California Policy's Impact on Gas' Place in Future Fuel Mix - VX2022 Expert Panel


Last week, Bloom Energy opened a fuel cell factory near San Francisco that is expected to produce 1 GW of fuel cells powered by natural gas or biogas by the end of next year. With natural gas looking to remain a key player in ensuring reliability of California’s energy future, Bloom’s Tanya Peacock, SoCalGas’ Jonathan Peress, and The Green Hydrogen Coalition’s Janice Lin spoke at the VX2022 panel “California Policy's Impact on Gas' Place in Future Fuel Mix”, moderated by the CEC’s Siva Gunda. In their discussion, these experts weigh in on how natural gas and its infrastructure will help move along the hydrogen revolution to ensure a greener and more reliable energy future.

Siva Gunda: I'm Siva Gunda. I'm the Vice Chair for the California Energy Commission. It's a pleasure to be here.

Let me start with the 30,000 foot context. Most of us clearly agree that climate change is real, it's here, and it's accelerating. Secondly, as we think about climate change, one of the key strategies to address is to reduce carbon emissions. How do we then address carbon emissions? One of the core strategies has been that it would require a large amount of the economy to be electrified. Once you get past the electrification, there are sectors that can't be readily electrified. Even within sectors that are very well-electrified, like transportation, you will still have heavy and medium-duty vehicles, marine vehicles, and aviation, which would be hard to electrify. Finally, talking about electrification, it's important that the backbone, which is the electric grid, is decarbonized to ensure that electrification does result in the carbon emission benefits.

There is this complete correlation between electrification and gas, especially in order to keep the grid reliable. Most of our work today suggests that there will be times the grid might still rely on thermal generation. We have this intersection of electric system and the gas system. They cannot be done in a silo anymore; they have to be done in a coordinated, comprehensive manner.

As we talk about the energy system, we all recognize that historically, communities of concern have borne disproportionate amounts of burden. Moving forward, equity is an important element as we go through this energy transition. This transition truly is for all Californians. The question is then as we talk about clean, reliable, affordable, equitable, and just transition for all Californians, how do we do that together? One of the things that we have been all talking about over the last 18 months or so, is that none of this can be done alone. It has to be done together in a trusting manner so that we can build collaboration and consensus.

Tanya Peacock: I would add distributed resources to your list of qualities that we need for the electric system. That's going to be key, especially when we're looking at the cost of building out the grid to support massive electrification to meet midcentury climate goals.

I'm Tanya Peacock, and I work for Bloom Energy as the Senior Director of Government Affairs and Policy. Bloom Energy is a California-based fuel cell company. We have a solid oxide fuel cell platform. From that platform, we can make clean electricity 24/7 365 or green hydrogen.

To quickly explain, our fuel cell uses a non-combustion reaction to create electricity. Solid oxide fuel cells, unlike PEM fuel cells, don't have any precious metals. It's a combination of mainly ceramic without platinum, iridium, or any of the hard to obtain elements.

Bloom is headquartered in California, with about 1700 people in San Jose. We manufacture in the Bay Area and are expanding our manufacturing to meet the growing demand for clean distributed energy. Our fuel cells are fuel flexible, meaning they can run on natural gas, biogas, hydrogen, and a mix of hydrogen and methane, without making any changes. If you want to go 100 percent Hydrogen, it's about getting rid of the reforming equipment at the beginning that's part of the energy server.

Fuel cells actually run on hydrogen. It's just that natural gas and the natural gas system is the most cost-effective way to deliver the hydrogen molecules that the fuel cells run on right now. Fuel cells are the interconnection of the gas grid and the electric grid. There's a strong need for clean power resources that are dispatchable, and that's exactly what fuel cells do.

Jonathan Peress: Thank you, Vice Chair Gunda. First of all, it's an honor to be on a panel with you and Tanya and Janice. Vice Chair Gunda, your fact-based and open approach to these critically important issues has advanced the public interest. If you have not read Volume three of the Integrated Energy Policy Report (IEPR), it's a whole discussion on decarbonizing the gas grid. It's a clear context around things like pruning and decommissioning, but yet the need for gas for a whole multitude of high thermal load resiliency purposes. I compliment you and your agency for putting that document out.

