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The California Electric Power Crisis
and Alternative Energy
Published in IE Issue #36, March/April
2001
by Jed Rothwell
The big story this month in conventional
energy news is the shortage of electricity in California. It is
unclear how this energy crisis came about. Politicians blame the
power companies for gouging the public, the power companies say
they are bankrupt, businesses and the public are upset with the
rolling blackouts. Most people agree that deregulation was poorly
thought out, because it freed wholesale prices while putting a cap
on end-user customer prices. California Gov. Gray Davis  called
deregulation a "colossal and dangerous failure" that had allowed
"profiteering companies from out of state" to raise wholesale electricity
prices by a factor of ten or more.
The crisis was exacerbated by a run of bad luck, as
an unusual number of plants shut down for unscheduled, unexpected
reasons. A nuclear plant ceased operations at the height of the
power crisis after a storm at sea tore up kelp, which clogged the
cooling water inlet.
It is not clear how much of the crisis is caused by
lack of new generating equipment, and how much by economic and regulatory
problems, and power company economics. No major power plants were
constructed in the last ten years. In the early 1990s, most power
companies said there was 30% excess generating capacity. This excess,
plus improved performance from plant upgrades, met the demand for
years. In the late 1990s demand grew faster than expected, and capacity
fell behind. As power shortages grew, spot prices shot up. The utility
companies began to lose billions of dollars. They soon became technically
bankrupt, and out-of-state power companies refused to extend credit
to them. Natural gas suppliers were demanding payment in advance
from either the utilities or the state government. The financial
crisis came to a head in January 2001 when PG&E defaulted on
payment of $726 million in short term debt. On February 6, the state
government arranged a deal whereby it will buy electricity at $60
to $65 per megawatt hour, and sell it to the utilities. This compares
to spot market prices as high as $300 to $500. The state allocated
$10 billion to fix what the San Francisco Chronicle called
"the wreckage of California's energy deregulation plan." The state
has been spending $45 million per day in emergency allocations to
buy power, which is more money than it spends per day on higher
education.
 The
policy of capping consumer prices while freeing wholesale prices
made sense, because it was expected that breaking up monopolies
would lower power costs by 25%. This was a reasonable expectation;
historically, over the long term, energy prices have always fallen.
But others argued that capping consumer prices was totally self-defeating
to deregulation.
The California Energy Commission table shows what
happened in the last decade. From 1990 to 1999, demand increased
moderately and steadily by a total of 9%. The San Francisco Chronicle
quotes a higher estimate made by the Edison Electric Institute,
that consumption grew by 4% percent in 1996 and 3.4% in 1997, and
it suddenly spurted 10% in 2000. According to this table, in 1999
total demand was 23 billion KWH higher than it had been in 1990.
In the meanwhile, imports fell by 12 billion KWH, geothermal fell
by 3 billion KWH, and generation with oil stopped altogether. The
difference, 44 billion KWH, was made up mainly by increasing electricity
from hydroelectricity, coal, and gas.
Although overall energy imports fell 18% during the
1990s, imports are a problem today. California generally exports
electricity to the north for heating during the winter, and imports
electricity in summer to meet the demand for air-conditioning in
Southern California. This winter it has been forced to import during
December and January. The problem is aggravated because much of
the power in Washington is generated from hydroelectricity and there
has been a drought in the Northwest.
The cost of natural gas has shot up nationwide in
recent months. Natural gas is an ideal fuel for low-pollution, high-efficiency
electric power generation, and utility companies worldwide have
been building gas-fired generators. Unfortunately, they have acted
simultaneously without considering the fact that everyone else is
doing the same thing, and the supply of natural gas is limited.
About a third of California's electricity comes from natural gas,
and most of the generators now under construction will use it. The
consensus of opinion in mainstream newspapers seems to be that California
must now rush to build huge centralized electric plants, which are
mainly gas-fired. Unless the price of natural gas declines, in a
few years this policy will ensure that electricity is plentiful
but much more expensive than it is now.
