The California Electrodox

Posted in Uncategorized at 5:56 am by Administrator

In my last blog I discussed the electricity paradox – electrodox is the term I used – that is disrupting the European electrical generating utilities as increasing amounts of renewable generation sources are developed. Perhaps the most dramatic summary of the impact of the European electrodox was the statement by Moody's in November, 2012 that "Wind and solar power will continue to erode thermal generators' credit quality".

The electrodox is a combination of higher nameplate capacity (increasing electricity supply) combined with flat or dropping demand.  In any normal commodity situation this should produce a drop in prices.  However, in an electrodox the retail price of electricity increases. 

The excess supply of generating capacity should also enhance energy independence.  In an electrodox firm reserve capacity actually declines and imports increase.

Having looked at some of the European data I decided to see if the situation was similar in North America. I investigated one of the larger electricity markets on the continent – California – and  I found that in the the Golden State the Electrodox is alive and well.

The chart below displays information about the electricity generation capacity and consumption within California over the period 2002 to 2011 – the time when significant amounts of renewable electricity generation was introduced into the California market.

(The Electricity Generation Capacities and Total System Power including imports are from the California Energy Commission Almanac).

Between 2002 and 2006 a relatively healthy economy resulted in increasing electricity consumption. Nameplate capacity and California generation grew at about the same rate and imports remained roughly constant at about 63 GW-Hours.

Starting in 2007 the electricity production in California began a slow decline despite the fact that nameplate capacity continued to increase. Imports rose dramatically as the drought that began in 2007 cut hydro generation by more than 22 GW-Hours.

After 2008 overall electricity consumption (as indicated by the top of stacked bars) began to decline. This was primarily due to the financial crisis combined with continued conservation and energy efficiency measures as well as the installation of residential and commercial PV Solar.

From 2008 to 2011 nameplate capacity continued to increase due in part to the development of more wind and solar supported by subsidies and mandated Renewable Portfolio Standards (RPS) requirements. Despite this increase in capacity and a recovery of hydro production back to historic levels, overall California generation continued it's slow decline and imports of electricity into the state did not decrease.

So what are we to make of this seemingly contradictory information? My interpretation is that the variability of renewable energy, in particular wind, has resulted in both reduced utilization of California generating assets and an ongoing requirement for imported electricity.

By 2008 wind generation capacity in California had reached about 2 GW and by 2011 that had doubled to just under 4 GW. Because of the variability of wind this source can produce between 0 and 100% of nameplate capacity and that figure can change dramatically in a matter of minutes.

In California, as in most jurisdictions, wind generated electricity is given preferential access to the grid and will bump other generators, primarily coal-fired and gas-fired plants off the grid when the wind is blowing.

Given that the average demand in California is less than 25 GW the amount of wind generation capacity has become significant, rising from about 10% of average demand in 2008 to almost 20% in 2011.

Sudden drops in wind generation need very rapid responses.  Without having access to hourly generation data and import electricity flows it is impossible to state definitively that wind variability is the cause for continued imports of electricity into California.  But the most likely scenario seems to be that changes in wind generation are balanced by very rapidly responding external sources such as hydro from Oregon and Washington and nuclear from Arizona.  This is exactly the pattern that has been identified by analyzing development of wind electricity generation in Denmark.

The bottom line appears to be that increasing the development of renewable generation in California has not increased the amount of firm/dispatchable generation or decreased the need for electricity imports despite reduced overall consumption.

What about electricity prices? An electrodox results in higher prices despite increases in nameplate capacity and weak demand. As expected, this is exactly what has happened in California, as shown by the graph below.

(Rates were taken from a California Public Utilities Commission Report, peak demand from the California Energy Commission Almanac)

System-wide rates have gone from about 13.5 cents to 15.1 cents/kw-hour between 2002 and 2011, a rise of about 12%. Residential rate-payers have been hit even harder with their rates going from about 13.5 cents to 16.5 cents/kw-hour during the same time period, an increase of over 19%.  This despite the fact that nameplate capacity has increased much more quickly than peak demand.

These price increases make total sense as the new renewable generation has to be paid for while the existing, reliable thermal generating assets also have to be maintained in order to backstop the renewables.

In summary, all of the characteristics of an electrodox as I have defined it exist in California just as they do in several countries in Europe. The situation will only get worse as more and more non-dispatchable renewables are developed. The real stress-test for the new environment will take place when coal-fired plants in the U.S. start getting decommissioned to meet MACT requiremements.  In Europe there are plans to decommission a number of coal-fired and gas-fired plants because they can no longer be run profitably.  For a comprehensive analysis of the European situation check out Paul-Frederik Bach's blog.   Scroll down to the February 21, 2013 entry entitled "ENTSO-E Views on Capacity Mecanisms".

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