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Calif. ISO eyes natural gas 'exit strategy' in decentralized, decarbonized grid

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


Calif. ISO eyes natural gas 'exit strategy' in decentralized, decarbonized grid

As part of California's bid to slash its greenhouse gas emissions 40% below 1990 levels by 2030, en route to an 80% reduction by mid-century, the California ISO has laid out an "exit strategy and phase-out timeline" for natural gas generation amid a sweeping transition to "decarbonize, decentralize [and] regionalize" the state's electric grid and the nation's biggest state economy.

Currently the largest resource in California's power portfolio, accounting for more than a third of the state's electricity in 2016, gas would be phased out in a "managed process" that retires the least flexible resources first, minimizes the risks of newer gas-fired plants "becoming stranded" and offers incentives for early retirement, according to a new draft discussion paper prepared by the ISO's board of governors and management. Released Oct. 4, the "vision document" does not mention an exact end date for California's gas generation and indicates that "appropriate pricing of non-energy essential reliability services and removal of price caps" would help gas generators "that operate only a small number of hours to remain financially viable."

By 2030, however, gas would be used "mainly when clean resources are not available," the report said. Stepping into the void left by gas-fired generation would be a mix of renewables, energy efficiency, distributed energy resources and microgrids with storage, and "regional sharing" of flexible resources. "An increasing number of fast-start conventional resources [would be] converted to use biofuels instead of fossil fuels," the report added.

2017 a turning point?

The report follows several recent regulatory and legislative actions that indicate 2017 may represent a critical juncture for natural gas-fired power in the state. A California Energy Commission panel last week said it planned to recommend rejecting a new 262-MW gas plant proposed by NRG Energy Inc. in Oxnard, Calif. "The proposed rejection of this gas-fired plant marks a turning point in California's clean energy revolution and marks a trend in re-evaluating the need for gas plants across the state," the California Environmental Justice Alliance said in an Oct. 6 statement.

Moreover, the California Public Utilities Commission last month denied a request from Edison International subsidiary Southern California Edison Co. for a new long-term contract with an aging NRG Energy gas-fired peaker plant in Goleta, Calif., while Gov. Jerry Brown on Sept. 30 signed a bill that requires utilities and regulators to consider nonfossil, nonwires alternatives to meet the state's peak power needs.

The decline of gas generation is one of eight trends, each with associated tasks, that are outlined in the new paper. Others include the "far more" efficient use of electricity, a system shaped by variable wind and solar, flexible demand on par with supply in balancing the system, increasingly decentralized energy service, more regional collaboration, the electrification of the transportation and building sectors, and sharing the economic and environmental benefits of California's clean energy transition.

That transition already "is well underway," noted the ISO in the report, driven by the state's overarching targets for emissions reductions. The state's current laws and policies call for 50% renewable electricity by 2030, doubling energy efficiency in existing buildings by 2030, putting four million electric vehicles on the road by 2030, and net zero energy targets for all new homes by 2020 and new commercial buildings by 2030.

The ISO plans to discuss the draft at its upcoming stakeholder symposium in Sacramento, Calif., on Oct. 18-19.