California's Mid-Day Solar Power Glut Has Become Obvious

Summary

• California’s Independent System Operator, or CAISO, has long cautioned that renewable power production would eventually grow to a point where supply exceeds demand on pleasant spring and autumn days.
• While CAISO can manage oversupply with economic curtailments and exports, those tools are suboptimal because curtailments impair the economics of existing solar power projects and exporting power is costly.
• Through May 9, 2019, cumulative curtailments of 446,500 MWh were 189% of 2018 levels and there were 25 days when CAISO exported mid-day power, compared with zero days in 2018.
• Unless new solar power projects are paired with energy storage facilities to support “time shift” from afternoon to evening, they will exacerbate California’s obvious mid-day solar power glut.
• Future economic headwinds for solar companies that have booked a disproportionate share of their historic revenue from equipment sales in California could be significant.

Since 2012, CAISO has used “The Duck Curve” to graphically illustrate the impact of renewables on available power supplies. This 2016 version summarized historical and expected trends from 2012 through 2020 for a typical spring day.

The renewables deployment forecast embodied in the 2016 version of The Duck Curve has been quite prescient, as demonstrated by the following graph that summarizes average hourly power production by resource type for the month of April 2019. While the hour-to-hour changes in CAISO’s Duck Curve are steeper than the changes in my graph, the former uses a modified vertical scale and focuses on the impact of solar power while the latter uses a complete vertical scale and includes all important resource classes.

Until recently, I wondered what CAISO would do when over-generation risks became recurring over-generation realities. Today, I know the answer to that question.

• As the first stage defense against grid overload, CAISO imposes local and system-wide economic curtailments.
• As the second stage defense against grid overload, CAISO sells excess mid-day power to utilities in other states at wholesale prices.

This year, solar curtailments have been a daily occurrence, and through May 9, 2019, cumulative curtailments of 446,500 MWh were 189% of 2018 levels. There also were 25 days when CAISO, like Germany, was a net power exporter for at least one hour, compared with zero days in 2018

In 2017, the Los Angeles Times ran a feature story that examined the cost of exporting solar power from California to utilities in neighboring states. It reported that on eight days in January, nine days in February and 14 days in March, California paid Arizona utilities to take excess solar power, and explained that the transactions saved Arizona ratepayers millions of dollars. While the exports were fiscally significant, they weren’t substantial enough to make California a net exporter of electricity for any hourly reporting period in 2017.

A lot has changed over the last two years and between Jan. 1 and May 9, 2019, there were 25 days when California was a net exporter of electricity for at least one hour. The following table summarizes the number of days in each month that California was a net power exporter, the number of hourly periods in each month that California was a net power exporter, and the number of Megawatt-hours that California exported to neighboring states during periods when it was a net exporter of electricity.

	Export	Export	Export
	Days	Hours	MWh
February	1	3	1,236
March	11	51	24,870
April	9	48	38,225
May	4	22	26,015

Click to enlarge

The following graph stacks curtailment data from CAISO’s Managing Oversupply webpage with export data derived from CAISO’s daily renewables and emissions reports and shows how the curtailment and export landscape in California has changed over the last 2-1/2 years.

Since we’ve reached a point in the annual weather cycle where afternoon power demand is climbing rapidly, I’ll be surprised if CAISO reports more export days before the fall. However, several conclusions seem inescapable given recent developments.

• While curtailments hurt solar power producers, exports hurt ratepayers because CAISO buys unneeded power in the local market, pays significant transmission and other costs, and then sells that power to out-of-state utilities at wholesale prices.
• New residential, commercial and utility-scale solar power projects that are not paired with energy storage to support “time shift” from afternoon to evening will exacerbate California’s mid-day solar power glut.
• Now that a capacity tipping point has been reached, the frequency and magnitude of export days will increase rapidly as new solar power projects are added to the grid.
• There will be increasing pressure to modify existing regulatory structures that let solar power producers dump low-value power into the grid during the mid-day hump.

Since California’s solar power generating capacity has reached a tipping point where the mid-day solar power glut is obvious, I expect to see significant changes in CAISO’s approach to future solar power projects. At the utility-scale level, I think new projects will be strongly encouraged if not compelled, to incorporate energy storage for time shift. Since time shift is not a high-value energy storage application, I expect storage issues to complicate project feasibility analysis, financing, and engineering, procurement and construction.

While companies like Tesla (TSLA) may benefit if utility-scale demand for multi-hour energy storage products increases, they will almost certainly encounter substantial new challenges in fortifying their technology metal supply chains and obtaining enough raw materials to satisfy utility demand without sacrificing their ability to manufacture electric vehicles.