It is disturbing that many newspapers are blaming
the crisis on California's strict environmental regulations and
its alternative energy initiatives. If alternative energy caused
this problem, you would expect that alternative energy use would
have increased during the 1990s, but instead it fell. Steadily increasing
use of wind power during the 1990s would have averted shortages
today. The cost of wind power has fallen 80% since 1980, and it
is now 4 to 6 cents per kWh, nearly as cheap as coal, the cheapest
conventional fossil fuel energy source.
The people of California invested a great deal in
inefficient, first generation wind farms in the 1980s. The profit
and know-how gained from these ventures led to today's gigantic
wind generators, which are far more cost-efficient, quiet, and long
lasting. According to the American Wind Energy Association (AWEA),
wind now supplies 1,800 MW in California, and it will soon increase
to 2,000 MW. The maximum wind generation capacity in the state is
6,000 MW, conservatively. Wind generation can be added more quickly
than conventional sources; a 200 MW wind park can be built in one
year, compared to two to three years for a fossil fuel plant, or
five to ten years for a nuclear plant.
California's peak demand is 46,000 MW, so wind could
meet only 13% of demand. Surrounding states have far more potential
wind power. The AWEA says that the total wind energy potential of
California, Nevada, Wyoming, Montana, Washington, and Oregon combined
is more than 600,000 MW. However, some of the best sites are far
from the cities that need the power, and far from existing power
transmission networks. Building new power lines meets as much or
more resistance from communities as new generator plants.
North Dakota, Texas, Kansas, South Dakota, and Montana
together have enough potential wind power to generate all of the
electricity used in North America. However, they are far from population
centers in other states, and an electric power distribution grid
cannot economically transmit power thousands of miles. Transmission
losses might be reduced by using the electricity for electrolysis
and then sending hydrogen gas through natural gas pipelines. The
hydrogen could be used to generate electricity with fuel cells in
cities, a process which produces only water as a byproduct. Hydrogen
leaks more easily than natural gas, so the pipelines would have
to be re-lined on the inside. This can be done with existing techniques.
In January 2001, construction began on a 300 MW wind
park in Wallula, Washington near existing power transmission lines.
Another 260 MW plant is being built in Nevada. Both projects should
be completed by the end of the year. A 200 MW wind park is being
constructed in Southern California. This total of 760 MW is dwarfed
by conventional power plants now under construction in California,
which will supply 6,723 MW. However, the conventional plants have
been underway for some time and they will not be finished until
2003; if the cost of natural gas remains high, they will produce
electricity at much greater costs than the wind farms. The combined
new construction of gas and wind generators would eliminate power
shortages, except that about half the plants in California are over
thirty years old and many may need to be phased out soon. California's
oldest existing wind parks could be upgraded to produce far more
electricity.
The AWEA reported that during 1999, more than 3,600
MW (3.6 GW) of new wind generators were installed worldwide, bringing
total installed capacity to approximately 13.4 GW. This growth in
capacity per annum is about the same as the growth of nuclear power
in 1969 and 1970. Nuclear power reached its maximum growth in 1985,
with 31 GW added that year. It reached its maximum total installed
base of 328 GW in 1990, providing 17% of the world's electricity.
At present growth rates of 30% per year, wind power will surpass
nuclear power by 2025.
The Chronicle estimates that the energy fiasco has
cost the citizens of California $40 billion. That would be enough
money to build 40,000 MW of wind parks in the neighboring states,
nearly enough to provide pollution-free, zero-fuel, renewable electricity
for the entire state of California, provided that on-demand gas
generators are available for a fraction of demand, which may be
needed when abnormal weather causes high or low winds, disrupting
generation.
Sources:
. New York Times
. San Francisco Chronicle
. American Wind Energy Association, www.awea.org
. U.S. Department of Energy, Hydrogen Program Plan
.
Scientific American, September 1990, Special Issue, Energy for planet Earth.
. California Energy Commission, http://www.energy.ca.gov/
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