The end of California's drought is exposing the full effect of the state's move to renewable energy.
A wet winter has loaded up the hydroelectric system, while solar generation rose by 33 percent in the past year. These increases, combined with the usual spring winds, are pushing gas off the grid, cutting imports, and reducing carbon emissions at an unprecedented level.
As California's independent system operator said: “The growth in these preferred resources is nothing short of phenomenal.”
But that "phenomenal" growth is also setting new records for negative prices and curtailment of renewables, primarily utility-scale solar plants. CAISO predicts 6,000 megawatts to 8,000 megawatts of curtailment this year.
“It’s an interesting growing pain of our increasingly green grid,” said Shannon Eddy of the Large-Scale Solar Association. “We’re curtailing the cleanest and newest resource on the grid, and leaving alone the 2,000+ megawatts of mostly fossil imports and in-state gas.”
And the growing pains will likely continue. The latest U.S. Solar Market Insight report from GTM and SEIA counts solar projects in the works that will double California’s capacity from 17 gigawatts in 2016 to 34.5 gigawatts by 2022. With springtime power demand peaking at well under 30 gigawatts, we may see a very solar future.
Or a train wreck.
One fine day
Spring shoulder months are especially concerning. With demand low due to cool temperatures, supply is already high from copious wind, water and sun. As summer temperatures rise, air conditioning demand will soak up the solar power.
March 26, a balmy spring Sunday in the Golden State, was an especially vivid example of the growth of renewables and their impact on the market. CAISO got 33 percent of its power from RPS-eligible renewables, plus 15 percent from big hydro, plus another 10 percent from nuclear -- making it fully two-thirds carbon-free. As shown in the first interactive figure below, thermal (namely gas) and imports were shoved out of the way by a huge burst of solar power, but came back to cover the evening ramp and peak.
(The figure also estimates output from customer-owned solar, though no one actually tracks it. See the article “California Has More Solar Than You Think” for more information.)
Unfortunately, March 26 also saw lots of curtailment of utility-scale solar plants -- about 6,500 megawatt-hours or 8.5 percent of their output for the day. Two-thirds of the cuts were to mitigate local congestion, with the rest to reduce system-level impacts.
This can also result in negative prices. While good for consumers, too much negative pricing can spell trouble for generators of all kinds. Negative pricing has been steadily increasing in recent years, and shifting to midday hours. January and February saw more than twice as many incidents of negative pricing as the year before, and the peak is expected to come in April. April 2016 saw negative prices in 15 percent of all 5-minute intervals tracked in the state.
Too much of a good thing
Curtailment and negative prices come from a surfeit of generation. Lots of generation relative to supply means low prices, as generators compete to be called on by the ISO market optimization software. Too much generation, or “oversupply” as CAISO calls it, can create reliability problems, and must be curtailed.
Neither is strictly a problem -- they are just signals to market participants to change behavior -- but if California’s clean energy and climate goals are to be met, they can create long-term complications.
As GTM's Jeff St. John recently explained, CAISO follows a set procedure to deal with oversupply. First, market prices drop, pushing some generators out of the market. Prices can even go negative, giving generators a very strong incentive to curtail. CAISO can also accept bids from generators to reduce their output, called a “decremental” bid. And as a last resort, CAISO can order specific generators to turn down, though this is very rare.
What is curtailment?
Who gets curtailed, in what order, and why? And what does curtailment mean for market participants?
CAISO considers three types of curtailment: Economic dispatch, a self-scheduled cut, and exceptional dispatch. These can all happen at the local level, to reduce congestion, or at the system-wide level, to reduce oversupply.
As shown in the second interactive figure below, virtually all curtailments in the past three years have been in the first category, where generators respond to CAISO’s call for less generation and get paid to do so. These "decremental" bids can be worth as much as generation, though they can have other revenue implications for renewable generators.
In economic terms, the decremental bid needs to be more than the opportunity cost of the producer to make it worth their while to turn down. Generators do get paid not to generate, but it is more economically efficient than the alternatives.
Self-scheduled cuts are for generators who have contracts directly with utilities and other power retailers. These generators place a quantity bid with CAISO, but not a price bid, meaning they take whatever the clearing price is for that hour. This tells the market how much volume is being served, but not the price of those generators.
If the first step, economic curtailment, is not adequate to resolve the problem, the market software will pick some self-scheduled generators to curtail based on location and other operational impacts -- but not on price. Still, self-scheduled curtailments are quite rare.
