Wednesday, March 27, 2013

Whole power prices increased in California

The outages of both units at Southern California Edison's San Onofre Nuclear Generating Station (SONGS), starting in January 2012, have created a persistent spread in wholesale power prices between Northern and Southern California.

Historically, wholesale power prices for Northern and Southern California tracked closely with one another, indicating minimal market differences between the two areas. However, after the shutdown of SONGS in early 2012, the relatively inexpensive nuclear generation produced by SONGS had to be replaced with power from more expensive sources. Consequently, since April 2012 Southern California power prices have persistently exceeded Northern California prices, with the spread averaging $4.15/MWh, or 12% of the Northern California price.

california daily wholesale power prices

The January 2012 outage at the San Onofre Nuclear Generating Station (SONGS), located just north of San Diego, changed the California electricity market. SONGS Units 2 and 3 provided the market with a consistent source of baseload electricity since the units began operating in 1983 and 1984 (Unit 1, which began operating in 1967, permanently shut down in 1992). The loss of SONGS is a significant contributor to changes in the California electricity generating profile over the past year.
The SONGS facility is composed of two pressurized water nuclear reactors that together have a rated net summer capacity of 2,150 megawatts (electric).

 Nuclear power plants such as SONGS are important sources of baseload electricity because of their high output capability and low variable operating costs. SONGS played an important role in the electricity generation profile of the region as a result of its high output and location in the electric demand center of Southern California. Between 2002 and 2011, SONGS generated an average of 16,218,635 megawatt hours of electricity each year. This generation represented 18% of the total electricity generation in the Southern California Edison and San Diego Gas and Electric California ISO zones during this period. The units operated at full capacity during the summer, when demand was highest; output was lowest when either of the units underwent a refueling outage. Both units went offline this January and remain shut down, creating challenges for the Southern California electric grid.

net electric generation from SONGs 2007 2012

Relative differences in natural gas prices do not seem to be driving the gap between Northern and Southern California power prices (see chart below). Although SoCal Citygate spot natural gas prices have increased slightly compared to the northern PG&E Citygate, this difference accounts for less than $1 per megawatthour of the average change in the wholesale power price in Southern California.

Thus, higher wholesale power prices in Southern California more likely are attributable to the need for more-expensive generation in that region to fill the shortage. To ensure electric reliability in the densely populated Los Angeles and San Diego regions, Southern California needs to use local generation sources and cannot solely rely on imported electricity to replace generation from SONGS. The major nearby alternative sources, however, are more expensive, and seem to be contributing to higher wholesale power prices. 

daily wholesale natural gas prices California

Note: Daily spot wholesale natural gas prices for Pacific Gas & Electric hub (Northern California) and Southern California Edison Citygate (Southern California).

In 2012, the continuing SONGS closure put pressure on the electric power grid operator, the California Independent System Operator (CAISO), to adjust both generation and transmission in order to meet summer demand for electricity, and in general, continues to change the generation profile in the area.

map of San Onofre Nuclear Generating Station SONGS

In a recent filing with the Federal Energy Regulatory Commission, CAISO requested changes to a transmission constraint rule in an attempt to resolve transmission congestion that is contributing to higher prices. The proposed change would reduce the price point at which CAISO relaxes a transmission operating limit and allows more electricity to flow.

Southern California Edison released an operational assessment on March 14 for restarting SONGS unit 2; the restart requires the approval of the Nuclear Regulatory Commission (NRC). The NRC is holding public meetings and conducting a technical evaluation of restarting this unit and has tentatively scheduled a decision for some time after May 2013.

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