By Robert Mullin

Concerned that large numbers of gas-fired generators will retire early because of competition from lower-cost renewables, CAISO last week proposed a study to identify the most vulnerable units in its balancing area.

The initiative to gauge the risk of “economically driven” retirements is a result of California’s 50% by 2030 renewable portfolio standard, enacted last year.

That mandate — along with other state and federal environmental measures — is expected to increasingly leave nonrenewable resources at the margins of the ISO’s wholesale markets, reducing the income stream for gas generators already dealing with depressed power prices.

Transmission planners would use the study’s findings to assess how potential gas retirements would affect reliability and congestion in ISO load pockets, including local capacity requirements (LCR) areas — regions with increased resource adequacy requirements based on limited import capability. The ISO’s largest metropolitan areas — the Los Angeles Basin, San Diego and the San Francisco Bay Area — are all LCR areas.

ISO staff said the study will not evaluate the impact of gas retirements on overall system resource adequacy, instead limiting its focus to local impacts.

“We’ll go through all the LCR areas one by one,” said Yi Zhang, CAISO regional transmission engineer lead, during a June 13 conference call to discuss the study with stakeholders.

The ISO will accept comments on the proposed study — including its necessity — until June 27.

Study results are intended to inform the ISO’s 2016-2017 transmission planning cycle and the long-term planning process.

The study would screen for potential gas retirements by first overlaying the ISO’s 2015-2016 production cost models — the framework for determining the most cost-efficient generation configuration for serving load — with expected portfolio changes stemming from the 50% renewables mandate. The latest LCR results would also be factored into the assessment.

Based on that information, CAISO would apply three criteria to identify whether a gas unit exhibits a high potential for early retirement:

• A capacity factor below the typical value for the type of generator;
• No revenue from ancillary services; and
• Not required to meet LCR.

A unit meeting the first two criteria, but also needed to meet LCR in a designated area, would likely avoid retirement — except in LCRs with surplus generation.

“If one area has a surplus, there may be some risk of early retirement,” Zhang said.

Calpine Vice President Mark Smith questioned the soundness of CAISO’s criteria for determining the financial viability of units deemed vulnerable.

“You know retirement is fundamentally an economic decision [for generating companies],” Smith said. “Why aren’t you using financial information to assess this rather than the criteria you’ve chosen?”

He contended it would “a very, very dangerous assumption” that any units will be compensated to “stay around.”

Calpine earlier this year idled its gas-fired Sutter Energy Center in Northern California, saying the plant was not economically viable. In 2012, the California Public Utilities Commission directed the state’s three investor-owned utilities to enter into contracts with the 578-MW, combined cycle plant to keep it operating for reliability reasons, but those agreements expired later that year. The PUC has resisted the idea of California developing a capacity market — or any system of capacity payments — to keep such plants available.

“Trying to do a bottom-up analysis of individual units and trying to understand the value chains they have access to is a far broader exercise,” replied Neil Millar, CAISO executive director of infrastructure development.

“This is our first time to take on this analysis and our focus is the risk to the grid,” Millar said, adding that the ISO will refine its approach in the future.

Zhang said CAISO plans to share a list of potential retirements during a September stakeholder meeting.