I'm the director of Business Strategy and Energy Policy at SoCalGas. I joined from the Environmental Defense Fund about two years ago. In my role, I am responsible for developing and implementing the decarbonization business transformation plan.

The starting foundation for that new decarbonization-oriented approach is that our infrastructure is indispensable for achieving the state's climate goals. Those that would suggest that somehow natural gas infrastructure is an obstacle to achieving the state's climate goals are actually constraining the ability of the state. It's not hyperbole to suggest that if it weren't for the services provided by the gas grid and gas infrastructure, we would have no material renewable deployment on the electric grid because it is predictable that there will be periods when it is necessary to firm that renewable capacity.

Firming is not just ramping, reliability, or resiliency. What we postulate with data is that even as annual throughput declines, the more you electrify and the more you deploy renewables, the more peak hourly usage of the gas grid. Electrification, both building and transportation, actually amplify and magnify the value and the need for the gas grid. Today, we meet those services primarily with traditional natural gas, but we're already working on meeting those needs with clean molecules like green hydrogen. We are continuing to invest in hydrogen, renewable natural gas (RNG), fuel cells, carbon capture, and sequestration to make sure that we can provide those necessary capabilities to achieve decarbonization.

To sum up a bit, business transformation is the transition of the company from one which was a traditional gas transportation and distribution utility to one whose focus is on helping our customers reduce, abate, and mitigate their emissions. As a last point, the largest users of our system are our industrial customers and electric generators. They procure their own fuel, they make the decision to combust that fuel, and as a matter of law, we are required through a non-discriminatory tariff to provide them with the fuel. This means they're not SoCalGas’s emissions, but our infrastructure is critical to customers being able to reduce their emissions.

Janice Lin: My name is Janice Lin, and I'm the founder and president of the Green Hydrogen Coalition. We're an educational nonprofit that was formed to advance and accelerate a clean and just energy transition with mass scale, low cost delivered green hydrogen.

There are a lot of hydrogen organizations out there; let me start off by saying how we're different. One, we believe in a future where green hydrogen is the low-cost alternative. We want that future to happen in a few years, not in 2050, because the planet can't wait. How we're going about compressing that eventuality of low-cost, mass-scale abundant green hydrogen is to aggregate large-scale demand across sectors in targeted locations, so we can have visibility into high-volume, competitive supply chains.

When we've been studying this, we've done an end-to-end system plan. I'll tell you, it is not crazy. Achieving under $2 a kilogram delivered right here in LA is entirely doable with off the shelf technology that we have right now. The one key enabler that requires all of us is in the infrastructure. Gasoline, natural gas, and diesel would be really expensive too if we didn't have oil and gas pipelines. We're starting from scratch with green hydrogen. There's already hydrogen infrastructure, but most of it's in Texas, not here. We have some infrastructure that we can take advantage of, and it's this shared infrastructure that makes that low delivery cost achievable. That's where our gas, electric, water system, and waste planning is coming to a head. It's an amazing opportunity for all of us to rethink everything. We can rethink about the opportunity to optimize across the spend of our infrastructure sectors, and that one little agent that enables us to do that is green hydrogen.

Siva Gunda: We've been talking about California's climate goals. Each of you have a particular interest in shaping that discussion. From each one of you, when you look at the 2045 goals, what do you see as the opportunity from your perspective, as well as policy barriers?

Tanya Peacock: I look at this as a technology provider company. Fuel cells are fuel flexible, so they can run on renewable fuels. They use virtually no water after initial startup. They are also solid oxide fuel cells, so you can add carbon capture. If you have fuel cells running on biogas with carbon capture, you have actually negative carbon emissions. We have a project in the Central Valley with a dairy that once we get that certified ARB pathway, it's going to be one of the lowest carbon intensities that anybody's ever seen.

Fuel cells are also 98 percent recyclable. There aren't any toxic elements, so once the fuel cells start degrading, they can be swapped out for new ones and the components recycled.

The other thing is that we're seeing increasing extreme weather events that are that are more and more common. When you have fuel cells as part of a micro grid, they can island in the micro grid. It could have solar panels, it could have batteries, you could have fuel cells, and you can island from the grid, and completely get rid of the need for backup diesel generators. With the Public Safety power shut offs in 2020, customers took their energy reliability into their own hands. There was, in California, about a 20 percent increase in backup diesel generators. Backup generators are 90 percent diesel. As was mentioned in the last panel, if California can't keep the lights on, we're not going to continue to have support for our climate goals. It's really key that we have distributed resources that are clean that provide reliability.

