Editor's Note: On June 1, Public Utilities Fortnightly published an interview with SDG&E CEO Caroline Winn focused on SDG&E’s climate and business strategy. In honor of World Environment Day on Sunday, June 5, we are sharing the full interview is below.
Decarbonization is the talk of every town. Public Utility Fortnightly's Steve Mitnick and Guidehouse's Chris Rogers sat down with SDG&E CEO Caroline Winn to talk about the future of clean energy.
PUF's Steve Mitnick: San Diego Gas & Electric did this study, The Path to Net Zero: A Decarbonization Roadmap for California. What were your main takeaways?
Caroline Winn: It was a year-long study intended to develop a roadmap that would decarbonize our state and region, while also ensuring reliability of the grid. Our study is first-of-a-kind, because all the other studies didn't take into account the reliability criteria we hold ourselves to.
This is an important piece of work for several reasons. One is that climate is our business strategy and something at SDG&E we've been addressing for years.
We have led the clean-energy charge in the region by being the first utility in California to get to forty percent RPS (Renewable Portfolio Standard), with all the work in our wildfire mitigation efforts, all the undergrounding. We have eleven microgrids that are either completed or in construction.
We have batteries. We'll be tripling the amount of battery capacity on our system in the next year, and electrification of vehicles, are just a few examples of our commitment. We have an aspirational goal of net-zero greenhouse gas by 2045 across all three scopes.
It was important that we involve third parties as we do this study. We partnered with Black & Veatch, which did all the modeling. We partnered with Boston Consulting Group, and we also partnered with a UC San Diego climate expert, David Victor.
At a high level, the optimal solution based on the technologies that we know today, based on our modeling, is a diversified approach centered on expedited electrification but paired with clean fuels and carbon removals. Think of green electrons paired with these green molecules.
There are probably four key takeaways. One is that the electrification of buildings, transportation, and vehicles is going to be critical for our state, and electricity consumption in the state could nearly double by 2045.
That's a big finding, which will require a significant expansion to the power grid to meet the emissions reduction target, but also maintain greater reliability.
Point number two is that clean fuels, such as green hydrogen, are needed for two reasons.
They're needed to decarbonize emissions from sources that maybe can't easily be electrified, like heavy-duty trucks and many industrial processes. Also, to complement solar, wind, and battery storage, enhancing the reliability of the grid. Green hydrogen can serve as a longer storage unit.
Finding number three is after we do all that, carbon removal is still necessary to achieve net zero by 2045.
The last finding is that the road ahead is going to require policy changes supported by regulatory and political support. We have to maintain affordability and enhance equity, and the way electricity is priced is going to be a headwind to all the electrification, and we need to reform the electricity rates in California from fully volumetric to cost-based.
In addition, we are seeking federal and state dollars to help offset the cost of this clean-energy transition. We're also going to need the regulators and policymakers to prioritize electric system reliability. We need to incorporate this into the state's long-term planning.
We need to create a regional transmission organization to ensure that Californians are saving money in this whole clean-energy transition. We're also going to need it because the amount of solar, wind, and batteries is great.
My last point is in order to enable the deployment of this infrastructure, and it's not just infrastructure, but we need the right frameworks. We need to enable carbon capture and enable storage. We need to simplify the regulatory process to do so.
This paper has served as a good foundation to have these deep policy discussions necessary in the next, three to five years, for us to have a chance of making it by 2045.
Guidehouse's Chris Rogers: How do you reconcile balancing the urgent need for significant investments in climate adaptation and mitigation, and as you were talking about, keeping the cost of energy affordable for your demographic in your service territory? We all watch the news. Inflation didn't come down as much as expected. How do you balance those?
Caroline Winn: It's a huge priority, especially in our service territory. As leaders, we have a responsibility to balance the need for affordable bills with the imperatives to make strategic investments to tackle climate change, to comply with growing regulations, and maintain safety, and reliable and resilient operations. That's a delicate balance.
