Western US electricity markets are full speed ahead on renewables

Introduction

The Market Intelligence Power Forecast for fourth quarter 2021 projects 51 GW of wind and solar and nearly 15 GW of battery storage will be built across the Western U.S. by 2030. California is the key driver of this renewable build-out, as the state's combination of high electricity demand, pending retirement of the Diablo Canyon nuclear plant and an aggressive renewable portfolio standard are driving nearly 60% of forecast renewable capacity in the West. Over 36,500 MW of wind and solar and 10,800 MW of storage are forecast to be needed in California to provide reliability and meet the state's intermediate 60% renewable generation goal by 2030, in addition to the 5,300 MW of resources not yet online that are included in the forecast. The California Public Utilities Commission recently approved a procurement plan for 25,500 MW of new renewable capacity and 15,000 MW of energy storage by 2032 to ensure reliability and carbon-free generation as the retirement of the Diablo Canyon nuclear plant looms.

With the anticipated loss of the Diablo Canyon nuclear plant's clean energy contributions, California requires significant wind, solar and storage builds to reach their aggressive renewable portfolio standard. The fourth quarter 2021 Market Intelligence Power Forecast projects that tight reserve margins and economic opportunities for renewables will fuel the development of 47 GW of wind, solar and battery storage to surpass the state's intermediate goal of 60% carbon-free electricity by 2030. This is largely consistent with the state's announced procurement goals. The entire western region is following in California's path, with significant capacity built beyond what is needed, solely to meet RPS goals. One-fifth of the forecast renewable development is fueled by economics, rather than RPS constraints, across the West.

Preparing for Diablo Canyon's exit

Diablo Canyon provides approximately 10% of California's clean energy generation and provides baseload power that is reliable under peak conditions. However, with growing variable renewables on the grid, the economics to keep the nuclear plant operating are worsening, and yet the California PUC reaffirmed that all load-serving entities have adequate resources planned to replace Diablo Canyon.

Assuming Diablo Canyon retires in 2025 as planned, the Market Intelligence Power Forecast predicts an increasing amount of wind, solar and battery storage are needed to meet reserve margin and renewable generation requirements. With high wholesale prices, additional renewable generation beyond current requirements appears economic. An immediate build-out of resources is needed by 2023 to meet summer peak demand and prepare for the first phase of retirement of Diablo Canyon in 2024. The reserve margin drops from its 2023 levels to about 16%, above the 15% target, where it remains, while the renewable expansion continues throughout the forecast period.

Due to the decreasing effective load-carrying capability of solar as the resource grows, most of the capacity built for reliability in the forecast is wind and hybrid solar-plus-storage. By 2030, the amount of capacity a standalone solar unit provides at peak demand is essentially zero, so wind becomes the most economic resource.

The resulting generation mix from this expansion of wind, solar and battery storage shows that California is surpassing its goal for carbon-free electricity usage by the end of the decade. Including nuclear, hydro and all renewable generation sources, 78% of generation is carbon-free in 2030, ahead of the goal of 60%. The largest reductions in gas-fired generation occur in 2023 through 2025, after which reduction slows due to the retirement of Diablo Canyon.

Despite the addition of 47 GW of new wind, solar and batteries, only 6 GW of gas will retire by 2030. However, the usage of combined cycle gas plants declines, and gas peaking plants remain as active as today in terms of capacity factor — at 8%-9%. The capacity factors for combined cycle plants, currently about 40%, decline to 27% by 2035, with a pause in their decline in 2025 and 2026, when the baseload generation from Diablo Canyon is removed.

CPUC procurement plan

On Feb. 10, California regulators adopted a plan to add 41 GW of renewables and energy storage, consistent with the fourth quarter 2021 Market Intelligence Power Forecast but including additional technologies to reach a more aggressive 86% carbon-free electricity by 2032. Higher capacity-factor resources such as offshore wind, geothermal and long-duration storage are additional contributors to the California PUC plan, lowering the total megawatts needed to produce generation to achieve emission reductions. With only additional wind, solar and four-hour batteries, the Market Intelligence Power Forecast predicts 79% carbon-free electricity by 2032, which is well above target to reach 100% carbon-free electricity by 2045.

The Rest of the West

While California accounts for over 60% of the forecast wind and solar capacity and over three-quarters of storage capacity in the West, renewable projections across the rest of the region are hardly negligible. Oregon passed new, more aggressive renewable legislation in June 2021, requiring state utilities to provide 100% carbon-free electricity by 2040. To maintain pace with this policy, over 4,400 MW of wind is forecast to be required by the state by 2030.

Despite the near-term pipeline of projects in Nevada and Arizona being dominated almost entirely by solar and solar-plus-storage projects, the Market Intelligence Power Forecast predicts a new wave of wind development in these two states by the end of the decade, totaling over 10 GW. Colorado is forecast to add just under 5,000 MW of wind by 2030 as well.

Over 51 GW of wind and solar capacity is forecast to be built in the West by 2030, but 10 GW of this capacity is built purely due to economic and reliability forces and not to meet RPS requirements. Arizona leads all states in economic renewable builds, with 5,300 MW by 2030 on top of the 1,400 MW needed for the state's RPS. Colorado adds 2,900 MW of economic wind capacity, with California adding another 2,300 MW.

Outside California, the forecast largely prefers wind over solar in the West. This likely speaks to the potential saturation of solar in the West and wind being the better option for meeting reliability requirements due to generally higher capacity factors and its ability to generate power theoretically during all hours of the day. Over 22 GW of solar is forecast in California but nearly 11 GW of storage is built with it, pointing to substantial hybrid solar-plus-storage development in the state.

^{Regulatory Research Associates is a group within S&P Global Market Intelligence.}