As the drought in California continues to strain the state's hydropower resources, natural gas and renewables are locked in competition to determine which will capture the lion's share of the lost hydropower capacity.
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As the drought has worn on hydropower generation has decreased and gas-fired generation has risen in an inverse relationship, the US Energy Information Administration said Monday.
"On average, hydropower accounted for 20% of California's in-state generation during the first six months of each year from 2004 to 2013. During the first half of 2014, however, hydropower accounted for only 10% of California's total generation," the EIA said in a Today in Energy report.
The agency added that "monthly hydropower generation in 2014 has fallen well below the 10-year range for each individual month."
When monthly hydropower generation dips under 10-year average levels, monthly natural gas generation often rises above its 10-year average in response.
"From January through June of 2014, natural gas generation in California was 3% higher compared to the same period in 2013 and 16% higher compared to the January-June average from the previous 10 years," the agency said.
California Governor Jerry Brown declared a state of drought emergency in January. Since then, the drought has only increased in severity, EIA said.
As of September 30, 58% of the state was classified as experiencing exceptional drought, the most intense drought category.
The EIA added that in addition to the increase in gas-fired power, wind and solar generation are also playing an increasingly significant role in California's generation mix.
For the first time, wind generation surpassed hydropower generation in California, doing so in February and March of this year.
Renewable generation might be seen as the big winner in the competition to capture the share of the generation market that hydropower has lost as a result of the drought, said Kaitlin Meese, an analyst with Platts unit Bentek.
"Despite hydro generation falling 31% (15,963 MWh/d) below the 2013 mark, gas-fired generation has only seen a 2% (6,528 MWh/d) gain year on year," she said in an email. "Instead of the California drought lending to an upswing in gas-fired generation, renewables have led gains in the [California Independent System Operator] generation stack. Renewables grew 15% (14,352 MWh/d) compared to the 2013 YTD levels."
Chris Namovicz, EIA team leader for renewable electricity, said that while the California drought is expected to increase demand for both gas-fired and renewable generation in the near future, in the longer term renewables are likely to capture an increasing greater share of California's power generation market.
"In the near term where you have existing assets on the ground, the way that standard electric power systems are dispatched is the least-cost units are turned on first and as demand goes up you put the more expensive units on," he said.
However, he noted that as new renewable energy generating assets are built out and come online, they will become less expensive to run than gas-fired units.
"With renewables all the costs are fixed up-front costs," Namovicz said.
Gas-fired generation units will have a hard time competing on a cost basis with renewable generation assets in the Golden State "because the fuel cost of natural gas is so high it has among the highest operating costs of any of the various fuel sources," he said.
"As long as the sun shines, the wind blows and the water flows those will all tend to displace natural gas because the way the market is constructed," he said.
Despite the drop of hydropower supplies caused by the drought, the state's generation capacity from all fuel sources will be adequate to meet peak electricity demand requirements, according to assurances made by the California ISO.
California ISO spokesman Steven Greenlee said in an email that the ISO coordinates with natural gas pipeline owners to assess whether enough gas exists for generators in the state to serve their loads.
"This includes sharing [via non-disclosure agreements] system conditions information, generation and transmission outages, and on a daily basis the total projected gas consumption determined from day-ahead energy schedules so pipeline operators can see the next day's hourly gas need," he said.
He added that renewable generation capacity has increased about 4% from the summer of 2013.
"We now have 5,500 MW of solar interconnected. So, the ISO has adequate supply, including gas-fired generation and renewables to meet forecasted demand," he said.