Winter rains lift California hydropower outlook, easing regional demand for natural gas
Energize Weekly, May 17, 2023
Heavy rains have filled California reservoirs and boosted the prospect for hydropower – welcomed news to the rest of the West, which saw natural gas prices soar last winter as California utilities scrambled to fill a hydropower gap.
Prolonged drought in California cut hydropower output in the state almost in half in 2022, according to the U.S. Energy Information Administration (EIA). Hydro made up about 9 percent of the electricity generated in the state last year.
Since December of 2022, however, the state has been hit by 12 atmospheric rivers – long, water-laden atmospheric streams – that caused more than $1 billion in flood damage.
The heavy rains also replenished reservoirs across California, including those behind the three hydropower plants operated by the U.S. Bureau of Reclamation – leaving the Oroville, Shasta, and Folsom reservoirs above historic averages, according to California Department of Water Resources.
“We expect that these more favorable hydrologic conditions will lead to more hydropower generation this year, with hydropower providing 14 percent of the electricity generated in California,” the EIA said.
By the end of 2022, dwindling hydropower forced California utilities onto a natural gas buying spree that bid up commodity prices in the Rocky Mountain West, with Colorado, the most populous state in the region, and its main utility Xcel Energy, particularly hard hit.
“California bid up natural gas in December and January in basins Xcel buys gas in,” said John Harpole, president of Mercator Energy, a Littleton, Colorado-based gas brokerage firm. “As a result of California, Colorado ratepayers paid more for natural gas.”
The cost of natural gas delivered to Colorado utilities, the Citygate rate, rose to $9.83 for a thousand cubic feet in January 2023 from $4.97 in December 2022.
And there was little doubt what was driving the price hike as California utilities purchased gas in Utah, Wyoming, and Colorado.
The commodity market price for the Southern California Gas Index, calculated in metric million British thermal units (MMBtu), hit $47 MMBtu this past January. It fell to $2.80 MMBtu in May.
At the Malin Interconnect, where Pacific Gas and Electric gets it gas for Northern California, prices hit $40 MMBtu in January and they are now at $2.56 MMBtu.
Harpole said that this type of gas price volatility may become more common as more renewable electric generation, needing natural gas backup, is added to the grid. “It is going to happen in these high demand winter months more and more as more non-dispatchable generation is added,” he said.
As well as in California, winter precipitation across the West was up, with Colorado snowpack 127 percent of the 1991 to 2020 median. The state’s snowpack is a prime source of water for the Colorado River, which feeds the hydropower facilities at Lake Powell and Lake Mead.
“More precipitation in the Colorado River Basin has improved water supply in the region,” EIA said. The Colorado Basin River Forecast Center projects Lake Powell, which summarizes the hydrological conditions throughout the Upper Colorado River Basin, to be 172 percent of the average from 1991 through 2020 in April through July.
The EIA is forecasting a 12 percent increase in 2023 in hydropower in the Southwest – which covers parts of Nevada, Arizona, and New Mexico – accounting for 6 percent of all electricity generation in 2023.
“Although the Northwest and Rockies has considerably more hydropower generation—the region accounted for more than half of the national total last year—we expect the Northwest and Rockies’ hydropower generation to be less in 2023 than it was in 2022,” EIA said.