California – a world beater at big grid electricity decarbonisation

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How is it that California can decarbonise its electricity grid so much more efficiently and cheaply than in Australia? Why is California’s wholesale electricity price only about half that in Australia?

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The Wilsona Solar project will be built near Palmdale, California. Shuttershock
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Alone we can do so little, together we can do so much” Helen Keller

Something is happening here but you don’t know what it isdo you Mr Jones” – Bob Dylan  1965

A keyboard warrior studies California

How is it that California can decarbonise its electricity grid so much more efficiently and cheaply than in Australia? Why is California’s wholesale electricity price only about half that in Australia?

Is that just because, only half tongue in cheek, California doesn’t have any coal generation? Why can California have an economy two times the size of Australia, but in electricity only have half the electricity emissions today and probably only about one-quarter to one-third in 10 years’ time?

So let’s look at California again, shall we Mr Taylor?  It’s of interest, because decarbonisation has progressed further and at a faster pace than would have been thought possible a few years ago.

California’s official renewable energy targets are 33 per cent by 2020, and 50 per cent by 2030. And, of course, the State passed legislation calling for a 100 per cent carbon free electricity sector by 2045. This bill also increases the 2030 target to 60 per cent.

A quick snapshot of California compared to the NEM, basically as they are in 2018, is as follows:

Figure 1 California and the NEM compared. Source: CPUC, NEM Review, and other web sites for GDP etc

Despite the fact many bang on about how cheap coal generation is, I’m not seeing its benefit in the above numbers.

Further, as we will see, gas’s share of generation is forecast by CPUC (California Public Utilities Commission) to fall from 34 per cent today to 23 per cent in 2030. It’s true that gas is much cheaper in the USA than Australia, but it’s still going to lose market share.

Surely Australia must be able to learn from that!

Chorus: Are you reading, Mr Taylor?

The cost of firming is the main cost differentiator in highly renewable systems

Very broadly speaking, the capital costs of variable wind and solar energy [VRE] are somewhat similar around the world. More and more, China drives down the capital cost and most geographies use Chinese equipment as a benchmark.

The costs come down over time according to the learning rate (doubling the installed global capacity lowers unit cost by say 15 per cent).

The global difference in the cost of the electricity produced from wind and solar is driven by:  the wind and solar resource which drives the capacity factor, the cost of capital, land access cost, economy of scale and perhaps the transmission cost, if you want to include that.

Of those, the only one government policy can easily impact is the cost of capital. Good policy will drive down the cost of capital and will lower prices to consumers, big and small.

Chorus: Are you reading, Mr Taylor?

That said, it is firming that is the main issue for the overly familiar “when the wind don’t blow… etc” situation.

Denmark, which has one of the highest penetrations of variable renewable energy (VRE) – wind, in its case – in the world, and one of the most reliable supplies, can do it because of Norway’s hydro resources.

In Scandinavia, generally at the moment, the cost of balancing wind is no more than, say, €3.00. Australia has much better wind resources than Europe.

In California, as can be seen from Figure 1, it’s gas but also nuclear, and geothermal, as well as imports and exports. Of course, nuclear being always on creates its own balance issues but let’s put them to one side.

Despite the fact that Australia’s gas is expensive, relative to California, the shape of the average daily price is similar in most respects. And, in fact, the trough-to-peak percentage change in price is larger in California.

Figure 2 NEM and CA average prices 2018 YTD. Source: NEM Review, Energyonline

One thing to bear in mind is that the NEM runs on Queensland time, and Queensland doesn’t do daylight saving. This pushes the apparent shape of the NEM curve a bit to the left of where it actually is.

The obvious difference is not in the evening but actually in the early morning – and this looks to be the emerging period where Australian thermal generators are cashing in. We can see this more closely by expressing the prices as an indexes.

Figure 3 Source: NEM Review Energy online

Noting that years with different weather can produce very different outcomes, we observe that:

California has a very sharp peak between 5pm and 7pm. One to two-hour peaks are the areas in which batteries are quite economic as storage.

