Electricity prices plunge with more renewables, study says

Source: David Ferris, E&E News reporter • Posted: Thursday, May 17, 2018

Wide adoption of solar and wind power, such as is coming to California and New York, could dramatically lower the wholesale price of electricity and cause “profound changes” in electric power systems, according to a new federal study.

Shifts could be seismic. The midday peaks that utilities are used to could move hours later in the day. Extremely cheap electricity could become common while also being difficult to predict. Nuclear and fossil fuel power plants would struggle to compete.

Utilities need to prepare, the authors advised, because today’s assumptions rest on rules that may no longer apply.

The study released today from the Lawrence Berkeley National Laboratory modeled how high penetration of solar and wind power — from 40 to 50 percent — would affect system operators in New York, the Great Plains, California and Texas.

With that much renewable energy, “fundamental characteristics of the power system will change,” the authors wrote. “These include the timing of when electricity is cheap or expensive, the locational differences in the cost of electricity, and the degree of regularity or predictability in those costs.”

The whims of wind and clouds would have another effect: Prices for ancillary services that stabilize the grid could spike, rising in price two to nine times over.

The scenario is not unrealistic.

California’s goal of 50 percent renewables by 2030 is written into state law, and New York aims for half of its power to come from renewables by the same year. A wave of coal plant retirements has swept the country, in part caused by plummeting prices for wind and solar projects.

Depending on location and the renewables mix, wholesale energy prices would drop by $5 to $16 per megawatt-hour, the report said. Wholesale prices of $5 per MWh, almost unheard of today, could become commonplace.

In Texas, which already has a robust wind energy industry and strong sunshine, $5-per-MWh prices could come to represent nearly 20 percent of all hours.

The study looked at four system operators: the New York Independent System Operator (NYISO), the California Independent System Operator and the Electric Reliability Council of Texas (ERCOT), all of which neatly cover their home states. It also modeled the Southwest Power Pool (SPP), which encompasses part or all of five wind-rich states: Kansas, Nebraska, North Dakota, Oklahoma and South Dakota.

The study used as a baseline the renewables mix that these regions had in 2016 and ran computer models to 2030.

With muscular use of wind and solar, fossil fuel generation would drop between 25 and 50 percent, and carbon emissions of the electricity sector would drop 21 to 47 percent, the study said.

Sopping up solar

The most pronounced changes occur with heavy use of solar energy.

At midday, when the sun is at its peak, electricity could flood the system, causing wholesale prices to drop by $25 to $40 per MWh and making it difficult for other types of power plants to compete on price.

Such effects can already be observed in Germany and Australia, the report said, where midday wholesale prices are flattening. In California, prices have at times dropped to $15 per MWh in the middle of the day and risen to $60 per MWh in the evening.

A lesser but still significant impact is from wind energy, which tends to peak at night. In parts of Texas, energy retailers have offered electricity essentially for free at night when the wind is blowing hard.

The report laid out scenarios that could flip long-standing assumptions about how power companies go about saving energy.

Utilities have long striven to reduce energy use in the middle of day, the traditional peak. Energy-efficiency programs target the air conditioner. It’s an energy hog that everyone turns on in the warm months, and reducing its load has been a main technique to avoid building peaker power plants.

But utilities may abandon that goal. With abundant solar power, they might be on the hunt for ways to soak up electricity in the middle of the day.

Besides letting those air conditioners run, utilities could invest in electric vehicle chargers at workplaces, so cars could be charged during the workday instead of at home. They may also want to prioritize electric water heaters over gas ones, because new generations of electric heaters have the ability to store energy (Energywire, Sept. 15, 2014).

Efficiency programs could put more focus on street lighting, which would happen at the new peak, in the evening.

The peak of energy use in most of the country would shift several hours later, the report said. SPP would see its peak shift from 4 p.m. to 7 p.m., NYISO from 3 p.m. to between 5 and 7 p.m., and ERCOT from 3 p.m. to between 6 and 8 p.m.