On balance I expect the rapidly evolving solar power glut in California to negatively impact companies like First Solar (FSLR), SunPower (SPWR), Canadian Solar (CSIQ) and JA Solar (JASO) that have booked a disproportionate share of their historic revenue from equipment sales in California.

Analyst’s Disclosure: I am/we are short TSLA THROUGH LONG-DATED OUT-OF-THE-MONEY PUT OPTIONS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Fosterr]

All extremely evident, yet I think your article shows the incentive for capacity is evolving. To divert the old chestnut from "Divine location" on its head: If they need it, they will pay. more about

[User 637746]

@bihal ............." Despite india being so poor, it may be a bit better than you expect: en.wikipedia.org/...
~8% renewables
~8.5% hydro
~2.4% nuclear.
China has less of an excuse imo. India is doing alright given how poor they are. The interesting thing is India is clearly committed to nuclear power,"
*****************

Really?
This year, India made additional steps to further boosting its imports of the chilled fuel as part of plans to shift to a natural gas-based economy. www.lngworldnews.com/...

[Commodity Tracker]

Just read this story about the UK importing wood from across the Atlantic.
www.pri.org/...
Reality is that burning wood generates more C02 and emissions that coal. But that clearly does not matter, because it gets a renewable tick. The hypocrisy is palpable.

[User 21359971]

(1). I do not think that burning wood eliminates particulates.
(2). Burning wood also ignores carbon sinks. The burning of Brazil's rain forests and the burning of Indonesia release great amounts of CO2.
(3). You must be careful about your units. For clearing forests, you want the CO2 per kg of wood. For energy production, you want the CO2 per kWh.

[Commodity Tracker]

@dieeolfsschanze
Assuming one took the C02 risk seriously, surely chopping down trees to burn in a power station is about as bad as you can get?
I guess the point I am making is that the C02 risk is not being taken seriously.

[User 21359971]

@T12432
(1). Each country faces a plethora of risks. Each country must prioritize its risks and address them by risk. CO2 emissions may poise a higher risk for the Marshall Islands than for Nepal. Unfortunately, the Marshall Islands have little ability to affect global CO2 emissions.
(2). Given Englands nuclear ambitions, wood burning may only be a short-term expediency.
(3). If anthropogenic climate change is real, the solution is a global solution and not an individual solution.

[wrdemott1]

Solar stocks are going up crazy today and it's evidently because Florida is switching to solar big time. I already have solar on my Florida rooftop and don't expect to pay another electric bill during my lifetime. It's about time that electric companies have recognized that Florida is a great location for solar power.

[Tdot]

True that. Right up until the first major hurricane shows up and rips up all those expensive rooftop solar panels. Which the insurance companies' customers and US taxpayers will then end up paying for in the state of emergency declarations ...

[Commodity Tracker]

@Tdot
Forgive my ignorance, but is the rood top solar even considered part of the house for insurance purposes?

[Tdot]

Yes, but you might have to get a rider for it. Google is your friend ... try it.

www.nationwide.com/...

[User 21359971]

Here is one country's recognition of the failure of renewables and the necessity for nuclear power:

www.arabnews.com/...

[wired_2015]

@dieeolfsschanze The author is an ideologue, and is repeating several false points, about birds, etc. and Saudi Arabia in fact, is investing far more in renewables than nuclear. So is China. So is India.

Solar produces energy when it's needed the most: during the midday peak, it's an excellent match for cooling loads. If you tried to do this with nuclear, you'd overbuild for the midday peak which would be wasteful. The two complement each together.

"Saudi Arabia to tender 2.22 GW of solar in 2019 and wants 40 GW in 2030"
www.pv-magazine.com/...

[VFEA]

Now comes a group of 34 market-oriented groups with a letter to Congressional leadership asking to maintain the current 200,000 vehicle limit for eligibility for federal tax credits.

Straightforward argument: EV subsidies are unpopular, benefit the rich, transfer wealth to California, and are dirtier than new generation ICE vehicles. A breath of fresh air.

From the letter: "Electric vehicles, like all other products in the marketplace, should succeed or fail on their merits. With the evidence pointing toward slack of consumer demand for electric vehicles, the companies that manufacture them are looking to Congress for even more handouts. We urge you to protect your constituents and all American families by opposing an expansion of the electric vehicle tax credit."

In targeted correspondence to Congress, VFEA insists that legitimate federal role in the energy sector is to support national security interests, that subsidies for solar/wind/renewables fail to provide any meaningful support for these interests, and subsidies cause significant economic inefficiencies and lower standards of living. Bottom line, the carbon dioxide scam will eventually run its course with results similar to American domestic policy wars on poverty, crime, drugs, and terror -- wasting trillions of dollars and creating massive bureaucracies with incentives only to maintain continued funding for the bureaucracies -- and not making a dent in any actual problem. Let freedom reign.

