Wednesday, July 7, 2010

Power Sketch - A Work in Progress

The Theory

My thinking is that PV will have a tendency to pull some demand into the day and push some supply into the night. The combination of less load and excess generation at night will push night time prices down. As prices fall you hit trigger points that encourage different trends and strategies. One price signal might encourage a strategy of two shifting coal plants while another price signal would encourage full blown storage. We know both strategies have already been used so I think it’s reasonable to expect them in the future under circumstances similar to those which have encouraged them in the past.

The Status Quo

Traditionally there's been a dynamic between hydroelectric and thermal generation in power systems. Hydroelectric units have flexible operating characteristics and their reservoirs give them storage. These qualities give hydro operators the ability to sell into high priced markets mostly during the day and buy from cheap markets at night while they store up water. This happens in the Northwest (NW) where hydroelectric operators sell expensive electricity to California during the day and buy nightly from thermal generators in the Southwest (Montana, Wyoming, Utah, New Mexico and Colorado) that don’t want to turn down their units. This is a mutually beneficial situation for the SW and NW operators. The NW trades their flexibility to the SW for cheap energy.

The Imaginary Scenario

Let's say we see a rapid 10, 20, 30, 40 GW progression of PV into California over the next 10 to 15 years. How does this change California’s energy mix? To identify the displaced energy you'd have to look at the combination of pre-existing contracts, competitive pricing and reliability rules that give preference to internal generation vs. imports. My rough guess is that PV will displace natgas imports first, some percentage of internal natgas generation second and then move on to displacing imported hydro and coal (mostly hydro but it's hard to tell). Less hydro sold to California will mean the NW operators will probably start selling more to the Southwest (SW) to displace NG there. But then if the SW starts installing a bunch of PV too you’d expect some of the NW imports to get pushed out in preference to internal generation. With less customers to sell daytime electricity to the NW operators will have to start operating their units more at night or else their reservoirs will overfill. This means the coal operators that have always sold to NW at night will have a smaller market to sell into. The upshot is that there will be excess power on hand at night and this will lead to lower prices, different operating strategies and maybe some storage projects. This is how PV could lead coal operators to install bulk storage. It's just a theory.

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