March 13, 2000. In this report, the California Energy Commission staff evaluates the impact of two alternative resource development scenarios on market clearing prices for electricity purchased in California's wholesale market for the years 2000 through 2010. One resource scenario reflects rapid development of many currently announced projects and the other a more cautious rate of resource development driven by energy prices. Staff found that if eleven large power plants are put into service between 2001 and 2003, there would be more generation available than load growth requires over most of the ensuing decade. With this excess generation competing in the market, energy prices would decline below what is estimated as necessary to fund new generation.
Developers are unlikely to build generation when the prospects for making a profit are so bleak.
The staff's forecasts of market clearing prices for these two scenarios for all years in the forecast period are based on the results from a regional market model. The approach attempts to capture the independent nature of resource development decisions. It is based on specific assumptions about the timing and quantity of new resource additions and provides useful insight as to how electricity prices in the competitive market would respond to an influx of new supply. In developing the scenarios, the staff first evaluated more than 40 proposed power plant projects for their likelihood of being built in California within the 2000 to 2010 time frame. This evaluation considered the potential for interzonal and intrazonal transmission congestion, natural gas availability, possible difficulty in mitigating environmental impact as well as the likelihood of local opposition.