Link: www.americanenergyalliance.org/...

Short TSLA via long-dated hedged put options. Leave no government worker behind.

[wired_2015]

americanenergyallian... was founded in 2008 by Thomas Pyle, who previously lobbied on behalf of the National Petrochemical and Refiners Association and Koch Industries.

AEA's allied organization, the Institute for Energy Research, is also led by Thomas Pyle received $95,000 from ExxonMobil in 2007 and $65,000 the year before.

In other words, your news and ideas come from fossil fuel astroturf organizations.

You are drinking from a poisoned well.

[Commodity Tracker]

All the wells are poisoned sweaty. It is because the US does not do investigative journalism anymore. It's all politically driven.

[User 21359971]

@wired_2015 @VFEA @T12432
wired,
You should look more at the arguments than the source of the arguments. The VFEA post is just basic economic theory that would be taught in any undergraduate economics class. You are drinking from the poisoned well of ignorance. You accuse others as the the slaves of the fossil fuel industry while you are a slave of the renewable industry. Any valid application of economic theory would eviscerate your renewable mantra consign it to dung heap of discarded theories such as Marxism.

[wired_2015]

To get an idea for just how dominant renewables are becoming, projections are for 800 GW of solar alone through 2023. We installed ~ 104 GW in 2018, an 'off' year, and that's expected to grow by ~30% in 2019.

"SolarPower Europe sees world adding 800GW in solar capacity by 2023"
www.rechargenews.com/...

Costs for both solar and wind fall by 5-20% each year, year after year.

Meanwhile battery costs fell by 35% year-over-year in Q1 2019:
"Battery Power’s Latest Plunge in Costs Threatens Coal, Gas"
about.bnef.com/...

[Commodity Tracker]

@wired_2015
Talking to Chinese solar cell manufacturers, they are demanding prices start rising now that subsidies are being lifted.
www.pv-magazine.com/...

[wired_2015]

Yep, but I don't expect that to happen, do you?

Panels are just one part of the equation and costs are still sharply falling on everything, learning rates will continue to drive down costs for another decade at least. The smart money anticipates costs of 1-2 cents/kWh within a decade.

[riverside1993]

<< The smart money anticipates costs of 1-2 cents/kWh within a decade >>

You're a one-man cliche machine.

[wired_2015]

A nice article, thank you for writing it. There are couple of issues that you may not be aware of, that significantly impact your thesis:

The first is to note that there is 12 GW of generation below the bottom of the duck curve - currently that's somewhat fixed due to a couple of factors: some, like nuclear plants, can't be ramped down, others are gas plants that are necessary for grid stablization, others are contractual arrangements that can't be curtailed.

The last two factors are dropping over the next few years, California has contracts for out-of-state generation (some of it coal) that all expire over the next few years. Grid stabilization works well with batteries and battery-based solutions will be displacing a large number of must-run gas generators over the next few years as well, so the bottom of that curve will be dropping a lot.

The second consideration is this: some curtailment is perfectly economic IF the added generation during the summer months makes up for the loss - in other words, over-generation in shoulder seasons might be fine if it means more generation during summer peak loads.

Thirdly, the curtailment is small in the larger context, it's a minor issue today.

Fourthly, curtailment creates an arbitrage opportunity, expect the market to react to this and shift loads accordingly, the formal term for this is 'Demand Response' and it includes both curtailing loads during peaks and adding loads during troughs. One way to do this in California is by creating ice during peak generation and using the coolth later in the day - in California we have large cooling loads that occur post-harvest each day for packing produce into the night as well as building loads.

Fifthly, battery costs fell ~35% from 2018-Q1 to 2019-Q1, batteries are at their infancy, and costs will continue to plummet for decades still, shifting loads won't be a problem longer-term.

[VFEA]

Thanks John, succinct lay out, excellent top-to-bottom.

In addition to challenges for legacy solar manufacturers/vendors, view here is that thermal generators will face increasing headwinds too. Necessary to cover system energy requirements and ancillary services during winter season, cover all intermittency, while losing market share during higher solar/wind penetration hours, causes lower IRR going forward for new investments, and lowers values for existing investments.

Curtailing solar resources during summer peaks, installing uneconomic battery storage, requiring thermal resources during winter peaks, while Aliso Canyon is nowhere near getting fixed. Economic and energy efficiency, California style.

For reliability risks, the morning/evening generation ramps for California ISO will approach 18,000 MW over three hours, each and every weekday going forward. Summertime peak hours, What could possibly go wrong?

