June 2, 2021

California- A Grudging Nod to Reality on Natural Gas

California has been wrestling with a plan to shore up generating capacity in the wake of the August 2020 rolling blackouts, while sticking to its ambitious zero-carbon climate goals. Read our post about the California Blackouts.

Key Takeaways:

  • Clean energy must also be reliable and low cost.
  • Natural gas provides both.
  • California’s 10-year plan includes flat natural gas usage for power generation.

What Happened:

An Administrative Law Judge (ALJ) issued a proposed decision on May 21, 2021 calling for 1,000 to 1,500 megawatts (MW) of incremental natural gas generation by 2025 to maintain grid reliability as older fossil-fuel (4,212 MW) and nuclear (2,280 MW Diablo Canyon) generation is retired over the next five years. See the timeline at the end of this piece for more background.

Why

The California Public Utility Commission (CPUC), the state’s utility regulator, is charged with assuring that consumers have “safe, reliable utility service at reasonable rates.”  As is typical in our “checks and balances” form of government, a regulator’s actions can be challenged, and last summer’s blackouts have resulted in a broader review of California’s resource adequacy.  Part of that review was brought before this Administrative Law Judge.

Why it Matters

Prior resource plans have relied solely on incremental imports, renewable generation, and storage to fill this gap so a recommendation supporting any new fossil-fuel generation is significant in a state committed to meeting all its electricity needs with zero-emission resources.

Sea Change, No. Reality Check, Yes.  Nuclear and legacy fossil-fuel generation may be politically unpopular, but they produce power 24/7.  The ALJ recommendation acknowledges that the generating capacity being retired from these sources over the next few years is not easily replaced by intermittent renewable generation and points to the recent shifts toward renewables as a big factor in the forced rolling blackouts when accompanied by the extreme heat the state experienced last August.  The recommended amount of new natural gas generation accounts for <10% of the planned capacity additions over the next 4-5 years, but we find it telling that this was the best solution put forth to help solve potential grid reliability and cost issues in the future.

Besides, Rolling Blackouts Trigger Dirty Fuel Usage.  The proposed decision notes that forced demand response (polite-speak for rolling blackouts) triggers usage of “the least favorable environmental options of all: backup generators, which are often diesel-fueled.” The ALJ also prudently recommends that incremental gas capacity use existing sites, be held to higher efficiency and emissions standards, and not place additional burdens on disadvantaged communities.

Rumors of My Death… We’ve previously noted that California’s resource plans call for nearly the same gas usage in 2030 as in 2021 because cost and reliability are just as important as environmental impact.   Diablo Canyon is the only remaining nuclear power plant in California and provided almost 10% of state’s energy portfolio last year. As the planned closure of Diablo gets closer (2024/2025), we wouldn’t be surprised if California politicians and planners follow New York’s example and loudly trumpet the closure of a nuclear plant but very quietly increase their usage of natural gas to ensure there is sufficient reliable, dispatchable power.

Figure 1:  Cumulative Resources in California’s 2021-30 Reference Power Portfolio

Source: California Public Utilities Commission Decision 20-03-028 March 26, 2020

Timeline:
January 2018:  CPUC allows PG&E to close down Diablo Canyon when license expires in 2024/2025 but rejects PG&E’s proposal to replace resources with a combination including fossil fuel plants.
October 2020: CA Independent System Operator[1] (CAISO) warned in a filing that the system will hit a “critical inflection point” after Diablo Canyon retires, with resource needs that are much higher than initially anticipated to ensure reliability.
February 2021: CPUC issued a ruling to procure 7,500 MW resources 2023- 2025.
May 2021: CPUC Administrative Law Judge (ALJ) calls for 1,000 to 1,500 megawatts of incremental natural gas generation by 2025 to maintain grid reliability.

[1] California Independent System Operator (CAISO) has the job of dispatching power plants but has little authority to ensure they get built.

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