California's New Regional Power Market Law: A Catalyst for Renewable Energy Growth
California's recent enactment of Assembly Bill 825 marks a significant milestone in the evolution of the Western United States electricity market. The bill, signed into law on September 19, 2025, authorizes the California Independent System Operator ("CAISO") to collaborate with utilities and regulators in neighboring states to establish a regional, day-ahead electricity market. CAISO currently manages the electricity grid for the state of California, ensuring the lights stay on through a market-based electricity market. Until now, CAISO has acted primarily within the state of California. This new law will expand the footprint and allow CAISO to tap into a broader flow of energy in and out of the state. The bill is likely to accelerate renewable energy development, enhance grid efficiency, and expand market access for renewable energy projects across California and the broader western United States, supporting California's efforts to address climate change.
Essentially, AB 825 allows CAISO to work with other western states to create a market across state lines. This market among the western states would allow energy to be traded a day in advance, facilitating more efficient power flows and resource planning. This opens new opportunities for California-based developers to export renewable energy for use by out-of-state projects. It will allow for the sharing and distribution of intermittent renewable energy, which will help offload any oversupply on a single grid. Overall, this will have the effect of expanding market access to these projects and allowing California's increasing renewable energy market room to grow.
Additionally, there will be implications from a governance perspective. The bill mandates the creation of an independent board within CAISO to oversee the new market, addressing longstanding concerns about governance and ensuring that participating states have a voice in market rules. It further directs CAISO's board to adopt a proposed market structure in 2028. This will involve a rulemaking proceeding. Interested parties should follow and participate in future rulemakings.
California's participation in the regional market is conditioned on the preservation of its climate policies, including renewable energy mandates and the 2045 zero-carbon goal. By broadening the pool of potential buyers and sellers, the regional market is expected to attract more investment in renewable energy projects, both within California and throughout the western United States. Increased market certainty and expanded trading opportunities are likely to spur new transmission infrastructure, supporting the integration of diverse renewable resources, such as solar from sunny Southern California and wind from the mountains and Pacific Northwest. Greater market certainty and liquidity are anticipated to make renewable energy projects more attractive to investors and lenders, reducing financing risks and supporting project development.
CAISO, through this newly enacted bill, is directed to adopt a proposed market structure by 2028, setting in motion a complex process involving multiple stakeholders. While implementation will require careful coordination, the passage of AB 825 is widely viewed as a critical step toward a more integrated and efficient western power grid that draws on more renewable sources.
Assembly Bill 825 positions California and neighboring states to lead in renewable energy innovation and market integration. By enabling a regional day-ahead electricity market, the law is expected to drive renewable energy growth, improve grid reliability, and create new opportunities for energy developers and investors across the region.
The focus on renewable energy by California is in stark contrast to actions taken at the federal level to halt new leasing and permitting of wind projects and suspend subsidies to encourage their development, and just one more example of how California is at odds with the current federal approach to energy issues. Businesses and stakeholders in the energy sector should closely monitor the implementation of this landmark legislation and its impact on market dynamics in the coming years.
