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Renewable Energy

Mandatory portfolio standards have different implications for different technologies.

Fortnightly Magazine - November 2004

of 2001, a substantial portion of total hydropower capacity had transitioned from "source of opportunity" to "reliable source" status, based on historical water availability; and, then, a portion of that "reliable source" capacity became unavailable when water availability declined below historical minimum levels.

The power availability problem became a power price "crisis" in the restructured California electricity market with the addition of: (1) opportunistic pricing by power suppliers; (2) the inability of the distribution utilities to pass the increased prices in the wholesale electric market to retail market customers; and (3) alleged efforts by some of those suppliers to manipulate the market for their gain. It remains to be determined through the judicial system whether these alleged manipulations were illegal, or simply unethical, or in some cases not manipulations at all but merely market arbitrage.

One of the approaches used to control the high price of power in the California market was the imposition of price caps for wholesale electric power sales. While the price caps might have been somewhat effective in the short run in limiting electricity prices in the wholesale market, they might have a negative effect on the market long term. Investments in conventional generating capacity to serve markets normally reliant on hydroelectricity, during periods of limited hydro availability due to drought, are relatively high risk, since the generating capacity is typically used only when adequate hydropower is not available.

Thus, in many years, the conventional capacity may not be used at all, or only during extreme peak-demand conditions, or to replace other units taken out of service for maintenance or repairs. The cost of the first megawatt-hour of power produced by these generators in any given year is extremely high. The imposition of market price caps increases the risk that the return on limited hours of operation may be insufficient to cover the costs of ownership of the facility.

The New Paradigm

Government efforts to significantly increase the role of renewable electric generation will have a major impact on how wind and solar are applied in the market when the renewable generation capacity exceeds the reliable-source generation capacity reserve margin in the market. At that point, these renewable generation technologies must be configured as reliable-source generation. This will require significant increases in investment per megawatt of reliable generation installed, compared with the source-of-opportunity investment levels, for solar and wind generation. Hydroelectric resources also will have to be re-evaluated to determine the portion of their capacity considered reliable.

Early in the transition, renewable generation may be matched with electric loads that can be shed rapidly and automatically when power demand exceeds supply. However, if the transition to renewable generation increases wind- and solar-market share significantly beyond the reliable capacity reserve margin, major investments in renewable generation supply reliability will be required to maintain the stability of the grid. Much of this investment will be in "redundant" capacity, to ensure sufficient generation capacity available to meet market demand, regardless of regional weather patterns or hydrological conditions. With the availability of cost-effective electric energy storage technology, some of this generation investment