Last month BTU Analytics reviewed power interchange dynamics between California ISO and the Nevada Power Company and the knock-on effects of transfers with the Los Angeles Department of Water and Power (LADWP). Today, instead of looking at interchange, we will focus on power generation and pricing dynamics within LADWP with an eye on the potential for development of battery energy storage systems both in California and across the US.
Rapid renewables buildout in California has been a feature of the power supply stack for nearly a decade, frontrunning much of the rest of the country’s accelerating buildout. In the LADWP, thermal and hydroelectric capacity has remained stagnant since 2010, however beginning in 2014 solar development began to meaningfully accelerate. Rising from 18 MW in 2013 to 983 MW at the close of 2020, solar capacity now makes up nearly 10% of LADWP’s total system capacity. The intermittent nature of solar generation produces an effect on net load often referred to as the “duck curve” when significant intraday solar generation strongly displaces generation from other sources.
The effect of this outsized generation during the daylight hours has increasingly impacted electricity pricing in LADWP. System lambda, calculated hourly, can be thought of as a systemwide power price, and reflects the variable costs of currently operational generation, system losses, greenhouse gas emissions, and plant maintenance in LADWP. The shape of June 2020’s hourly lambda curve has markedly changed in response to the effects of solar buildout, with 2020 June intraday prices (10am-3pm) declining an average of 23% relative to 2010 despite an average price increase of 15% for all other hours.
Much like in LADWP, pricing volatility and congestion is expected to grow in other areas as new intermittent wind and solar resources grow their influence. In regions with significant solar buildout, low marginal cost generation dominates during the daytime but rapidly falls off during the evening hours. While this volatility is seen as an obstacle for some market participants, it presents an arbitrage opportunity for battery storage which can capitalize on intraday pricing spreads. However, for most of the country, battery storage is still in the very early innings, as seen in the graphic below.
Battery storage development in LADWP has been minimal so far, but surrounding development in California has been more substantial. Currently over 2.2 GW of battery energy storage systems are under construction in California ISO, with another 7 GW under advanced development. Beyond the opportunity for power pricing arbitrage, several factors contribute to the ultimate economic feasibility of battery storage buildout including the local market for ancillary services, the mix of potential tax incentives, the local regulatory environment, presence of nearby renewable generation, and planned retirements of existing nearby thermal generation. So far, the combination of these factors has aligned in such a way for California to lead the way on battery development, while the rest of the country tries to catch up. To explore BTU Analytics’ in-depth data about solar and storage and other renewables development, reach out to schedule a demo of the BTU Power View today.