20 Aug, 2021
Intensifying drought, hydro depletion reshape power markets in Western US
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The Shasta Dam in Northern California must manage dwindling reservoir levels, a challenging trend |
Trickling runoff from the drought-stricken Feather River watershed in Northern California forced a major state-operated hydroelectric power plant to cease operations in early August. And it may not be the last.
Most major reservoirs in California are less than half full, including Lake Oroville, which relies on the Feather River and is three-quarters empty. This required the California Department of Water Resources to shut down its Edward C Hyatt hydroelectric and pumped storage units, with a combined 644 MW of installed capacity, just as the state is experiencing its seasonal peak demand for power.
"The Hyatt power plant is unique," agency spokesperson Carolina Roberts said. Other hydro facilities the state manages generate power through the movement of stored water rather than runoff from the critically dry watershed and thus are in better shape to continue operations, Roberts said. But even before Hyatt went offline, the agency's system in 2021 was only generating about 30% of its average over the last 10 years.
If the West descends deeper into drought in coming years as some scientists anticipate due to climate change, "hydro dams in California are at risk of low to no power generation," Clifford Kim, a senior credit officer at Moody's, said in an email.
The rating agency views the Hyatt hydroelectric facility — part of a network of reservoirs, canals and hydropower facilities known as the State Water Project — as emblematic of the challenges reshaping Western power markets as utilities try to keep electricity flowing and affordable during the intense water shortage.
"The Hyatt plant shutdown highlights how drought conditions and associated low hydro power production are exacerbating already tight power market conditions in the western U.S., which has contributed to higher power prices and fueled concerns about electricity reliability," Moody's said in an Aug. 18 sector comment.
Part of the difficulty is how heavily reliant on hydropower the region remains. According to S&P Global Market Intelligence data, hydro accounts for nearly a quarter of summer peak capacity in the Western Interconnection, the bulk electric power system encompassing 14 states, two Canadian provinces and northern Baja Mexico. The 54,209 MW of hydro capacity on the Western grid is second only to natural gas and is more than all of the region's wind and solar farms combined.
Hoover hovers over 'dead pool'
Most of the West's hydroelectric resources are in the Northwest, which suffered a 29% drop in total net generation across 23 hydro plants in July compared to a year ago, according to the U.S. Army Corps of Engineers. The drought's impact has been more significant in California: Through May, utility-scale hydro output in the state was down 40% in 2021, according to U.S. Energy Information Administration data.
Pressure is also mounting on the iconic Hoover Dam straddling Arizona and Nevada. U.S. government officials on Aug. 16 declared a first-ever water shortage on the Colorado River, where fast-evaporating water levels on Lake Mead, formed by the creation of the Hoover Dam, have exposed earth that had been underwater since the reservoir was filled in the 1930s.
Only through retrofits in recent years have operators been able to keep turbines spinning at roughly 75% of the plant's rated capacity of more than 2,070 MW, according to Mark Cook, manager of the Hoover Dam at the U.S. Bureau of Reclamation.
"This drought's been going on for quite a while, and we haven't taken it laying down," Cook said during a July presentation before the California Energy Commission. Still, the dam, which remains a major source of electricity for Southern California, is a significant source of concern.
"We do have a point [where we] predict we would have to stop generating," Cook said. Lake Mead's "dead pool" elevation, when water can no longer pass through a dam, is 895 feet above sea level. But the power plant would no longer generate electricity at 950 feet, only about 120 feet lower than it is now, Cook said. In the early 2000s, Lake Mead's water levels were over 1,200 feet.
As hydroelectric operations in California and the greater Southwest succumb to diminished output, grid operators are increasingly looking to imports from the hydro-rich Northwest, over which they battled this summer before the Federal Energy Regulatory Commission. While ultimately decided in California's favor, the conflict could foreshadow future fights over a dwindling resource.
| Retrofits at the Hoover Dam have helped keep the plant operating at roughly 75% of its rated capacity. Source: Pictures-and-Pixels via Getty Images |
Winners and losers
Lower hydroelectric generation and higher power prices in the West are creating clear winners and losers in the power sector. The situation has been a "credit negative" for hydropower owners such as the Sacramento Municipal Utility District and Middle Fork Project Finance Authority, Moody's said. Such conditions are an opportunity for others, Moody's added, pointing to nonhydro-dependent power suppliers such as Calpine Corp., Vistra Corp. and Generation Bridge LLC that bid natural gas, energy storage and other assets into California ISO power markets.
While the Northwest's hydro resources have been more resilient than California's, major producers such as Bonneville Power Administration, Seattle City Light and Chelan County PUD are not immune to the drought. Higher prices "will at least partially offset the lower quantity that they sell into the wholesale market," Moody's said. But subpar hydro supplies in the Northwest "will also serve to stress California's electricity reliability because the state is a major net importer of power from that region," the rating agency added.