# Presentation: 712702

## RENEWABLE ENERGY AND THE CALIFORNIA POWER CRISIS

*Jan Hamrin*

## It’s Not the Environment, Stupid

## The Making of California’s Electricity Crisis

- Market Structure

- Market Power

- Market
- Fundamentals

- Regulatory and Political
- Inaction

## Difference Between Theory and Practice

- Theory

## Practice

## Utility Service Territories

**source: California Energy Commission**

- Diverse historic utility ownership structure
- Three major IOUs
- Two major municipal utilities

## Supply/Demand Imbalance

- Mixed Messages
- CEC-EE, spot capacity, RE forecasts wrong
- 1994 - SCE: “No new power needed until 2005”
- Demand growth steady but not extraordinary

## Supply/Demand Imbalance

- Reduced Supply
- Reduced hydro imports
- loss of 2,000 to 4,000 MW from NW
- Demand growth in surrounding states soaks up excess capacity
- Low prices discourage new construction
- In 1995, utilities fought 1,356 MW of non-utility fossil repowering and new renewable resources (FERC affirmed)

## Population Growth

## California’s Electricity Usage

## California Power Mix - 1999

## California’s Energy Sources

## Utility Divestiture

- 20,000 MW divested so far
- Most plants sold to ~5 major corporations
- Less than 20% of in-state capacity now owned by in-state utilities

## Supply/Demand Imbalance

- Muted Demand Response
- Reduced emphasis on efficiency
- Limited price signals (natural gas price increase has encouraged some conservation)

## Flawed “Deregulation” Model

- Utilities sell off generation
- Loss of control over marginal power sources, including maintenance schedules
- Highest bid accepted sets the market price
- Forward contracts prohibited for utilities
- No attention to demand-side
- Rate freeze limits retail price signals

## The Winter Crisis/Natural Gas Problems

## Natural Gas Issues

- Natural gas is the marginal generation source and sets the market price
- 80%+ of gas use is imported
- Gas price increases inordinately high in California
- Gas supply problems
- Little physical storage
- Retail gas prices not capped

## Gas Pains

## Rising Gas Prices – Oct 2000

## North American Daily Natural Gas Prices

**Selected Prices from Natural Gas Week’s Daily Price Snapshot in dollars per million btu**
**Friday March 30,  2001**

## FINANCIAL CRISIS

## Market Prices Skyrocket - PX Prices

**$/MWh**

## Follow the Money

**Parent Holding Company**

**Regulated Utility**

**PX**

**QF’s**

**Utility Power Plants**

**Big Generators**

- SO4 contracts

- $4.5 Bill

- $0.23/kwh

- Cost ~ $0.05/kwh

## Environmental Issues

-  Environmental Regulation SCAQMD Piece:
- Substituted NOx Credit Trading for SCR/BAT
- Issued Too Many Credits – Credits Cheap
- Result:  Pollution not Reduced
- Plants Sold to Non-Utility (with offsets)
- SCAQMD Ratchets Down # Credits
- Price of Credits Goes 
- A Few Plants Can’t Meet Requirements – Reduce Production

## Someone Must Watch Out for the Public Interest

## Impact on Renewables

- System Benefit Charge has funded several renewables programs
- 1,000 MW of new renewables development
- rebates for “emerging” technologies
- rebates for consumer “green power” purchases
- consumer education program

## Additional Impact on Renewables

- Green Power Market is Casualty
- Despite unconducive market rules, green power marketing thrived
- 2% of retail customers had switched to a green power provider
- Non-residential customers accounted for 38% of green power demand in 1999.
- Wholesale/retail price spread doomed green power marketers

## Green Market Issues

- Regulatory Uncertainty
- Winter Energy Crisis
- San Diego Solution
- Undercapitalized Companies
- Perfect the Enemy of the Good

- PX Pricing Forced Unfortunate Product Choices
- PUC Hostile to Green Markets:
- Unbundling Rules
- Customer Choice Rules
- Poor Consumer Education

## NEAR TERM

- Energy efficiency, load management and renewable energy can and should play a significant role in the solutions

## HOW?  Hedge Against:

- Price & reliability risks
- Resource dependency
- Demand growth
- Environmental costs and requirements

## Looking Forward

- Additional state funding for RE
- Higher rates and outage fears are creating new demand for small RE systems (3 X-PV and wind)
- Public entities looking to RE as a price hedge
- Formation of PPREAT
- Future of “green power” market unclear

## Legislative and Regulatory Remedies to Date

- Expedited power plant siting
- Increased funding for distributed generation, renewable energy, and energy efficiency
- Development of multiple load response programs

## Slide 33