Then the other issue that is always top of mind is cost. PG&E’s current undergrounding proposal could potentially add as much as 10 cents per kilowatt hour to rates. There was a recent analysis by the Farm Bureau looking at the cost of undergrounding transmission lines to protect against fire-related outages. You could save about 90 to 95 percent over underground aid. Again, we have the technology that can really help with the cost effectiveness.

 How many people know that California has a renewable gas standard? As the increasingly decarbonized pipeline delivers a greater and greater percentage of zero and low carbon renewable molecules, end uses get more decarbonized. SB 1440 is encouraging gas pipelines to decarbonize. There's also a part of that rule to add production facilities to have non-combustion technology to generate electricity for onsite use. Of course, a fuel cell is natural application for that.

One more policy in California having to do with is SB 1383, California's methane reduction goal of 40 percent by 2030. It’s also the diverted organic waste requirement of 75 percent by 2025. If you have this diverted organic waste, what are you going to do with it? Turn it into compost or biogas. If you co-digest it at a wastewater facility, you can create RNG, but also the pathway of a biogas to fuel cell to electricity for onsite use to export to the grid or EV charging.

Jonathan Peress: As part of our climate commitment, called Aspire 2045, we put out a detailed analysis about how SoCalGas could contribute and what would be necessary in order to achieve decarbonization. It agreed that the most cost-effective way is a significant portion of electrification with resiliency, clean fuels reliability, and distributed resources investment.

We're an infrastructure company. To Janice's point, that analysis showed we're already behind in starting to deploy some of these clean fuels’ infrastructure and supply chain investments at scale. We need to be having these projects in service in the early 2030s if we're going to achieve this goal. We see the opportunities for our infrastructure, whether it be our storage infrastructure, our ability to provide just in time fuel, and, starting very soon, with RNG and green hydrogen decarbonizing that fuel supply.

Historically, we were providing molecules to our core, small residential and business customers. That's no longer going to be our role in the decarbonizing environment. Our primary role is going to be providing these clean fuels to users who need them. That implicates a lot of what are legacy traditional policies that need to be evolved and updated. It starts with a comprehensive, integrated planning process that looks at these roles together, including on the electric side as well as on the gas and thermal side.

Beyond that, it extends into bringing some of these technologies, like what the commission just started doing for RNG, up to utility scale. Then, there are a whole significant amount of cost allocation and rate design issues because of the traditional approaches will not translate and transition well to what we need to do to be providing clean fuels and decarbonizing both the electric and the gas system.

Janice Lin: On the opportunity, by 2045, we have an opportunity to end fossil fuels. I'm not just talking about the power sector. I'm referring to heavy-duty transport, shipping, aviation, all forms of equipment that use diesel today that's polluting our air. The other thing that I think should clearly be in California's future is a rightful place among global superstars who are going to emerge to be leading exporters, producers, and traders of these alternative decarbonized fuels.

We believe green hydrogen is going to be one of the world's most traded commodities. We have all the feedstock here to produce it at very low cost. We also have this amazing local market from which to scale it.

What would this mean in 2045? The impacts are much cleaner air, especially for the communities who have suffered the most. Secondly, a tremendous amount of new jobs. Here's where we need some intentionality because there's a lot of ways to go from where we are today to where we need to go. Our belief is the right pathway forward is the one that involves the affected communities who have suffered from the impacts of fossil fuels and the workforces and labor unions that work at the oil refineries. There's going be plenty of jobs; we just have to figure out the migration path.

In terms of the barriers, barrier number one is for all of us to get on the same page because fastest progress is the one where there's alignment and where we can work together. The opportunity is so big; I think we need to keep our eye on the prize.

Secondly, there's the infrastructure challenge. Just for a data point, today, hydrogen is delivered to fueling stations at several dollars, maybe three, four, or five, per kilogram. A kilogram is equivalent to like a gallon of gas. If we could deliver that hydrogen in a pipeline, it would take it down to 20 cents. There's a whole host of policy barriers that we could talk about: injection, ability to procure, and who owns it and sells it.