As a last option, CAISO can order a specific generator to reduce output, called “exceptional dispatch.” This is even more rare than self-scheduled cuts, and in fact has been declining even as solar, wind and hydropower output grow. “There is no clear cut reason why, since they are so situational and unique,” said Anne Gonzales of CAISO. She notes that economic and self-scheduled cuts are rising, showing that the market is able to handle the oversupply.
Why pick on solar?
So why are only wind and solar curtailed? Why not other sources?
This comes down to definitions.
“We try not to use the word 'curtailment,'” said Phil Pettingill, CAISO's director of regional integration. “It’s not an operational term.”
“When we talk about it, we are saying that a renewable resource is operating at a level lower than it could. The state RPS assumes that a solar plant will be able to operate all the time, but now we’re saying we are reducing them to meet reliability needs," said Pettingill.
Put another way in a CAISO report: “Only wind and solar resources can be reported in this manner because these resources have a forecast.” Thus, deviations from the forecast output are considered a curtailment.
“There's really no perfect way to measure curtailment,” said Mark Bolinger of Berkeley Lab. In Texas, they use “individual wind turbine anemometers in real time to estimate what would have been generated absent curtailment.”
Other generators whose bids are not low enough to be accepted will also “curtail,” in that they don’t generate power to the market. But that is not what CAISO means by “curtailment.”
And a certain amount of curtailment may be beneficial from a cost-benefit perspective, as it avoids an overinvestment in grid infrastructure. For example, investing in expensive transmission upgrades in order to prevent a few hours of curtailment a year may not be a prudent use of resources.
Andrew Mills at Berkeley Lab thinks there is a ‘‘valley of reasonable curtailment.’’ If you try to absorb all renewable generation, infrastructure costs become very steep. If there is too much curtailment, it becomes too costly to build renewable resources. In the middle of the valley is a cost-effective sweet spot.
One man's cost is another man's benefit
But who bears the costs and earns the benefits depends on the details of contracts, which are proprietary. Utilities can have contracts with generators that allow some hours of economic curtailment without compensation, with additional curtailment paid by the utility at the PPA price. These curtailment rights allow the utilities to optimize their portfolio and reduce customer costs.
Solar generators are responsible for almost all economic curtailments to date, rather than wind. This was certainly true on March 26, as shown in the third interactive figure.
According to Pettingill, an increasing number of contracts require that even self-scheduled renewable generators bid both quantity and price into the CAISO market, so they can respond to economic curtailment, rather than be selected by the market software. This makes the process of curtailment more economically efficient.
But other factors go into the curtailment decision. Solar generators earn investment tax credits and resource adequacy payments, which are not based on generation, but they also earn credits for the state RPS obligations, which are.
As a result, they can afford to make smaller decremental bids that are more likely to get accepted. In 2016, according to the CAISO Market Monitor, solar bids accounted for most of the bids in the $0 to -$25 range.
Wind generators are not curtailing, according to Bud Earley at Covington & Burling LLP, because they “generally receive -- in addition to market revenues -- production tax credits, renewable energy credits, and contractual energy payments, which amount to about $130/MWh for the average wind resource.”
“Those payments would be forgone if the resource is not dispatched,” he pointed out. If the decremental bid price is too small, wind generators “have no incentive not to generate once they have been accepted in the day-ahead market.”
Another contractual problem is that dispatchable generators may be running more than they should, based on ‘‘use limitations’’ in their contracts that restrict the amount of curtailments, stops, starts and ramps that they are required to perform. So while generators may be technically able to respond, their contract allows them to ignore calls for flexibility.
In a recent memo, Eric Hildebrandt, director of market monitoring at CAISO, recommended that gas generators be dispatched based on “actual unit constraints” as a way to increase flexibility and decrease curtailment of renewables. He believes it is “inefficient for the ISO to treat contractual limitations as physical limitations in the ISO market optimization.”
For all kinds of generators, CAISO recommends “modify[ing] provisions in power-purchase agreements...that deal with curtailment limits to reconcile with renewable portfolio standards priorities.”
The Market Monitor agrees that changes are needed. “As the volume of renewable energy increases -- including within EIM areas -- it will be important for the ISO to continue to encourage flexibility and minimize commitment of inflexible resources, including gas-fired units operating at minimum load.”
Like a Zen master, CAISO concludes that “the market often remedies the oversupply situation and automatically works to restore the balance between supply and demand. In almost all cases, oversupply is a manageable condition, but it is not a sustainable condition over time.”
The CAISO video below illustrates how the system operator is managing oversupply.