The ongoing drought in California could cut the state's hydroelectric power generation nearly in half this summer, leading to an increase in natural gas generation, according to an analysis from the US Energy Information Administration.
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The estimated 8% rise in electricity from gas generation could also mean a 6% increase in energy-related carbon dioxide emissions and an average 5% increase in wholesale power prices throughout the US West, according to EIA.
"California has a diverse electricity fuel mix and is highly interconnected with the regional electric grid, but our study shows that a significant decrease in hydropower generation this summer could lead to higher electricity prices, among other effects," EIA Administrator Joe DeCarolis said in a May 26 statement.
Over the last decade, California has experienced more frequent and intense drought conditions, which limit water use in general and reduce hydropower in particular, according to EIA's analysis
"Current drought conditions in the state potentially have a significant impact on power markets throughout the West, which could be different than in past years, given the state's accelerating growth in intermittent generating capacity and reliance on imports, which account for nearly one-third of California's power supply," according to the analysis.
California's hydro generation typically accounts for 15% of the generation mix, but is expected to drop to 8% this summer, according to the EIA. So far this month, hydro generation has averaged less than 8% of the total fuel mix, down 6.3 percentage points from the five-year May average, according to California Independent System Operator data.
The EIA analysis shows the state purchasing more electricity from neighboring markets to make up the difference, as well as increasing in-state gas generation to 50% of the summer generation mix from 45%.
Gas prices across California and the Pacific Northwest are already up sharply over the past year.
At the PG&E city-gate, spot gas prices have climbed to over $10/MMBtu in recent trading, up from the upper-$3 to low-$4 range in late May 2021, according to S&P Global Commodity Insights pricing data. Over the same period, gas prices at the Sumas Canadian border hub have climbed nearly as much to trade in the mid-$8s, compared with year-ago levels in the upper-$2 range.
The higher gas prices have driven up power prices. SP15 on-peak day-ahead locational marginal prices have averaged about $86/MWh so far this month, 133% higher than in May 2021 and 508% higher than then May 2020 average, according to S&P Global pricing data.
In its 2022 Summer Loads and Resources Assessments released May 19, the CAISO said the state's hydro energy supply will be significantly lower than normal for the third consecutive year.
Hydropower is typically the third-largest source of electricity in California, but electricity generation from hydropower is highly reliant on snowpack that forms in the winter season. California's snowpack was above normal as of December 2021, but by April it had fallen to 40% below normal levels, according to EIA.
"Storage levels in California's major reservoirs provide a better indication of water supply conditions than of hydropotential because the majority of hydro generation in California is located on smaller reservoirs, not tracked by the California Department of Water Resources," according to CAISO's summer assessment. "The ISO uses the Northwest River Forecast Center's water supply forecast at The Dalles Dam on the Columbia River as an indication of potential surplus energy for imports into California from the Northwest."
The Dalles Dam water supply forecast is currently at 94% of normal for the April-September forecast period, down three percentage points on the week, according to NWRFC data.
In California, the Shasta Dam water supply forecast is at 46% of normal for the April through July forecast period, according to the California Nevada River Forecast Center. Lake Shasta, which was completed in 1945, has only experienced one year, 1977, when the reservoir storage was lower, according to EIA's analysis.