Short TSLA via hedged put options. Solar energy, too cheap to meter.

[wired_2015]

Bids for Solar + 4 hour batteries are now 3.0 to 3.2 cents per kWh in Colorado. The batteries add 0.65 cents/kWh, it's not uneconomic any longer:

"World’s largest li-ion battery and 707 MW of solar power in Colorado proposal"
pv-magazine-usa.com/...

[Commodity Tracker]

I don't think there is any doubt that solar and wind assets will become stranded by new technologies like cold fusion.
www.youtube.com/...

[David Muncier]

@T12432, not betting on LENR coming online in the next 10-20 years given the glacial pace of research. But keep pldding Lewis Larsen.
www.slideshare.net/...

[wired_2015]

Solar and wind are both likely to be 1-2 cent/kWh by that time. Solar is likely to hit 1 cent/kWh within a decade. I'm all for continued fusion research, but we have a pathway to dirt-cheap solar and wind today.

"The path to US$0.015/kWh solar power, and lower"
www.pv-magazine.com/...

[VFEA]

@wired_2015; "Solar and wind are both likely to be 1-2 cent/kWh...."

Thanks for sharing. PS Colorado numbers will be useful in resetting the out-of-market PG&E contracts in the bankruptcy case. Now thinking $2.5 billion annual O&M reductions, almost 20% for retail rates.

[wrdemott1]

I just got my solar system in Florida and it's great. I understand the emphasis on CA, but solar is increasing quickly in FL and other states.

[Katie711]

Great article, John. People can cool their homes during peak sunlight hours, come home to a cool house, turn down the ac before sunset and ask their employers to charge their cars with low cost sun power while they work. Hydro power can be lowered during peak solar time to conserve water behind the dams to be used after sunset. Very green article, John.

[WhiteBirch999]

@Katie711 Good points. I agree.

Long on GRAND CHILDREN.

[VFEA]

711; "Hydro power can be lowered during peak solar time to conserve water behind the dams to be used after sunset."

California, summer peaking, relies on BPA for hydro-based electric energy. Water in Pacific Northwest managed primarily for flood control and irrigation, and not power production. Pacific Northwest region, growth demographics, and absorbing increasing amount of the hydro resource, and creating rising economic and political pressure on BPA allocations.

Pacific Northwest water resources managed primarily for flood control and irrigation, electric production secondary objective. California gets to wrestle six (?) other states for BPA allocations.

In low water years, California can use battery storage to fill gaps. Batteries, too cheap to meter.

Short TSLA via long-dated put options.

[wired_2015]

California recently signed agreements with Canada and Mexico to wheel power - hydro management will increasingly shift to manage the evening ramp - the market signals are there and increasingly the infrastructure, too.

[Opportunistic Squirrel]

That last link from Reuters includes this:

"So-called smart-home systems - such as Alphabet Inc’s Nest thermostat and Amazon.com Inc’s Alexa personal assistant - will consume about 1.5 million tonnes of copper by 2030, up from 38,000 tonnes today, according to data from consultancy BSRIA."

What the...?

[John Petersen]

@Opportunistic Squirrel I got a kick out of the fact that Tesla's supply chain managers are effectively saying "Petersen was right all along and we'd be way ahead of the game if we'd paid attention in 2010."

[User 49682747]

@John Petersen

"I got a kick out of the fact that Tesla's supply chain managers are effectively saying "Petersen was right all along and we'd be way ahead of the game if we'd paid attention in 2010."

What they didn't say is that transitioning to electric transportation is a hopeless endeavor because they'll never be enough raw materials to make the batteries, as you insisted.
They need only get serious about developing the resources.
Seems you said that since cobalt is a byproduct of copper, and since copper isn't being mined the cobalt would be prohibitively expensive.
Well, copper has become short in supply and so WILL be mined, thus supplying more cobalt.
Besides, considering the importance of cobalt, it would be mined for it's own sake in any case.
Perhaps you saw that these rare metals are to be placed into high priority as strategic materials?

[Opportunistic Squirrel]

@John Petersen "Petersen was right all along and we'd be way ahead of the game if we'd paid attention in 2010."

Ha ha. I appreciate the self-deprecating sarcasm.

In 2010 cobalt was $20/lb. Today it's $15/lb. What's the next 'cliff'?

www.infomine.com/...

[WhiteBirch999]

Employers can purchase low cost mid-day electricity to charge electric vehicles while people work.

Long ENPH, RUN, SUNW and VWDRY.

[WhiteBirch999]

Great article, John. I Envision large employers being able to purchase power to charge their employees electric vehicles during peak sunlight hours at a very low cost.

