1. California Energy Outlook: Where Are We and Where Are We Going?
IEPA 2019 Annual Meeting
September 24, 2019
Arne Olson

2. Agenda Where are we today? Where are we going?
Still early on the road to decarbonization
Tighter on capacity west-wide as thermal plants continue to retire
Rapidly changing composition of retail service and procurement functions
Where are we going?
We know how to decarbonize the power sector, now just need to get it done
Continue to need firm capacity
Need to hit the accelerator in the other sectors

3. Where are we today?

4. One third of the way to SB100! (The easy third)
CEC estimates CA energy supply was 34% renewable in 2018
Two years before deadline for 33%
Diverse resource mix
Roughly one-third wind, one- third solar, one-third other
62% carbon-free energy (including hydro and nuclear)
Coal almost a footnote in California’s energy supply today
CA Energy Supply, 2018
Source: CEC
* Includes imports from out-of-state resources

5. Impact of Solar Generation Net Load
Rapid increase in solar buildout has led to significant changes in market dynamics
CAISO Hourly Solar Generation by Year (March-May only)
CAISO Net Load (March-May only)
Source: CAISO, E3 Analysis; note that solar generation does not include rooftop solar 5

6. Impact of Solar Generation Thermal Generation
Rapid increase in solar buildout has led to significant changes in market dynamics
CAISO Hourly Solar Generation by Year (March-May only)
CAISO Thermal Generation (March-May only)
Source: CAISO, E3 Analysis; note that solar generation does not include rooftop solar 6

7. Impact of Solar Generation Hydro Generation
Rapid increase in solar buildout has led to significant changes in market dynamics
CAISO Hourly Solar Generation by Year (March-May only)
CAISO Net Load (March-May only)
Source: CAISO, E3 Analysis; note that solar generation does not include rooftop solar 7

8. Impact of Solar Generation Imports
Rapid increase in solar buildout has led to significant changes in market dynamics
CAISO Hourly Solar Generation by Year (March-May only)
CAISO Imports (March-May only)
Source: CAISO, E3 Analysis; note that solar generation does not include rooftop solar 8

9. Impact of Solar Generation Market Prices
Rapid increase in solar buildout has led to significant changes in market dynamics
CAISO Hourly Solar Generation by Year (March-May only)
NP15 Day-Ahead Hourly Market Price (March-May only)
Source: CAISO, E3 Analysis; note that solar generation does not include rooftop solar 9

10. Systemwide curtailment is on the rise due to excess solar power when load is low
Peak of 225,000 MWh/month = ~7% of FOM solar generation in May 2019
Curtailment is increasing and spreading from spring to other seasons (fall, winter)

11. What about all that storage?
Around 150 MW of batteries active in CAISO market today
Primarily providing ancillary services: frequency regulation, spinning reserves, etc., and dispatching occasionally in RT markets
No deep daily cycling and ramping trend yet, even on days with biggest duck curve
Biggest sources of system flexibility are still gas, hydro, and imports
Storage capacity will grow rapidly in next few years and typical operations are likely to change
Typical Battery Dispatch in California Market in 2019

12. Despite renewable additions, growing consensus CAISO is tight on RA capacity
3-4 GW of gas retirements in will leave the CAISO system significantly tighter in resource adequacy
CPUC and CAISO project MW of shortfalls
Potential outcomes: delayed OTC retirements and/or accelerated energy storage procurement
CAISO Resource Adequacy Forecast: 2020, 2021, 2022
CPUC System Resource Adequacy Forecast:
Source: CPUC

13. NW Capacity Surplus / Deficit in Recent Studies
Not just a California problem: the NW is, or will soon be, in a capacity short position
NW Capacity Surplus / Deficit in Recent Studies
Policy-driven changes to the resource mix are resulting in the loss of significant quantities of firm capacity
Northwest may need as much as 8 GW of new capacity by 2030
Variable resources and energy storage cannot easily replace this lost capability
An investigation of the RA issue has begun through the Northwest Power Pool
Utilities interested in developing a regional RA program
Resource Adequacy Symposium
October 2, 2019
Portland Airport Sheraton

