RENEWABLE ENERGY AND THE CALIFORNIA POWER CRISIS

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RENEWABLE ENERGY AND THE CALIFORNIA POWER CRISIS

• Jan Hamrin

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Its Not the Environment, Stupid
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The Making of Californias Electricity Crisis
Market Structure
Market Fundamentals
Market Power
Regulatory and Political Inaction
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Difference Between Theory and Practice
Theory
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Practice
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Utility Service Territories

• Diverse historic utility ownership structure
• Three major IOUs
• Two major municipal utilities

source California Energy Commission
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Supply/Demand Imbalance

• Mixed Messages
• CEC-EE, spot capacity, RE forecasts wrong
• 1994 - SCE No new power needed until 2005
• Demand growth steady but not extraordinary

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Supply/Demand Imbalance

• Reduced Supply
• Reduced hydro imports
• loss of 2,000 to 4,000 MW from NW
• Demand growth in surrounding states soaks up
  excess capacity
• Low prices discourage new construction
• In 1995, utilities fought 1,356 MW of non-utility
  fossil repowering and new renewable resources
  (FERC affirmed)

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Population Growth
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Californias Electricity Usage
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California Power Mix - 1999
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Californias Energy Sources
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Utility Divestiture

• 20,000 MW divested so far
• Most plants sold to 5 major corporations
• Less than 20 of in-state capacity now owned by
  in-state utilities

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Supply/Demand Imbalance

• Muted Demand Response
• Reduced emphasis on efficiency
• Limited price signals (natural gas price increase
  has encouraged some conservation)

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Flawed Deregulation Model

• Utilities sell off generation
• Loss of control over marginal power sources,
  including maintenance schedules
• Highest bid accepted sets the market price
• Forward contracts prohibited for utilities
• No attention to demand-side
• Rate freeze limits retail price signals

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The Winter Crisis/Natural Gas Problems
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Natural Gas Issues

• Natural gas is the marginal generation source and
  sets the market price
• 80 of gas use is imported
• Gas price increases inordinately high in
  California
• Gas supply problems
• Little physical storage
• Retail gas prices not capped

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Gas Pains
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Rising Gas Prices Oct 2000
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North American Daily Natural Gas Prices
Selected Prices from Natural Gas Weeks Daily
Price Snapshot in dollars per million btu Friday
March 30, 2001
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FINANCIAL CRISIS
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Market Prices Skyrocket - PX Prices
/MWh
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Follow the Money
Parent Holding Company
4.5 Bill
Regulated Utility
SO4 contracts
QFs
Utility Power Plants
Big Generators
PX
0.23/kwh
Cost 0.05/kwh
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Environmental Issues

• Environmental Regulation SCAQMD Piece
• Substituted NOx Credit Trading for SCR/BAT
• Issued Too Many Credits Credits Cheap
• Result Pollution not Reduced
• Plants Sold to Non-Utility (with offsets)
• SCAQMD Ratchets Down Credits
• Price of Credits Goes ?
• A Few Plants Cant Meet Requirements Reduce
  Production

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Someone Must Watch Out for the Public Interest
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Impact on Renewables

• System Benefit Charge has funded several
  renewables programs
• 1,000 MW of new renewables development
• rebates for emerging technologies
• rebates for consumer green power purchases
• consumer education program

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Additional Impact on Renewables

• Green Power Market is Casualty
• Despite unconducive market rules, green power
  marketing thrived
• 2 of retail customers had switched to a green
  power provider
• Non-residential customers accounted for 38 of
  green power demand in 1999.
• Wholesale/retail price spread doomed green power
  marketers

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Green Market Issues

• Regulatory Uncertainty
• Winter Energy Crisis
• San Diego Solution
• Undercapitalized Companies
• Perfect the Enemy of the Good

• PX Pricing Forced Unfortunate Product Choices
• PUC Hostile to Green Markets
• Unbundling Rules
• Customer Choice Rules
• Poor Consumer Education

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NEAR TERM

• Energy efficiency, load management and renewable
  energy can and should play a significant role in
  the solutions

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HOW? Hedge Against

• Price reliability risks
• Resource dependency
• Demand growth
• Environmental costs and requirements

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Looking Forward

• Additional state funding for RE
• Higher rates and outage fears are creating new
  demand for small RE systems (3 X-PV and wind)
• Public entities looking to RE as a price hedge
• Formation of PPREAT
• Future of green power market unclear

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Legislative and Regulatory Remedies to Date

• Expedited power plant siting
• Increased funding for distributed generation,
  renewable energy, and energy efficiency
• Development of multiple load response programs

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