Low lake levels and below-average water runoff in the Western U.S. is sapping the region's hydropower generation capacity, which could lead West Coast utilities to lean more heavily upon their coal- and gas-fired power plants.
At the same time, the California Independent System Operator asked its customers to conserve power February 7 due to a shortage of natural gas, which is being used to help warm customers during cold weather in the area.
Reduced water supply in the Pacific Northwest will impact the hydropower generation capacity in the area, according to a report from the U.S. Energy Information Administration, a branch of the Department of Energy.
The Northwest River Forecast Center released its first water supply projection of 2014 for the Pacific Northwest and indicated a below-normal runoff for a majority of the observation stations in the region compared to the 30-year average.
The region has the largest concentration of hydroelectric capacity in the country, and reduced generation not only affects the immediate area, but also neighboring regions, including California, that import hydropower from the Pacific Northwest, according to the EIA.
Some public power agencies in California could be financially pressured in 2014 by the drought's impact on hydropower production, according to Fitch Ratings.
While the financial impact is expected to be manageable, utilities with a greater reliance on hydroelectric generation may be forced to use more expensive power generation and purchased power to replace the potential shortfall in hydropower output for the third year in a row.
Eight of the 14 Fitch-rated public power issuers receive from 10 percent to 32 percent of their power supply from hydroelectric resources according to a Fitch report.
The fuel mix for in-state electricity generation in California has generally shifted away from lower cost hydropower toward natural gas-fired resources during below-average water years. In 2011 hydropower accounted for an above-average 21.3 percent of in-state electricity generation.
Washington, Oregon, Idaho and Montana host 35 percent of U.S. hydropower capacity, and the supply can have implications for the dispatch of other sources of generation and greatly influence regional wholesale power prices, according to the EIA.
“Absent an abundant supply of hydroelectric output, wholesale power prices may be increasingly determined by the cost of natural gas generation in the region,” according to the report.
In 2012 hydropower production decreased to just 13.8 percent under drier conditions. This corresponded with an increase in natural gas-fired generation, which rose from 45.4 percent in 2011 to 61.1 percent in 2012. Figures are not yet available for 2013; however, the contribution from hydropower is expected to remain relatively low based on observed water levels.
Public power utilities in California have experienced prolonged periods of dry water conditions before the current cycle and have undertaken measures to reduce their vulnerability. These include improved rate design, the broader use of automatic recovery mechanisms, the collection and use of rate stabilization funds, and more conservative budgeting.
Although sufficient time remains for water conditions to return to more normal levels in 2014, which has occurred in about half of water years that experienced dry first quarters according to California Department of Water Resources, the state is currently experiencing record low water conditions, with almost one-third of the water year (Oct. 1-Sept. 30) passed.