14. Southwest is already banking on batteries to perform daily cycling to serve peak load
NV Energy 2018 procurement: 1,000 MW of solar, 100 MW of storage
NextEra: Dodge Flats 200 MW PV + 50 MW/4-hr storage
NextEra: Fish Springs 100 MW PV + 25 MW/4-hr storage
Cypress Creek: Battle Mountain 101 MW PV + 25 MW/4-hr storage
El Paso Electric 2018 procurement: 200 MW of solar, 100 MW of storage
APS 2019 procurement: 100 MW of solar, 850 MW of storage
200 MW of 3-hr storage added to existing solar facilities
150 MW of 2-hr standalone storage
100 MW PV MW/3-hr storage
400 MW of additional 3- to 4-hr storage
NV Energy 2019 procurement: 1,200 MW of solar, 560 MW of storage
EDF RE: Arrow Canyon 200 MW PW + 75 MW/5-hr storage
8minute Solar: Southern Bighorn 300 MW PV MW/4-hr storage
Quinnbrook and Arevia: Gemini 690 MW PV MW/4-hr storage
Possible upgrade in battery size to 531 MW/4-hr storage
California and the Southwest are about to embark on a grand experiment in relying in Lithium-ion batteries to provide a significant quantity of reliable capacity

15. CCAs are procuring new resources through major renewable energy deals
Many major solar, wind, and energy storage deals signed by some of the newest CCAs
Clean Power Alliance
233 MW Arlington Solar
San Jose Clean Energy
100 MW PV, 10 MW battery storage at Sonrisa Solar Park
20Y contract signed just months after SJCE launched service earlier this year
East Bay Community Energy
100 MW PV, 30 MW battery storage at Sonrisa Solar Park
112 MW Rosamond Solar
Peninsula Clean Energy
200 MW Wright Solar Park
Monterey Bay Community Power / Silicon Valley Clean Energy
150 MW PV, 45 MW battery storage Slate1 Solar
128 MW PV, 40 MW battery storage Big Beau Solar
200 MW Duran Mesa / Corona Wind (NM)
Over 2,500 MW in total long-term contracts signed by CCAs to date

16. Regional market expansion continues
EIM map covering a larger and larger swathe of the West
BPA has been telegraphing its intent to sign the implementation agreement this fall
Enhanced Day-Ahead Market (EDAM) discussions have indicated significant benefits from earlier coordination
WAPA Rocky Mt. Region joining SPP

17. So where are we today?
Renewables development has been slowed by the CCA transition but is still happening
Solar is messing with dispatch and hourly prices in all the ways we expected it to, but continued opportunities for gas generation
Storage isn’t quite there yet but we are sure counting on it to come through
Regional markets continuing to expand
Resource Adequacy is the hot topic everywhere as coal plant retirements continue

18. Where are we going?

19. California’s clean energy ambitions: the hard work is still ahead
Meeting long-term carbon goals requires a significant escalation across all sectors of the economy
15% renewables
* per the CEC California Energy Demand 2017 IEPR Revised Forecast “High Plus” Scenario 6 including SB 350
25% renewables
33% renewables
Begin installing electric heat pumps
30% EV sales in light-duty
50%+ RPS
74% zero-carbon electricity
100% EV sales in light-duty
Doubling EE savings* +
50% heat pumps sales
Nearly zero-carbon
electricity
100% heat pump sales
100% of truck sales are electric, hybrid or CNG
Nearly half of remaining fossil fuels = advanced biofuels

20. E3 Study of Resource Adequacy under Deep Decarbonization in California
California has established aggressive goals for economy-wide decarbonization and zero carbon electricity generation
Study sponsored by Calpine to examine the question of what resources are needed to maintain resource adequacy in a deeply decarbonized system that is heavily dependent upon renewables + electric energy storage
Two alternative scenarios are considered that each meet economy-wide goals of 80% reductions in GHG emissions below 1990 levels by 2050:
High Electrification
High Biogas
This study was funded by Calpine Corp.

