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California Blackouts Underscore the Need for Natural Gas to Facilitate Renewable Push

Key Takeaways:

  • California’s electric grid operator was forced to implement rotating blackouts in August 2020 when a heat wave across the Western US caused demand to exceed supply which can permanently damage generating equipment.
  • California’s aggressive purge of older natural gas power plants (11% of supply) left it reliant on imported electricity from neighboring states—which were also seeing record demand and had no power to spare.
  • The transition to renewable energy is real and economically viable, but natural gas and pipeline infrastructure are the best way to reliably and affordably balance the inherent variability of wind and solar production.

What Happened?

On Friday, August 14, 2020, California’s three investor-owned utilities were forced to implement rolling blackouts to prevent the state’s entire electricity grid from collapsing, shutting off power to millions of customers with little or no notice.  Businesses were abruptly forced to close, and residents found themselves without light and air conditioning during a major heat wave.

How did this Happen?

The table below illustrates the season variation in renewable supply. While wind and geothermal generation were similar at 9% and 6%, hydro and solar each supplied only 11% versus 15% and 20% in June.  The sun just doesn’t shine as much in the winter, and snowpack has yet to melt and drive-up hydro production.  That’s why natural gas provided 47% of the state’s electricity in January.

Exhibit 1: California In-State Generation Sources

January, 2020 June, 2020
Natural Gas  47% 37%
Geothermal 6% 6%
Nuclear 12% 10%
Hydro 11% 15%
Wind 9% 9%
Solar 11% 20%
Other 4% 3%

Source:  Energy Information Administration, Bloomberg as of June 30, 2020

California’s fleet of gas-fired generating plants are ideally suited to balance power supply and demand, given the sheer amount of energy they can deliver on very short notice.  However, its carbon-free aspirations led the state to order the retirement of 9 gigawatts of natural gas generating capacity, representing 11% of California’s 2016 installed generating capacity over the past five years.

source:  Bloomberg, Energy Information Administration as of June 30, 2020.

California’s energy planners believed that this reduction in generation capacity could be replaced by increased imports from neighboring states. But on August 14, 2020, the whole of the western United States was baking in the same heat wave as California—so  imports could not make up the shortfall.

What About Batteries?

Battery storage is playing a growing role in storing electricity from solar during the day and discharging it at night.  Declining battery costs, coupled with a high daily utilization rate, make this economic.  What is not economic is long-term seasonal storage of electricity because capturing the electricity from wind or sun at one time of the year and discharging it 6 months later means the battery is unused most of the time. According to one study by the Clean Air Task Force, an environmental advocate, once renewables + batteries exceeds 80% of power supplied, the cost of wholesale electricity would have to rise from roughly 5 cents per kilowatt hour today to about 45 cents to cover the cost of trillions of dollars of batteries with an extremely low utilization rate.   At 100% renewables + batteries, the study says costs would exceed $1.50 per kwh, even assuming a dramatic reduction in battery costs.

Source:  Clean Air Task Force, “Armond Cohen Testimony in Support of the Climate and Community Protection Act, S. 2992” February 12, 2019. California Independent System Operator (CAISO) Power Supply Costs.  CAISO is the grid operator that oversees the operation of California’s bulk electric power system, transmission lines, and wholesale electricity market.

The Role of Natural Gas

Page 43 of California’s 2020 long-term resource plan anticipates that gas will provide roughly the same amount of electricity 5 years from now as it does today.  While this creates tension with those who are pushing for a 100% renewable + batteries solution, planners realize what will happen to electricity costs if the system gets materially above 50-60%.

That’s why natural gas has a rightful place in balancing California’s increasingly variable power generation resources.  Had it not moved so aggressively to shut down its existing gas fleet, the blackouts, in our opinion, probably could have been averted.  Indeed, the large municipally owned electric utilities in Los Angeles and Sacramento that don’t answer to a state regulator have both maintained much higher levels of natural gas generation in their resource mix, and neither resorted to rolling blackouts.

Looking Ahead

Are blackouts something we’re just going to have to learn to live with?  It depends.  Utilities around the U.S. are generally factoring in the need for renewable back up power (batteries, gas fired generation, demand response, etc.) in their resource planning.  California is suffering from poor resource planning that put greater weight on a specific solution – renewables + batteries than on a set of objectives that include not just environmental impact but cost and reliability as well.  Other states are likely taking note.

The Information provided in this article is believed to be accurate as of the date above. EIP reserves the right to update, modify or change information without notice. Any statements of opinion are EIP’s opinion and should not be relied upon as a prediction of any future event. The information is based on data obtained from third party publicly available sources that EIP believes to be reliable but EIP has not independently verified and cannot warrant the accuracy of such information. Investors are encouraged to seek their own legal, tax, or other advice before investing. EIP is not responsible for any information provided in third party links.

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