Related to that is how we optimize gas infrastructure and our electric infrastructure. One beautiful thing about gas infrastructure is in its storage. We have this electric infrastructure where we can move electrons. In some places we have this location where we can make low-cost renewable hydrogen, but then we have nowhere to put it. Wouldn't be great if we could just use the gas infrastructure to move those molecules. As soon as you start injecting into the gas infrastructure, what's the accounting mechanism to track those green molecules? Right now, the verdict is out on how to even define how we count.

Then, there are all the policies that could be enabled, if you're talking about electrolysis to incentivize the use of unused electric sector infrastructure to make that hydrogen locally. I agree there's a role for distributed assets.

Audience Question: We talk about natural gas, oftentimes, for those sectors that are hard to electrify. It seems like we miss the fact that renewable natural gas can be cleaner than zero. We desperately need carbon sinks like that. Depending on the carbon intensity of the RNG, just shifting 15-20 percent of the gas in your system to renewable natural gas can make the entire system carbon neutral. How do we recognize the value of that to accelerate the transition to carbon neutrality?

Siva Gunda: Tanya, you mentioned both SB 1440 and SB 1383 as starting points. One of the things you talked with 1383 is the opportunity for onsite generation. How is the policy impacting the business case, and the transformation?

Tanya Peacock: For renewable natural gas, we have a lot of the right policies in place. The renewable gas standard that was put into place by SB 1440 is 12.5 percent by 2030. As you said, there's a huge potential to decarbonize fuels using the gas system as transportation and as storage. Those policies are in place, but we're not aligned politically in terms of what the best solutions are.

By 2045, we're going to have to have gotten rid of most fossil fuels. It's just what that transition looks like. Are we focusing on reducing criteria air pollution that impacts local communities? Are we focusing on managing the carbon cycle and reducing as much methane as possible in the next 10 years?

From my perspective, it's the arguments over the perfect being the enemy of the good. If we can start to align on the importance of managing the carbon cycle and how best to do that in the most cost effective and equitable way, we will be much farther ahead. I think we have all the hydrogen associations in California and some other groups agreed on the best way to approach it, which would be renewable and then clean, based on the federal definition with low carbon. I think it's more organizing and alignment and shared goals because we have great policies.

Jonathan Peress: That alignment needs to be fact-based and recognize effectiveness and cost. There is no doubt, based on our analysis, that reusing existing infrastructure to the maximum practical extent possible is going to be the most cost-effective way to achieving these goals. That does mean bringing RNG up to scale. That means continuing to test hydrogen blends.

Talking about political alignment, if you've got a negative carbon intensity fuel and you capture the carbon when it's combusted, then you end up with essentially the equivalent direct air capture, and that needs to be considered.

The last point I want to make is building and transportation electrification are extremely important. We know that there are going to be lots of customers, I'm not just talking about industrial and electric-generation customers, for whom building electrification is not a practical alternative. That compels us to come up with a clean fuels solution for those customers.

Janice Lin: At the foundation, we need the same lens upon which to evaluate carbon intensity. We're very worried about how the DOE might look at point of production. We think it needs to be further upstream. 

The way forward, you have to have the right building blocks. One of the ways to get alignment is to focus on the end game and where you want to go. The title includes “in our future fuel mix.” Gas policy has a role even in those liquid fuels. I was explaining to my at United Steelworkers, and he works at the oil refineries. I told Norm that humans are always going to need a liquid fuel. I just hope in the future, they're not refined from fossil fuels. There's now a company called World Energy that's making biological aviation fuel. One of the key ingredients is hydrogen. They need a mass scale source of low cost green hydrogen, better if it's green than gray. We can make any kind of liquid fuel with hydrogen and CO2. 


Audience Question: Can you give us a little bit more depth on what SoCalGas is planning, whether it is going to be wind or solar or injection?


Jonathan Peress: I wish that I was the best person to explain all the technical details to you. What we do know is there is a sizable market need for hydrogen. Our idea is to bring transportation-sized quantities, not distribution quantities, of green hydrogen into the Los Angeles Basin.