[tmerchant]

@WhiteBirch999 I think you're right about that but how do you expect the low price paid to allow solar installations to realise a return on investment?

[User 49682747]

@tmerchant

"how do you expect the low price paid to allow solar installations to realise a return on investment?"

Is that a rhetorical question?
Has nobody ever explained the economy of solar power to you?

[x man]

Home storage is a solution, take solar homes off the grid altogether generate, store, and consume energy all in one place. Excess renewable energy is a great problem to have, It will drive the next innovation. The grid becomes a low use backup system. Combine satellite for internet and home storage and utility poles and wires become obsolete. But what company could possibly be in the solar generation, storage, and satellite business? Oh wait...

[Aricool]

great article detailing this paradoxical issue now that we are at the crossroads between old transitioning to new energy. Very interesting. Thanks!

Anyone know that status of this PG&E flywheel pilot project?
www.marinij.com/...
On Wednesday, Pacific Gas & Electric revealed contracts for 75 megawatts of storage that includes 20 megawatts of flywheels from startup Amber Kinetics and 10 megawatts of zinc-air batteries from Eos Energy Storage amidst the expected lithium-ion winners.

Maybe it was deemed uneconomic given they are now going with Tesla utility-grade Li-ion to replace actually base load gas plants in South bay? Is this maybe going to be the solution to get that 3-5 hour shift to get out of the duck curve conundrum problem? 10 MW of battery storage

interestingengineering.com/...
www.weforum.org/...
The total project is comprised of four separate sites including a 183-megawatt facility south of San Jose, California, that will be designed and built by Tesla and owned by PG&E.
Hummingbird Energy Storage LLC is developing a 75-megawatt project, and Micronoc Inc. plans to install 10 megawatts of capacity at customer locations.
PG&E will purchase energy capacity from the other projects, but it will own outright the Tesla infrastructure.
The battery projects are set to go online by 2020.

[Karen Street]

How much is CA paying other states to take solar?

The price of storage goes up a lot when it is used only once a day to transfer mid-day electricity to after work.

[wired_2015]

It's a rounding error in the larger context. And the only reason we have any curtailment at all are contractural and structural rigidity that keeps us from ramping down about 12 GW of generation. As contracts roll off, the bottom of the duck curve will keep getting lower.

[Mike Smitka]

Solar needs to be paired with wind, the latter is often stronger at night. But that's not the way the industry in the US is developing, and storage just isn't there, unless you've got a valley you can dam or mountaintop reservoir to pump into. My understanding is that California is not a good place for hydro storage, politically if not geologically. Ditto wind power – though I don't know how much potential the coast has, placing a big tower every 200 meters requires intruding into lots of backyards. I don't expect that to be feasible in the land of Proposition 13.

So this is a really neat article. My understanding is that upper midwest wind power has different economics, much friendlier to meshing with baseload capacity.

[wired_2015]

California already captures over half of the rain that falls on the state - it's extremely dammed-filled already, actually.

You are right that wind naturally complements solar - California has tapped most of the good wind locations already but a new transmission line is being built to Montana to import wind power and floating offshore wind will fill in over time. Offshore has been slower due to economics, but there's a project going in in the far north off Ukiah now.

[User 21359971]

@wired_2015
In California, ocean front property owners would not allow off-shore oil platforms which directionally drilled 40 wells. What makes you think the California elite will allow vast wind farms to spoil their ocean views?

[wired_2015]

@dieeolfsschanze Because they don't.

Offshore wind farms are 20 miles out - they're beyond the horizon. Plus, oil platforms leak oil periodically, wind farms don't.

[Solar Investing]

Mid-day solar power glut? No problem just offer lower rates to EV charging stations during those periods. EV owners and fleets will line up to charge their EVs at the low rates when the sun is shining.

It's a win-win situation. The EVs run on cheap solar energy and the utilities have a market for the excess solar-generated electricity.

This already appears to be happening.
www.utilitydive.com/...

[John Petersen]

@Bruce Vanderveen Did you miss the part of your linked story that said Electrifying transportation has to be easy for customers, but cannot impose cost shifts, and a monthly subscription charge that replaces the demand charge, but covers fixed costs, is a simple way to do both."

[Opportunistic Squirrel]

I think Bruce's point is why not plug your EV in at work? It won't cost employers very much and employees get a nice benefit. It's an obvious solution to an imaginary problem.

[riverside1993]

<< EV owners and fleets will line up to charge their EVs at the low rates when the sun is shining >>

So businesses that have fleets of EV's will be charging them during the day? Instead of the vehicles out producing revenue for the company?