A battery charging at an index of 50 in the middle of the day is discharging at an index of 175-200 for two hours. Of course the absolute electricity price is lower than in the NEM so all storage economics are still driven by capital/capacity cost.

Many of us (that’s the analysts, Mr Taylor, not the Ray Hadleys of the world) expect Australia’s load and price shape to become more like California’s as solar penetration continues to increase. This is the great drawback of solar on its own. It has to be coupled with storage or dispatchable resources.

Gas share in CA to fall, carbon intensity falls, price little changed

Should the ESB make itself useful by encouraging AEMO to extend the Integrated System Plan to an expected generation mix like California’s Integrated Resource Plan?

The CPUC conducts a two-year cycle planning round, the Integrated Resources Plan [IRP] that looks at the expected generation mix in the future.

Conceptually an IRP, like AEMO’s ISP, also looks at the transmission and distribution integration, but as far as we can tell, California’s plan focuses more on the generation mix, see Integrated resource plan reference.

The plan takes a 10-year ahead look based on three reference years within the 10-year period at:

  1. System needs (reliability)
  2. Local needs (within transmission limitations)
  3. Flexibility needs (such as resources needed to integrate renewables)

An outcome of the IRP is procurement plans for Californian utilities. As described on the CPUC website:

Procurement plans detail what is going to be procured and how it will be done. These plans must adhere to State Policies, including the Loading Order, which mandates that energy efficiency and demand response be pursued first, followed by renewables and lastly clean-fossil generation. If the procurement plans do not comply with State policies and adequately balance safety, reliability, cost, and environmental goals, utilities are ordered to modify them” Source: cpuc.ca.gov

The current plan is developed under a goal of 42 million tonnes CO2 electricity sector emissions in 2030. That’s down from 69 Mt in 2017 and compares with the NEG target in the NEM of about 130 Mt. It represents an emissions intensity of about .16tCO2/MWh.

A summary of the generation and energy mix in 2030 that is the output from CPUC’s “RESOLV” modelling is:

Figure 4 Modelled Generation capacity and energy mix Source : CPUC

A slightly different view of the energy output as presented in the Official Administrative document has renewables at 45 per cent of the gross energy.

Figure 5 Gross generation California reference portfolio: Source CPUC decisions 13-Feb-2018

Unfortunately, CPUC does not appear to forecast an average price.

However, they state that the incremental cost is around $237 million per year, compared to business as usual. For want of any better way, we can say that $237m incremental cost and expected generation of 268TWh  gives less than $1MWh incremental cost to get to a 2030 California emissions intensity of .16 t CO2/MWh

Chorus: Are you reading, Mr Taylor?

Gas is cheap. So to get lower carbon, put in more gas, right? Wrong.

The main output of the IRP process in California is the recommended/required additional generation resources to meet the 2030 scenario outlined in Fig 4. This is, according to the model, the most efficient portfolio (lowest cost to meet targeted reliability). Its worth quoting from the CPUC ruling, that is official administrative order.

In general terms, to meet the Default Scenario constraints, the RESOLVE model selects a small amount of additional wind and battery storage and larger amounts of utility-scale solar capacity, by 2030. For the 42 MMT Scenario, the resource mix looks similar, with larger amounts of each resource chosen, plus a small amount of geothermal capacity …..

….In no scenario does the model pick new natural gas plants to be built in the future. “  Source: p 38 CPUC order

It’s well worth reading the original document, rather than my write-up, which could go on for another few thousand words if I quoted everything of interest. Here, I just note that, just as the model didn’t select any new gas plant, neither did it select any pumped hydro.

Next on cost:

The additional resources required to get to the 42 m tonnes CO2 output cost $239 m per year which is about $6 per year for every Californian.

Figure 6 New capacity to meet 44 mt co2 target California. CPUC

Chorus: Are you reading, Mr Taylor?

The model produces a large number of sample day output projections covering different seasons and weather conditions. An example posted for the three reference years as follows:

Figure 7 Source: CPUC IRP modelling

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