The prospect of a growing solar power supply could add bearish pressure to the California carbon allowance (CCA) market over the next three years, according to traders polled by ICIS, if the resultant fall in emissions is not offset by dirtier power imports.
However, views differed on the extent that it had already been priced in, given uncertainty around future generation and import mixes.
California’s solar initiative, a programme aimed at increasing solar generation in the state, and federal tax incentives have caused a surge of solar power to enter the market. The California Independent System operator (CAISO) reported 4,093 MW of solar power on 8 March, more than double the daily generation produced in June 2012.
As solar power continues to flood the Californian power market, emissions should either decline or remain flat depending on the amount of total generation over the next few years. A broker said the large scale solar projects still in development could replace older, less efficient natural gas plants.
“Obviously, it would make the market more bearish,” a trader at a public utility said. “More and more of [solar generation] is coming online too.”
Two carbon brokers, however, said most of the solar generation has already been priced into the market, and the additional generation would not necessarily alter the demand for CCAs.
California’s changing mix
According to the California Energy Almanac, the state produced 1,834 GW of solar power in 2012, a rise 41% in generation from the 1,097 GW produced in 2011. California has an additional 15,689 MW of power that is under construction or in development, according to a March report from the Solar Energy Industries Association, a solar trade group.
For comparison, California produced 1,580 GW of coal-fired power in 2012, or nearly half of the 3,120 GW generated in 2011.
Looking at total generation, it rose from 293,652 GW in 2011 to 301,966 GW in 2012. This translates into solar’s share of total generation rising from 0.5% to 0.9% over this period.
Natural gas is still expected to be the primary electricity source in California, cutting generation from more CO2-intensive sources, such as petroleum and coal, according to data from the Energy Information Administration (EIA).
The EIA, a group that collects and analyses US energy information, also notes the boom in solar capacity in California would likely peak at 5,460 GW of power by 2016. After that, capacity would likely level off through 2020, because of the expiration of the federal solar investment tax in 2016, which helps to fund some solar development in the US.
This could mean that any reductions in emissions from solar power would likely plateau in 2016.
According to the EIA, renewable generation in the state should peak around 36% of total generation by 2017 with a bulk of that generation coming from hydroelectric and solar sources, the EIA said.
Replace SONGS generation
Environmentalists had hoped that the California Public Utilities Commission would replace the 2,200 MW of lost generation from the San Onofre nuclear generating station (SONGS) with the rising generation from solar panels.
However, the CPUC instructed Southern California Edison and San Diego Gas & Electric to replace lost generation with mostly natural gas-fired generation. The plan calls for a minimum 725 MW of power to come from renewable sources, or preferred sources.
SONGS, which closed in 2012, provided Southern California with CO2-free generation that helped the state meet its greenhouse gas target. The retirement of the nuclear power plant caused natural gas generation to rise from over 91,000 GW in 2011 to 121,000 GW in 2012.
Traders said the closure of SONGS has already been priced into the CCA market, and the new CPUC plan would likely not have an impact on the market. Dan X. McGraw