Fitch: California Drought to Take a Toll on Hydropower Generators

A years-long drought afflicting California could put financial pressure on a number of the state’s hydropower generators, a ratings agency warns. 

Fitch Ratings on Friday said that while the financial impact could be manageable, utilities that depend on hydropower generation for the most part may be forced to use more expensive generation and purchased power to replace the potential shortfall in hydropower output for the third year in a row.

The Energy Information Administration estimates California’s hydropower generation dropped 22.3% compared to 2012. The state has almost 14% of the nation’s total hydro capacity, but hydro has accounted for varying portions of power generation in the state. In 1992, for example, hydro dropped to an 11% share while in 1995, it soared to 28%. In 2011, hydro’s share was at an above-average 21.3%, but it dropped to just 13.8% in 2012. In comparison, natural gas generation rose from 45.4% in 2011 to 61.1% in 2012.

Fitch noted that the state’s generators have “experienced prolonged periods of dry water conditions before the current cycle and have undertaken measures to reduce their vulnerability.” These measures include improved rate design, the broader use of automatic recovery mechanisms, the collection and use of rate stabilization funds, and more conservative budgeting.

Most of the power used in California today continues to come from in-state generators fueled by natural gas and imports. Renewables have been increasing on the back of a 33% by 2020 mandate, federal tax credits, grants, and the implementation of a state greenhouse gas emissions cap-and-trade program.

California has sought to offset the loss of generation from the 2,250-MW San Onofre Generating Station, which was permanently retired last year, by adding several new generating units with a total capacity of at least 205 MW]. Mexico’s Comisión Federal de Electricidad is also planning to add three gas turbines that could contribute 134 MW of capacity for the winter period. In October, the 250-MW (48 MW winter capacity) Solana Gila Bend Solar project in Arizona also began operating.

The drought is thought to have been caused by an atmospheric phenomenon whereby a broad high-pressure zone nearly 4 miles high and 2,000 miles long off the West Coast—and which has lasted for 13 months since December 2012—has blocked Pacific winter storms from approaching California. Last year was the driest year recorded in the some of the state’s cities.

The North American Electric Reliability Corp. (NERC) says in its November-released 2013-2014 Winter Reliability Assessment that overall, the nation has adequate resources to meet peak demand in the operating period between December 2013 and February 2014.

Only the New England region could see constraints this winter, NERC forecast, even though more than half of new pipeline projects that entered commercial service in 2012 and 2013 were in the Northeast. Most of that capacity was added outside of New England’s constrained areas where there has been an increasing reliance on gas-fired generation. “For New England, this includes the potential for natural gas interruption to gas-fired generators and a reliance on back-up fuel (generally oil) to meet peak demand,” it says.

Potential operational challenges could be posed by weather uncertainty, but NERC cited the National Oceanic Atmospheric Administration’s Winter Outlook that forecast “mild” winter climate in the U.S. for the 2013–2014 season.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)