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Believe It or Not...

Perhaps you have heard from others during the Covid-19 sheltering that the process leads one to forget what day it is. I encountered this just recently when I ordered curbside take away food from a Mexican Restaurant on May 5. Yep, the video here is the area outside the restaurant with an overflow of folks waiting for food. The parking lot was full of people with masks on trying to maintain social distance while expressing a mild form of rebellion by having some adult beverages. Had I thought about the calendar, I would have avoided this place and ordered Chinese Food. But on to matters more germane to the power business. In case you missed it, WPTF had an interesting Web meeting on “Demand Destruction and Its Implications”. Like any good meeting, there were some surprises.

Well, I didn’t see that coming!

We have all assumed that load would be down because of the Covid-19 sheltering, but an important secondary effect has been the need to curtail renewable energy. The issue of renewable curtailment has been well documented in Gary Ackerman’s musings in the Burrito, but the level of curtailments highlighted by Brian Theaker of Middle River Power during the WPTF webcast was still impressive.

As one can see by this picture, curtailments thus far in 2020 are way ahead of last year’s record pace of curtailments. These curtailments are reflective of levels of load too low to absorb renewable production, and/or load that cannot access the generation due to congestion on the transmission system. For those who have been following this issue, it is not surprising that low load, made lower by Covid closings, combined with large production of distributed (“local”) solar would lead to an oversupply. However, what was surprising was what appeared in this chart that Brian produced:

This bar chart represents the supply from each source of power in the CAISO for the days of March 19-April 27 in the years 2017 to 2020. These days were selected to compare with the Covid-19 period to date. As one can see, renewables generally were down in this period of 2020. However, thermal capacity was up in the period this year. But the real kicker regarding this data was an observation provided by Carrie Bentley in our web meeting.

Carrie used as her “web background” a picture that appeared in the Wall Street Journal showing a crystal-clear view of downtown LA with the San Gabriel Mountains so stunningly clear it was as if they had been painted. The picture appeared as part of an article regarding the improvement in air quality around the country during the Covid closings. Well, that’s odd… more thermal production and air quality improves?

The point was that the power sector, while being the easy villain of climate advocates, does not really represent the most important emitter of carbon in the economy. If one wants to reduce carbon, then the most meaningful reductions will be found in the transportation sector. If one wants to target reductions in the transportation sector, then electrification is the place to do it. While it is a good thing to have renewable sources of electricity, it is important to recognize the need for some level of thermal resources to balance the grid.

This final point segues nicely into what I hope will be the next WPTF web meeting (which should have been the Houston Roundtable WPTF planned for March). The topic of that meeting will be regional Resource Adequacy, specifically focusing on the requirements and capabilities needed for future procurement as well as compensation. Stay tuned.

One more point, before I go…

Given the need for reliable electricity to help decarbonize the grid, a more regional market that is dispatched as a network would be particularly useful. Most folks concerned with western power markets know that efficiently using resources over a broad geographical area would make better use of renewable resources, make integration of these resources easier, and enhance the ability to balance the grid with a smaller, but properly compensated, thermal fleet. However, it is beginning to look as if the momentum toward integrating CAISO with a broader market is waning.

Entities potentially interested in joining in a broader market that includes California are pausing and noticing a few things. First, California is changing policies relative to RA imports such that they may reduce incentives to sell to California. Further, an initiative at the CAISO on system power could very well undermine price formation while trying to deal with a perceived problem that has yet to develop. Finally, the possible paths forward toward greater market development with CAISO absent governance reform are uncertain. The difficulty with the governance of a west-wide market is the formidable hurdle of creating an enhanced day-ahead market with EIM that would not trigger concerns about discrimination, but also would not place transmission assets of utilities outside of California under a governance platform that is controlled by California.

It may be time to consider ways to integrate the West without putting the entire market under one administrative roof. It may be time to consider a “federated” approach with the existing CAISO, and another associated market bound together by coordinating market rules. It is a subject worthy of some thought over an adult beverage and then some discussion. Tuck that thought away.