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California Confronts Solar Power
Glut with Novel Marketplace

by Gregory Meyer
Financial Times, July 11, 2014

Negative wholesale power prices proliferate in state with high retail rates

Graphic: California electricity generation, monthly data 2010-2017. California is a leader in solar and wind power. The Golden State is well on its way to reaching a self-imposed goal of getting a third of its electricity from renewable sources by 2020, part of an aggressive agenda to cut greenhouse gas emissions.

Yet this bold strategy is causing complications. At noon on clear spring days, too much solar power courses through the state's electrical grid. Generators must pay customers to take excess supply -- a condition called "negative prices" -- or unplug their plants. Still, California consumers have some of the highest electricity rates in the country.

To mop up some of the surplus, California's grid operator has formed a new marketplace that automatically dispatches power across the US west. The move underlines how the spread of clean power in countries from the US to the UK and Germany has forced energy traders and utilities to respond.

The Western Energy Imbalance Market now links the California Independent System Operator (ISO) with seven western states. A utility in British Columbia, Canada, is set to join in 2018 and Mexico's grid operator is also exploring membership.

Amounts of electricity generated by the sun and wind can vary in the space of hours, however, as clouds darken the skies or breezes die down. Every day, solar power fades towards dusk just as people come home and turn on lights, air conditioners and televisions.

The imbalance market helps to iron out utilities' power scramble as supply and demand shift during the day. It builds on longstanding markets for power delivered hours, days or months ahead by offering power delivered between five and 15 minutes in advance. When California suddenly finds itself with too much electricity, other states can now absorb it, and vice versa.

"Solar's great, but there's a point where you have so much solar generation in the middle of the day that it's not all needed," says Mike Clester, manager of power scheduling and trading at Salt River Project, an Arizona utility that plans to join the imbalance market. "Those of us outside the state [of California] say, ‘Hey, if you have too much excess solar and it's lower cost, we'll take it.' "

Oversupply can be a serious problem because electricity cannot be economically stored, unlike commodities such as oil or wheat. Grid operators must match supply and demand at all times.

The situation is most critical in balmy months such as March and April, when the sun is shining but air conditioners are not running.

During the first quarter of 2017 the occurrence of negative prices "increased significantly", according to a report by the ISO market monitor, "driven by a growth in installed renewable capacity and increased hydro generation".

Negative prices appeared 13 per cent of the time in the five-minute ahead market, dropping below minus $50 per megawatt-hour in a few instances. They were most frequent during working hours, when demand was meagre and solar generation strong.

"In cases of negative prices, they're actually getting paid to take that energy and help relieve the oversupply condition," says Don Fuller, ISO director of strategic alliances.

The idea that the imbalance market would grease exports of cheap power out of California has critics.

Gary Ackerman of the Western Power Trading Forum, a trade group for wholesale buyers and sellers of electricity, says that "Californians are paying full boat" for excess power that is "sold at an enormous discount" to others in the region. "Those customers are getting an enormous benefit," he adds.

Participants say the imbalance market lowers overall costs for customers, makes grids more reliable and reduces carbon dioxide emissions by using clean energy that might otherwise be shut off. The ISO says the market has used 412,000 megawatt-hours of surplus California renewable energy since 2015, displacing 176,000 tonnes of carbon.

Neither is the market a one-way street: other market members routinely export their power into California. For example, NV Energy, a Nevada utility that is a unit of Berkshire Hathaway, tends to import from the ISO at midday and export power back in the morning and evening, according to another ISO market monitor report.

PacifiCorp, an Oregon-based utility that is also a Berkshire Hathaway unit, has been able to operate coal-fired power plants less since joining the market in 2014, says Joe Hoerner, its vice-president of energy supply management.

"We're effectively enabling the integration of more renewable resources on to the grid. It's all part of being a broader regional market," he says.

But on other occasions, California's solar supplies have crowded out other solar supplies.

Brad Albert of Arizona Public Service, which joined the market last year, says that when prices are negative it can make more sense to be paid to take power than tap its own solar plants, even though they cost nothing to run.

"Through the springtime and the non-summer season we curtailed our own solar generation fairly frequently," Mr Albert says. "It wasn't every day. But there were a lot of days where we would curtail our own solar generation because we could buy power cheaper on the market than producing at zero."

Related Pages:

Gregory Meyer
California Confronts Solar Power Glut with Novel Marketplace
Financial Times, July 11, 2014

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