CA Portfolio Troubles Northwest Hydro

By Published On: February 4, 2011

California’s renewable energy portfolio standard is changing Western power market dynamics. Because of renewable requirements, the Golden State buys more Pacific Northwest wind power and less electricity from its big hydro projects, which can create surplus water energy. Last spring, Bonneville Power Administration actually gave away excess hydropower. “It’s an embarrassment of riches, in a sense,” says John Harrison, spokesperson for the Northwest Power & Conservation Council. That organization chronicled the growing extent of the economic dislocation unleashed by the state’s renewables portfolio standard in a report last month. Hydropower projects with 30 MW or more capacity are not considered renewable under California law. Bonneville once could count on California buying surplus energy from its big hydropower plants, particularly in the spring and early summer when Northwest rivers run high and local demand is low, explained Ken Dragoon, Northwest Council senior resource analyst. That power flowed north to south along two intertie transmission lines spanning Pacific Coast states. In the winter, when weather allows BPA to fill its reservoirs and Northwest residents need to turn up the heat, Dragoon explained the flow historically reverses. Hydro projects traditionally have been an important source of power for California. During the power crisis, hydro met 15 percent of the state’s energy needs in 2000. Recently the big dams have supplied less power. For instance, in 2009--the latest year for which data is available from the California Energy Commission--hydro supplied about 10 percent of the state’s power. The effect of renewables also is changing the many decades of power exchanges along the north-south transmission lines, with evidence of less coal power flowing northward in winter as the Northwest relies more on local wind power. Growth of Northwest wind power in response to California’s renewables portfolio standard and similar standards in Oregon and Washington also is depressing the price of wholesale hydropower in the Northwest. In addition, it appears to be dampening the price of coal power from the Southwest. Meanwhile, the West is awash in a growing sea of what’s considered non-renewable power generation. Bonneville, for instance, has 20,430 MW of capacity. That generation is depressing prices in other states but not in California. Growing wind power production in the Pacific Northwest created a critical impact on the wholesale power market in June 2010. Then, Bonneville could not unload its surplus energy. At times during that period, according to the Northwest Council report, the wholesale price ventured into negative territory as heavy rainfall increased river flows. At one point, the price dropped to about (negative) $10/MWh, according to Dragoon. To cope with its surplus, Bonneville actually gave power to thermal generators free of charge to substitute for their power deliveries in exchange for curtailing their operations, explained Michael Milstein, federal agency spokesperson. He said wind curtailment is a last resort, but not out of the question in the future. The Northwest Council report--issued last December before being withdrawn due to antitrust concerns (see sidebar)--suggests June 2010 may not be the worst case. Wholesale prices in the Northwest could go as low as (negative) $15/MWh. The report goes on to note that BPA has said it would stop producing power before it pays utilities to take energy off its hands. Complicating the circumstances is that Bonneville is under an environmental mandate to minimize dam spills during the spring and early summer--the time when it is most likely to have surplus hydropower. That’s because it’s the same time salmon swim upstream to spawn. Spilling dams--rather than running water through their turbines-- dissolves nitrogen from the atmosphere into the water, which kills fish. “BPA is between a rock and a hard place,” said Dragoon. The depressing economic effect of wind power on BPA’s wholesale hydropower income is hitting at the same time the economic downturn cuts into the federal agency’s income by reducing overall power demand. Losses over the past two years have totaled about $300 million, according to BPA. In an effort to regain its financial footing, BPA is cutting its budget and pursuing an 8.5 percent wholesale power rate hike. Meanwhile, with what could be shaping up into a normal hydropower outlook, BPA is bracing for how to handle the traditional slug of surplus energy in the spring and early summer. Milstein said Bonneville plans to release a policy paper as early as next week outlining how it plans to handle excess hydropower. The agency, he explained, anticipates it first would substitute its power again on a free basis for thermal power plant curtailment. If that is not enough, he said the agency may ask wind power generators to curtail their production and seek their customers to pay for their loss in revenue. California gets about 40 percent of the wind power from Washington and Oregon, which have wind capacity of 4,200 MW

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