural gas peaker plants, and during a major demand spike this can even reduce the risk of rolling blackouts. Microgrids can also help essential businesses like grocery stores stay online during grid-wide outages and planned power shutoffs, providing invaluable community resilience.

Powering California’s Growth

Innovation in the use of microgrids could deliver even greater benefits for the entire state in the near future. By coordinating the operation of microgrids and other DERs in virtual power plants (VPPs), the impact of these resources can be magnified, allowing them to completely replace expensive, polluting peaker plants and saving even more on costs and emissions. According to a study from the Brattle Group, VPPs can reliably meet demand peaks at up to a 60% lower cost than natural gas power plants. 

While California faces a serious challenge as we seek to simultaneously protect against climate risks, mitigate the greenhouse gas emissions driving these risks, and keep energy costs affordable for residents and businesses alike, we have cutting-edge solutions that are ready to step up. Microgrids offer one of the best near-term energy options for the companies that power the state’s economy, and as they embrace the spirit of innovation the tech sector is famous for, we can help scale up these resources and keep California open for business.