The climate is getting worse. We have to continue to invest and ensure the communities that we live in and serve are safe and our grid is resilient. Striking that balance is more difficult than ever before, because of the state of the economy, with inflation, the pandemic's lingering impacts, and volatility in global energy markets.
Everywhere you look, costs are going up, cost of gas at the pumps, natural gas as a commodity, the cost of supply chain, the cost of cable, transformers, energy storage, and parts. It's gone up everywhere. It has put a significant financial strain on our customers, our O&M, and capital programs.
Decarbonization is going to require unprecedented investments in the future, grid mod, and development of new clean fuels. It's not sustainable to put all these climate-related costs on our customers. We need to find other funding mechanisms.
We have legislation we're working on to have the California state surplus budget pay for some of these public purpose programs such as energy efficiency and low-income programs. We're working to try to get some of these federal dollars as it relates to electrification of transportation and hydrogen hubs.
A headwind is going to be electric rates. Because today in California, it's one-hundred-percent volumetric, which was developed decades ago, because we wanted conservation. We didn't want people to use electricity. Now we want people to use electricity.
It's not going to happen with high electric rates. There have to be incentives for customers to move to electrification. That's going to be a big piece of the work that still is needed to be done in all these policy discussions.
There's much work ahead, in addition to all the work we're doing to be more efficient as a company, to look for technology solutions. A great example is we're using a lot of artificial intelligence. Instead of having hundreds of people analyzing data, some of this artificial intelligence could do it much quicker.
Another example is we're trying to underground some of the riskiest overhead lines. Today, we send out hundreds of people in the field before a high-wind event to make sure there're no impediments. We don't have to do that for underground power lines. We don't have to trim those trees like on overhead lines.
There are all these ways to bring down costs. With all this electrification, there's going to be more usage on the grid and that's going to lower rates over time.
Steve Mitnick: How do you see the role of hydrogen in the energy transition?
Caroline Winn: There are going to be hours of the day the sun's not shining, the wind stops blowing, and there's not enough energy storage to serve California. That's why some type of clean fuel, such as green hydrogen, is going to be essential for the future reliability of the grid.
The grid is going to continue to incorporate more renewable energy, moving to sixty percent and then to a hundred percent. We have to develop new dispatchable, clean-generation resources that can be turned on in seconds, which can ramp quickly to fill those lulls in solar and wind production, especially if you have multiple solar drought days.
Our study, this path to net zero, estimates that by 2045, there will be a demand for six and a half million metric tons of hydrogen in California. Almost all of that, eighty percent, is going to be used to enhance electric grid reliability.
We have two pilot projects going on now. Our Borrego Springs Green Hydrogen project started construction earlier this year and will leverage hydrogen for long-duration energy storage.
The storage is going to be tied in with an existing microgrid and will be all dispatched by California ISO. It will support grid reliability in this remote desert community called Borrego Springs.
The other pilot is at our Palomar Energy Center, one of two major power plants. We're installing an electrolyzer powered by these new onsite solar canopies to produce hydrogen onsite. We're going to blend that with natural gas as fuel for the generators.
We believe these experiments are going to play a role in decarbonizing natural gas. We're working with our sister company SoCalGas on this, and their studies show that up to twenty percent hydrogen blend can be used in home gas appliances. There's more research to be done.
We have another project we'll be announcing in June with a university on hydrogen blending. The biggest challenge is going to be proving the technology and ensuring the cost of producing this clean hydrogen is affordable on a large scale.
Chris Rogers: What do you see are the key needs from policymakers and regulators to facilitate and enable this energy transition over the coming years?
Caroline Winn: I talked about some of it before but what is imperative is that we need to maintain affordability and enhance equity. So, in addition to reforming how electricity is priced, we need to look at gas.
Gas usage on our system is expected to decrease by 2045 as more electrification happens. Those who can't afford to electrify their homes, are going to be paying enormous amounts of money for natural gas, so it's another opportunity for reform.
We can't leave low-income communities behind and we need to ensure our grid can accept electrification. We need to make sure we're providing incentives for low-income customers and neighborhoods to get into electric vehicles.
