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Clearing Up / Bearing Down

[April 6, 2018 / No. 1845]

California Gas Plant Retirements: One-Off, or Continuing Trend?

Summary: California has seen waves of natural gas-fired plant closures in recent years, even as it ramps up the level of renewables in the state. Economics, and other reasons, are explored in this column.

Over the past 10 years, natural gas consumption in the U.S. has risen about 2.4 percent a year. But in California, it has remained relatively flat even as the population has grown by millions, a testament to the state’s efforts to increase renewables and energy efficiency.

Even as California actively pursues policies to increase renewable energy and other preferred resources such as energy storage, market forces are helping cull the gas fleet, especially plants without long-term power-purchase agreements that cannot compete with low-priced renewables.

One of the latest examples of this phenomenon is from NRG Energy subsidiary GenOn. On Feb. 28, the company notified the California PUC it would retire the 640-MW Etiwanda Generating Station Units 3 and 4, effective June 1; the 1,516-MW Ormond Beach Generating Station Units 1 and 2, effective Oct. 1; and the 54-MW Ellwood Generating Station, effective Jan. 1, 2019.

The plants are being closed for economic reasons, said NRG spokesman Dave Knox.

Environmental advocates cheered the decision.

"We’re starting to see an accelerating trend," said Evan Gillespie, campaign manager for Sierra Club’s My Generation campaign, which is pushing for 100-percent clean energy in California. "A portion of the California gas fleet is becoming more and more uneconomic."

Natural gas is still an important resource in the state, especially for its energy system—nearly 11 million homes and businesses rely on natural gas for heat, and more than 600 electric generating units depend on natural gas fuel. But to meet its climate goals, state policy calls for reducing reliance on fossil fuels.

CA Percentage use of natural gas by sector, 2016

California policies targeting greenhouse-gas reductions and encouraging clean energy and energy efficiency are helping transform the state’s energy profile. Natural gas-fired power plants help grid reliability, but growing amounts of energy storage could change that.
Source: CEC 2017 Integrated Energy Policy Report

California’s gas demand averaged about 5.6 Bcf/day in 2016, with nearly a third of that amount feeding power plants for electricity generation. The energy commission’s 2017 Integrated Energy Policy Report said the state will need to increasingly move away from fossil fuels, including natural gas, to meet a target of reducing greenhouse-gas emissions 40 percent below 1990 levels by 2030.

Safety-related issues that became apparent in the wake of the deadly 2010 natural gas pipeline rupture in San Bruno and the massive 2015 natural gas leak at the Aliso Canyon storage facility are also a factor in state efforts to wean itself off natural gas.

The California Energy Commission has recommended putting millions more into natural gas research and development programs; assessing the gas system’s vulnerability to major disruptions such as earthquakes; continuing to evaluate changes in the natural gas-electricity interface; developing strategies to upgrade aging infrastructure; developing a long-term strategy for the closure of Aliso Canyon; and tightening energy-agency coordination to ensure a continued shift away from fossil fuels.

"The state needs to send very clear signals that the days of gas-fired generation are numbered," Gillespie said. At the same time, regulators have to ensure that generators do not game the system by warning they are being forced out of the market in hopes of securing a contractual payment.

Regulators will need to assess what they want in a transition away from gas, he said, while also considering the impacts of fossil fuels on disadvantaged communities that have borne much of the pollution burden related to gas-fired plants in their communities.

The latest plant retirements add to a string of other previously announced closures. NRG had previously decided to close the once-through cooling (OTC) units at its Mandalay Generating Station last December, two years ahead of their OTC compliance date, but deferred the retirement to February 2018 for reliability reasons; the units are now closed.

NRG also suspended an application for certification at the CEC for its proposed Puente Power Project, after the commission indicated it would deny the application and a study by the California Independent System Operator indicated that need in the area could be met with preferred resources.

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Calpine Corp. has also petitioned the CEC to suspend its application for the proposed Mission Rock power plant in Santa Paula.

Those developments follow the 2016 closure of the Sutter Energy Center and the bankruptcy of the La Paloma Generating Plant, also due to economic factors.

Other key milestones were the Los Angeles Department of Water & Power’s decision last year to pause gas-plant repowers as it studies clean alternatives, and the CPUC’s December directive to Pacific Gas & Electric to hold a solicitation for storage and preferred resources rather than sign reliability-must-run contracts with three gas plants.

The Ormond Beach plant in Oxnard will retire in October. Ormond Beach is an aging, seldom-used plant that utilizes once-through cooling, and was slated to retire in 2020 to comply with state OTC regulations. The plant had annual capacity factors that ranged from 4.1 percent to 2.9 percent between 2013 and 2015, and its capacity factor for much of 2016 was just 1 percent, according to data from the CEC.

The City of Oxnard and its residents have borne the burden of four gas-fired OTC units and two gas-fired peaker plants on what were deemed industrial sites on coastal beaches, said Gladys Limón, executive director of the California Environmental Justice Alliance.

"The state has made a lot of gains in this transition [to clean energy], but it clearly needs to do more," she said, echoing Gillespie’s comments that disadvantaged communities should especially be the beneficiaries of a move to clean energy.

NRG had hoped to refurbish Ellwood under a power-purchase agreement with Edison, but the utility was directed to conduct a new solicitation for preferred resources in the area. [Mavis Scanlon]

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