21. Methodology and Models
This study was completed using three E3 models of the California electricity system
California PATHWAYS model develops scenarios for meeting 2050 economy-wide decarbonization goals
Electric Sector carbon budgets and electrification loads passed to RESOLVE
PATHWAYS Economy-
wide GHG
Scenarios
California-wide RESOLVE model developed least- cost resource portfolios to meet GHG targets
Electricity resource portfolio passed to RECAP
RESOLVE
Electricity
Capacity Expansion
California-wide RECAP model tests the reliability/sufficiency of the resource portfolios
Calculates Loss-of-Load Expectation
RECAP
Electricity
Resource
Sufficiency

22. PATHWAYS High Biogas Scenario PATHWAYS High Electrification Scenario
Electrification results in significant load increases for both scenarios
Electrification of transportation and buildings aids in decarbonization of California economy
The two scenarios represent booked values for increased electric loads (30-60% relative to present)
High
Biogas
High Electrification
2020
2050
Annual Energy (TWh)
315
417
511
Peak Load (GW) 65 78 93
PATHWAYS High Biogas Scenario
PATHWAYS High Electrification Scenario
+60%
+30%
Electrification
Transportation
Transportation
Buildings
Buildings
Other
Other
Industry
Industry
Existing loads
Buildings
Buildings

23. High Electrification Scenario Total Installed Capacity (GW)
California will rely mostly on solar and storage to meet decarbonization goals
Long-run portfolio dominated by solar + storage
Wind and geothermal valuable but supply-limited
100%+ Clean Energy Standard achieved by 2050 in both scenarios
High Biogas Scenario
High Electrification Scenario
Wind and geothermal are procured up to maximum resource limits
Solar and storage are procured to meet remaining carbon targets
Total Installed Capacity (GW)

24. 2050 Forced Gas Retirement Cases Relative to High Electrification Scenario
25 GW Gas
10 GW Gas
0 GW Gas
(High Elec Scenario)
15-hr duration 5x
New Capacity Build (GW)
17-hr duration
6-hr duration
3.5x
2.3x
1.1x
50%
annual
curtailment
+$65b
+$28b
Significant renewable overbuild and storage is required to retire gas while maintaining reliability
$6,600/ton cost of CO2 reductions from 9.8 MMT high elec case
$22,000/ton cost of CO2 reductions from 9.8 MMT high elec case

25. Energy Balance Changes by Season
Sunny Spring Week
Hot Summer Week
During spring months, gas generation is unnecessary due to excess solar production and low loads
During summer months, high loads require small amounts of gas generation during the night when no solar is available
Supply (High Electrification Scenario)
Load
Cloudy Winter “Worst” Week
Winter months become the main reliability constraint due to energy deficits
During cloudy winter weeks, gas is required for reliability
Reliability Constraint

26. Storage capacity contribution
Energy storage is not a perfect substitute for firm thermal generation capacity
Limited discharge duration becomes significant at higher penetrations
Rule of thumb: % of peak load can be met with diurnal energy storage (4-8 hours)
Multi-day storage would be required to achieve equivalent value to gas capacity
Storage capacity contribution

27. New technologies are required to achieve a fully zero-carbon grid
Firm, carbon-free resources would be needed to get to a zero-carbon grid
These resources will be crucial for reliability but will have low utilization
Candidates include:
New nuclear
Fossil generation with carbon capture and sequestration
Renewable natural gas (RNG)
Renewables with very long-duration storage
E3 is currently exploring the role of these technologies in a study for Environmental Defense Fund

28. Long-Term Resource Additions with and without Offshore Wind
Resource diversity (such as offshore wind) valuable for nighttime energy production
Study sponsored by Castle Wind
Long-Term Resource Additions with and without Offshore Wind
There is significant value to resource diversity in the long run in California even under low solar & battery prices
RESOLVE modeling shows that offshore wind could greatly reduce reliance on solar and storage in 2030 and beyond

29. Land-use may be the biggest constraint on the high-solar future
More stringent land-use protections can increase costs significantly
Extending market footprint to entire West makes it easier to find low-conflict lands
Power of Place
Advancing a Clean Energy Future

30. RPS policies create market distortions that devalue other zero-carbon resources
Daily Energy Price Profile under
High RPS – California
Market prices remain at traditional levels when fossil is on the margin
Prices are negative during oversupply events due to lost REC value
Daily Energy Price Profile under low GHG Cap – California
High market price on carbon drives high prices when fossil is on the margin
Prices drop to zero but not below during oversupply events
Persistent negative pricing presents a significant policy risk due to transfers among market participants
May also dampen investment in clean energy resources due to perceived market risk

31. Where do we need to go?
Make sure our institutions are up to the challenge of rapid electricity decarbonization
Move toward policies focused on carbon instead of clean electricity
Hit the accelerator in all the other sectors

32. Thank you!
Energy and Environmental Economics, Inc. (E3) 44 Montgomery Street, Suite San Francisco, California Tel Web
Arne Olson, Senior Partner