I believe there's a huge secondary EV market and we're working on rebates for low-income customers to adopt electric vehicles.
We also need to make sure state planners and our regulators prioritize system reliability and they need to do that by incorporating a longer-term planning window.
I believe a regional transmission organization in the west is going to give us more guaranteed access to some of these resources when we need it. It's going to bring down prices for Californians. It's going to be the most efficient way to do that.
Policymakers need to incentivize innovation and adaptability by encouraging research and development for these carbon-capture technologies. We need to find ways to fund hydrogen hubs and pipelines.
Policymakers also need to enable deployment of this infrastructure, by simplifying regulatory reviews, the way we get permits. It can't take five or ten years to site a transmission line. It can't if we're going to meet these timelines.
Steve Mitnick: What are the trends you see on transportation electrification, including big commercial fleets? You are way ahead of the rest of the country. How deep can transportation electrification get?
Caroline Winn: In California, the electrification of transportation accounts for over forty percent of GHG and in our region, it's over fifty percent. This is the single largest area we can make an impact in.
Over fourteen percent of new car sales are electric in California and all major OEMs are offering multiple EV models. In addition to light-duty EVs, I believe the next few years we're going to see significant movement and momentum in the medium- and heavy-duty fleets transitioning to zero-emission vehicles. We're already starting to see it with Amazon and the UPS vehicles.
Utilities have a role to play in planning and building the infrastructure that's needed to support the additional load coming from transportation electrification. We held our first EV fleet day last month and it attracted significant interest from EV manufacturers and fleet operators.
Recently, our local public transit agency set a goal to transition the entire bus fleet to zero-emission vehicles by 2040, and this same agency broke ground on a state-of-the-art overhead electric charging system at one of its operation depots.
At our local port and airport, some of these large commercial operations have also begun to incorporate electric drayage trucks, shuttles, forklifts, and some of the ground equipment into their fleets. We're getting one of the first electric tugboats.
Beyond environmental benefits, when you switch to clean vehicles, you can save on the fuel cost. We're seeing the price at the gas pump continue to go up. But it also simplifies maintenance and operations.
There's growing recognition that EVs can provide resiliency benefits with the bidirectional charging. We're doing this pilot with a San Diego company called Nuvve, where electric school buses are doing a vehicle-to-grid pilot. They're providing energy back into the grid.
The DOE recently launched Vehicle to Everything, the V2X initiative and we signed the MOU to be part of that.
Chris Rogers: Energy resilience and energy security have become more important than ever. As climate and geopolitical threats continue to create disruptions, what can utilities do to strengthen resiliency and ensure people are getting the electrons they need?
Caroline Winn: We've been very focused on building redundancy and flexibility into our energy systems, not just to support our operations, but also the operations of first responders and other essential service providers. We have an important role in serving electricity to many, besides creating it ourselves.
We recently installed a zero-emission, energy-storage microgrid at one of our main hubs. It's a regional aerial firefighting base. It's providing backup power for Cal Fire in the U.S. Forest Service. This is the main hub.
When a fire happens, all the aerial assets are dispatched and run out of this base. But they're right in the middle of a high-fire threat area, so there are times where we might have to do a public safety power shutoff.
It was important that this air base, which is central to any firefighting agency, is in that area to continue to have service. The growing risk of these catastrophic wildfires, coupled with record drought conditions, made this project a no-brainer.
We're also tackling reliability from the demand side, the customer side. We're implementing a virtual power plant.
The virtual plant is another experiment and is going to investigate how distributed energy resources such as smart thermostats, load controllers, battery energy storage, or some low-emissions generators can be aggregated and integrated to serve as a resource to balance supply and demand on a grid.
Those are a couple of diverse examples of what we're doing in the resiliency area. We're going to continue to do more experiments. Resiliency and security are top of mind.
Cybersecurity is another huge area. We're doing a lot with our employees in terms of, we have a company goal around email phishing rates. We're counting, we send out these simulated phishing attack emails, and seeing how many employees are clicking on it.