To Meet Demand, California Delays Closure of Natural Gas Plants (Again)

Over the last three years, California lawmakers and regulators have struggled to balance energy security with the state’s aggressive decarbonization agenda. Nowhere is this more evident than California’s repeated attempts to remove – and then reinstate – natural gas from the state’s power generation mix, all at the expense of consumers.

In the latest episode of this saga, last week California officials agreed to extend the operational lifespan of three gas-fired power plants to 2026 to ensure the state has the capacity to meet peak energy demand. This is the second time Governor Newsom has extended the plants’ retirement date as the state struggles to maintain energy reliability and affordable rates.

The decision to extend the three power plants’ operational life follows three years of power market instability demonstrating that the state’s energy system and Governor Newsom’s policies have failed to meet growing power demands.

A Tale of Three Power Plants

In 2010, California’s State Water Resources Control Board adopted a policy that scheduled several natural gas-fired power plants in Southern California to be phased out by 2020. But amid rolling blackouts in 2020 and 2021, the Board approved a series of “final” extensions for the coastal natural gas plants, extending the plants’ lifespan to the end of 2023.

But the strain on California’s grid did not ease up in the ensuing years. In 2022, after calling for no new gas plants to be built in the state, Governor Newsom spearheaded a controversial last-minute push to set “hundreds of millions of dollars” in the state’s budget to purchase power generated from natural gas. A Politico headline summarized California’s predicament:

California scorns fossil fuel but can’t keep the lights on without it.”

Now, California regulators are slated to extend the lifespan of three of the gas-fired power plants again, this time through 2026.

Rising Demand and Prices

The reality is that firm generation is necessary to balance out the intermittency of renewable sources because natural gas power plants can create on-demand supply. Even when California broke renewable generation records in May 2022, natural gas plants had to remain online to prepare for sunset, when solar farms stopped producing energy.

The issue isn’t just supply – California’s self-imposed failure to meet current power demand is exacerbated by increased demand for electricity due to building and transportation electrification. California recently announced a mandate to sell exclusively zero-emission (i.e., electric) vehicles by 2035, and over 70 of the wealthiest municipalities and counties in the state have already limited natural gas in residential or commercial construction.

A Department of Energy Study found that increased electrification across the economy could boost national electricity consumption by as much as 38 percent, but the problem is more pronounced in California where the state lacks the ability to quickly supply the energy to meet demand when the sun isn’t shining and wind isn’t blowing. According to Stateline Newsroom (formerly Pew Charitable Trust’s Stateline) the rise in demand is hard to meet with renewables alone:

“Electricity demand fluctuates throughout the day; demand is higher during daytime hours, peaking in the early evening. If many people buy electric vehicles and mostly try to charge right when they get home from work — as many currently do — the system could get overloaded or force utilities to deliver more electricity than they’re currently capable of producing.”

As it stands, California imports 10 percent of its power needs from out of state natural gas power generators, and with added demand and reduced natural gas power generation in the state, that number is likely to grow.

The Price Impact

Governor Newsom’s series of U-turns to keep the power plants online after starting their phase out over a decade ago is symptomatic of a wider failure to plan for long term energy needs, which, in turn, is increasing consumer costs. The state has some of the highest electricity prices in the contiguous United States partially because of the decision to enact overly ambitious energy targets on a short timeline.

High energy prices disproportionally impact low-income Californians. Price increases resulting from a failure to ensure a reliable energy supply has forced the state into experimenting with income-based electricity rates to mitigate the impacts on disadvantaged communities.

Electricity demand in California is predicted to increase even further, which will put additional upwards pressure on prices and test California’s antagonism towards natural gas. According to modeling from the California Energy Commission, prices are expected to increase six percent under the state’s Renewable Portfolio Standard requirement having at least 60 percent clean electricity by the end of 2030.

Bottom Line: California’s poor planning and hasty renewable energy goals have left the state unable to meet peak demand as policymakers refuse to face the reality that natural gas is a crucial part of the energy mix, now and into the future. While California’s decision to delay closure of aging natural gas power plants will help ensure energy reliability in the short term, the move does nothing to address the persistent and systemic vulnerabilities in California’s grid.

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