California ISO sees cheaper electric power

Reduced transmission congestion in 2015 on the California ISO grid, along with lower natural gas prices, were contributing factors in wholesale power costs dropping about 30 percent from 2014 levels, the California ISO Department of Market Monitoring said in a report filed at FERC May 12.

Solar power additions in 2015 also were a factor in the lower costs, replacing more expensive power generation, the report said.

About 950 MW of summer peak capacity was added in 2015, with about 93 percent of that coming from solar generation, and solar became the largest source of renewable power on the California ISO system, overtaking wind for the first time, the DMM said.

Gas-fired generation was the largest source of energy in 2015, contributing about 40 percent, with imports from other regions accounting for 28 percent, and both of those figures were essentially unchanged from 2014, according to the report. No gas-fired generation was added in 2015, and about 1,000 MW of gas-fired generation was retired.

While the 950 MW of summer peak capacity added was mainly solar resources, a total of 1,700 MW of new generation was added to the California ISO grid in 2015, with 450 MW of that coming from wind resources and 1,200 MW from solar projects, according to the report. Solar power accounted for almost 7 percent of the total energy supply in 2015, with wind generation at 5 percent, and geothermal at 5 percent. Geothermal contributions saw a gain in 2015 because a group of geothermal generators outside of the California ISO footprint began providing energy to the California ISO grid in late 2014, the report pointed out.

Hydropower output dropped by 16 percent from 2014 to provide 5 percent of the energy supplies in 2015, which is the lowest level since California ISO began operating in 1998, California ISO said in a May 10 statement about the report.

Demand response programs operated by utilities also contributed resources to help the grid operator meet its capacity requirements, the California ISO said in the statement.

As more solar resources are added to the grid to meet California’s renewable portfolio standard, it is important for the California ISO and stakeholders to continue to develop market tools to value flexibility and fast-ramping capacity that can be dispatched to integrate the increased levels of variable resources, the DMM said in the report.

Despite the record low hydropower output in 2015, the other generation additions and the solar generation during peak demand periods in the middle part of the day kept wholesale prices low and competitive, the DMM said.

However, during a small number of intervals during 2015, energy or flexible ramping constraints needed to be relaxed for the California ISO market software to balance modeled supply and demand, and during those intervals, the California ISO has applied special price discovery measures approved by FERC to set prices based on the last dispatched bid price rather than penalty prices for various constraints, according to the report. Those special price discovery measures effectively mitigated the impact of relaxing the flexible ramping constraints, particularly during the first six months of 2015, the DMM said.

The total estimated wholesale cost of serving load in 2015 was just under $37/MWh, which is a nearly 30 percent drop from about $52/MWh in 2014, the report said. The decrease in prices was mostly due to a 40 percent decline in wholesale natural gas prices. After normalizing for natural gas prices and greenhouse gas compliance costs, the DMM estimated that total wholesale energy costs remained fairly stable, decreasing by about 6 percent from $45/MWh in 2014 to about $42/MWh in 2015.

Overall, prices in the energy markets were deemed competitive by the DMM, with most supplies being offered at or near marginal operating costs. Average real-time prices tended to be lower than average day-ahead prices, continuing a trend that began in 2013.

“This trend also reflects additional generation in real time not scheduled in the day-ahead market, particularly from wind and solar units,” the DMM said in the report.

Transmission congestion within the California ISO was low compared with prior years and had less of an impact on market prices. Congestion was highest in 2Q15 because of outage-related congestion on the Path 15 transmission line, according to the report.

The impact of congestion increased prices in the Pacific Gas & Electric (PG&E) area by about 43 cents/MWh in the day-ahead market, with a 20 cents/MWh increase in the day-ahead market in the San Diego Gas & Electric (SDG&E) area. Congestion decreased day-ahead prices in the Southern California Edison (SCE) territory by 28 cents/MWh.

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Tom Tiernan, senior analyst for TransmissionHub has been covering the energy sector for more than 20 years, with previous work at Platts' newsletters and real-time news service. Most recently, he edited and wrote for Megawatt Daily, covering the power industry, demand response markets and smart grid technologies. Previously, he was a reporter at Electric Utility Week, Inside FERC and other publications, covering natural gas and electricity regulation and policy developments from Washington. After receiving a bachelor's degree from the University of Iowa, he began his career in the early 1990s at Pasha Publications, writing primarily for Gas Daily.  Tom can be reached at

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