We have a whole set of prospective customers: the ports, the airports, LADWP. Then, there's the heavy-duty, long-haul transportation angle. These are all viable and necessary uses for hydrogen in the future. It's our earnest hope that that we get the right signal from our regulators for us to really move forward and dig in deep.

Janice Lin: Blending in the existing gas pipeline is a great way to get started. We would support a hydrogen injection standard to green hydrogen, but you can't get to the mass scale quantities that we know we're going to need through blending alone. We will need dedicated, new hydrogen pipelines. The quicker those can be built, the faster we can deliver mass-scale, low-cost green hydrogen to companies like World Energy that are producing safe, sustainable aviation fuel here, the terminal operators in the Port of LA, and heavy duty trucking and fueling operators.

In the course of designing this hub, we interviewed so many offtakers. What we found is the diesel users at the port: the fleet trucking companies want to decarbonize. The number one problem is access to fuel. Where are they going get the hydrogen that's green and low cost at the sufficient quantities? They can't take that supply risk. Solving for the fuel supply is huge.

Siva Gunda: We talked of the need for alignment. I firmly believe that there's probably 80 percent that we all agree on and 20 percent that different people would go down different pathways.

There is also a second element to that alignment, which is the voices that have not been historically heard or are being brought into the discussion for the first time. That comes with challenges of awareness, education, and trust. First question is how are you independently, within your organizations, thinking about engaging a broader stakeholder process that allows for alignment and trust building? And, any closing comments?

Janice Lin: I think you've nailed it. Really, it's about building trust. One of the challenges in moving forward is there's history. It would be one thing if we were starting from a clean sheet of paper. What we have done in bringing together new, especially community, stakeholders: environmental justice groups, tribal nations, labor unions, is we've created this platform called our High Deal platform. We bring everyone together to say, “This is the plan. This is where we're trying to go.” We present what we find with total transparency. Folks can weigh in on the assumptions. In addition to this platform where we all come together, we have smaller groups where we can do deep dives with the concerns of particular stakeholders. That has proven to be very effective.

I think one of the challenges we've realized in the last year is some of these groups are really busy. They don't have an army of staff to focus on hydrogen or renewable gas. I just had a conversation with Marta Segura over lunch, who's the head of the Climate Emergency Mobilization Office here in LA. One of the things we can do is bring our findings to her new commission and share it with the community so we can listen deeply. With that input, we can chart the path forward.

Jonathan Peress: You might be surprised to know this, but SoCalGas’s perspective is that we need to have a new, comprehensive, transparent, multi-participatory, long-term, decarbonization planning approach and framework. This includes a docket supervised by the CPUC, where we can bring all of the parties together, the companies can present their best thinking, we can develop plans working with the other stakeholders, and we would be reaching out to the environmental justice groups, inviting their participation and engagement. It's not enough to hear from an actuate what the environmental justice community has to say. We have ground to catch up on, and we have to improve those impacts. We have to come up with different approaches.

We strongly believe that the current system of planning infrastructure is not sufficient for the task and we need a framework that would provide the means for all of the stakeholders, market participants, academics, whomever, to get together and be transparent. That's how we can build trust.

You asked what we're optimistic about. You started the meeting with the conversation: we all have the same shared goal. There really isn't a difference between what we're trying to achieve if we put the public interest first and get engaged in the way that we and others are suggesting. I'm optimistic that we will get to that point.

Tanya Peacock: In terms of engaging stakeholders whose voices aren't often heard, we really value the work of groups like The Green Hydrogen Coalition, doing the hard work to develop trust, sharing data and science and information, and listening to people. Because of those conversations, I've been able to have conversations at Bloom with some of those stakeholders. We're starting from a level of trust that we didn't have before. Thank you, Janice, for that work you're doing. I think it's hugely valuable in terms of bringing alignment.


My optimism is that those types of conversations are taking place and that there's a growing realization that we do need to work together. No one technology, one sector, or one approach is going to be successful. That growing urgency to address climate change and reduce carbon emissions is actually starting to bring people together to have productive conversations to come up with solutions.

“There is this complete correlation between electrification and gas, especially in order to keep the grid reliable.”—Siva Gunda
“…SoCalGas’s perspective is that we need to have a new, comprehensive, transparent, multi-participatory, long-term, decarbonization planning approach and framework.”—Jonathan Peress