Is California's Resource Adequacy at Risk?

Source US EIA

California is experiencing growing concerns over resource adequacy.  The CAISO took the unusual step of objecting to the proposed shut down of the Calpine Sutter natural gas power plant at FERC saying the plant would be needed as soon as 2017 to assure resource adequacy and thus is made no sense to shut it down now.

Why is Sutter being shut down?

Because California electric demand is weak along with its economy, but all that renewable energy being added to the grid is classified as “must take” so the gas plant gets dispatched after any available other resource. The independent system operator says the growing number of wind and solar resources being procured to achieve the State’s 33 percent renewable portfolio standard (RPS) is adding substantially more volatility to the grid raising worries about resource adequacy because if the state’s thermal resources shut down there will not be enough load following capacity to back up all that intermittent renewable capacity and maintain grid stability.

CAISO asked FERC on January 25, 2012 to stop Calpine’s shut down of the 525-MW power plant near Yuba City at least until the end of 2012 by granting a waiver of its rules so it has time to bring its stakeholders together and make some hard decisions about how to assure resource adequacy. The first meeting of that stakeholder group will take place at CAISO February 6, 2012 and the participants have ten days after that to submit comments.  Why the sense of urgency?

Calpine planned to shut down the combined cycle power plant in May 2012 because it had not been classified a capacity procurement mechanism (CPM) plant.  A CPM designation improves the plant’s dispatch order in the CAISO supply stack as necessary for reliability purposes.  In this way Calpine gets paid for keeping the plant available.  Without that CPM designation Calpine loses money on the plant.

The catch 22 in the CPM designation is that to classify a plant as CPM it must be needed for reliability purposes by “the end of the calendar year following the current resource adequacy compliance year.”  CAISO is telling FERC that allowing even one load following plant like Sutter to shut down risks its resource adequacy calculus because there is too much volatility in the grid and it will get worse as more renewable energy resources are added. So while Sutter does not meet the technical letter of the CPM classification rule by being necessary for reliability by the next compliance year (2013) it will be needed by 2017—and the risk of shutting it down now for such a narrow and uncertain time difference is not worth the risk.

CAISO worried by sum of regulatory impacts on reliability

As if to put FERC on notice that there will be more of these filings to come, CAISO warned it would need Sutter and more load following natural gas-fired capacity like it after 2015 because new environmental regulations on once through cooling water use will force the retirement of 12,079 MW of existing California natural gas capacity over the next eight years.   California Public Utilities Commission to help assure resource adequacy by picking up the pace of procurement of load following resources in addition to all that renewable energy.

The bottom line is CAISO is forecasting a capacity gap of 3,570 MW by the end of 2017 and expects that capacity gap to grow to 4,600 MW by 2020 despite the addition of all that new renewable energy—if the current economic growth conditions continue as weak as forecast.  If California growth picks up faster—all bets are off.