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COVID-19 ISO Insights

Transition Risks Become a Reality in California During Massive Heat Wave

August 31, 2020

By: David Geller, CPCU, SCLA

The world’s collective numbness to startling 2020 developments was tested once again in August with California’s issuance of the first ever fire tornado warning, as well as rolling blackouts imposed across the state that hadn’t been experienced since 2001.

Triggered, at least in part, by a massive heat wave that has engulfed the better part of the Western United States, intentional blackouts were imposed for a period of time during California’s “net peak”, which is currently from 6 PM – 8 PM.

According to GreenTechMedia (GTM), a Verisk company, “net peak” is “a measure of total demand minus renewable energy’s contribution.” From 6-8 PM, solar generation drops to zero, leaving a shortfall of energy at a time where demand may be high. This disparity between energy availability and demand underlies concerns that are contemplated in transition risks, which may emerge as regions across the world shift to cleaner energy sources. California’s Governor reportedly passed a state law in 2018 which requires that 100% of California’s energy comes from renewable sources by 2045.

In 2006 and 2017, per GTM, there were no disruptions when peak demand for energy was higher than in recent weeks when rolling blackouts were imposed. So what happened, and what has changed in the years since that has contributed to these issues?

What Exactly Happened in California?

A confluence of factors has appeared to expose some shortcomings in California’s grid as renewable energy sources supplant natural gas, nuclear power, and other energy sources that have historically been leaned on. Here are some of them:

  • An analyst from Wood Mackenzie (a Verisk company), per GTM, stated that California has shut down 5 gigawatts of dispatchable generation since 2018, and has only added about 2,200 megawatts of “non-intermittent” generation in the same time period.
  • Renewable energy sources are not always reliable. According to CBS Sacramento, the California Independent System Operator (CAISO), a nonprofit entity that controls the flow of electricity for 80% of California, acknowledged that an outage on one of the days could have been avoided if it was windier.
  • Even typically reliable sources were hamstrung during this period. MIT Technology Review reports that two natural-gas turbines went down, further limiting the availability of energy sources for the state to pull from.
  • In times of high demand, the LA Times reports that California typically imports excess energy from neighboring states. However, since these hot conditions have extended throughout the West, states such as Arizona don’t have as much energy to spare for California. Additionally, similar to California, GTM reports that these states are also closing down different energy sources as they move to renewables, depleting their reserves.
  • Scorching hot days in the midst of a California summer aren’t exactly a new phenomenon. However, the LA Times notes that the activities that residents typically engage in to seek relief, such as movie theaters and shopping malls, are closed or at limited capacity due to COVID-19. This has compelled more people to stay home, blasting their air conditioners that add further stress to the power grid. Air conditioners are major energy consumers; the U.S. Department of Energy (DOE) notes that 6% of electricity produced across the U.S. is used by residential air conditioners.
  • Speaking of COVID-19, California experienced a spike in cases this summer. Cooling centers reportedly serve as a refuge for residents during heat waves, specifically for the elderly and those with underlying health conditions. Per the LA Times, some cooling centers in Los Angeles have been stringent about vetting those who wish to use the cooling center to mitigate the chances of COVID-19 spread.

With all of this said, there has been some skepticism from different experts relating to the necessity of these rolling blackouts. In a New York Times article, a San Diego engineer who provides expert testimony on utility matters before the state’s regulators expressed that the recent weather events “‘should not have triggered blackouts’”, and another energy consultant opined that CAISO was “‘being overly cautious.’”

The “New Normal” in California May Feature More Energy Uncertainty

The “New Normal” may be the defining phrase of 2020, but in this case, COVID-19 is not the topic at hand.

Concerns were proliferating in 2019 about the potential for these energy disruptions to escalate. In September 2019, according to Mercury News, the Vice President of Market Quality and State Regulatory Affairs for the CAISO, expressed fears that, because the state was two years ahead of schedule in procuring 33% of energy from renewable sources, the potential for “net peak” issues that have recently surfaced was increasing.

Additionally, it appears that this slashing of energy production from more established sources will continue in California. Mercury News reports that, in 2025, the Diablo Canyon nuclear power plant in San Luis Obispo County will be shut down, cutting another 2,250 megawatts of electricity.

Will renewable energy sources be reliable enough to compensate for that by 2025, and in subsequent years, as the state goes completely clean? There appears to be mixed sentiments on that.

Per GTM, battery systems in California can store excess solar power collected during the day and have about 200 megawatts of storage interconnected to its system. According to the article, CAISO notes that the system has held up fairly well. Nevertheless, it wasn’t sufficient to avoid the rolling blackouts, and the CAISO President commented that “‘batteries [alone] won’t fix this problem.’”

Conversely, a professor of energy at UC Berkeley commented to Mercury News that the underlying issues weren’t related to a dearth of renewable energy supply, but rather “‘poor management.’” Per the article, he noted that one million Californians have solar panels on their homes, and others are installing battery systems. He suggested that “’more incentives should be offered [to install battery systems]… and laws changed so residential battery power can be sold back to utilities when supplies are tight.’”

Microgrids, a concept we posted about earlier in 2020, also may gain some traction as a more decentralized alternative to make power systems more resilient.

Relatedly, Forbes recently reported on a partnership in California between PG&E and Tesla, which intends on launching a battery park that can dispatch 730 megawatt hours (MWh) by 2021. If successful, this park could assist if more shortfalls transpire in future years.

If renewable energy and battery storage technology (which comes with its own set of risks) improves, and microgrids show viability, this decentralized approach could be a tantalizing prospect not just in California but across the United States, especially in the Northeast, where millions of residents recently lost power for an extended period after Tropical Storm Isaias barreled through the region.

But in the near future, as these nascent technologies are deployed and managed, transition risks may continue to manifest.

In addition to these transition risks, we also have been tracking how California utilities are imposing planned blackouts to mitigate the risks of wildfire spread and what the impacts are. See the related posts from the ISO Emerging Issues team below:

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