By Robert Mullin

Wholesale power costs in CAISO fell sharply last year as lower natural gas prices, increased solar generation and reduced loads more than offset the impact of a steep decline in hydroelectric output, according to a report from the ISO’s Department of Market Monitoring.

The ISO’s total cost of serving load decreased 31% to $8.3 billion in 2015, compared with $12.1 billion the previous year, the department said. Average wholesale costs dropped to $37/MWh from $52/MWh in 2014.

“Declining gas prices clearly had a role in the decrease,” Keith Collins, CAISO manager of monitoring and reporting, said during a June 7 call to discuss the report.

Collins noted that the 40% decline in California gas costs followed a national trend, with SoCal Citygate and PG&E Citygate prices falling along with the benchmark Henry Hub price. He also pointed out that, controlling for gas prices, CAISO power costs were down only 6% year-over-year, a decrease likely attributable to a sharp rise in output from low-cost solar. Lower congestion and increased virtual supply — which improved convergence between day-ahead and real-time prices — added downward pressure, the department said.

Last year also saw a seemingly contradictory movement between total loads and peak loads, with the former down and the latter up. Collins noted that a September heat wave produced CAISO’s highest annual peak load in five years, up nearly 5% from the 2014 peak.

Total and average load fell slightly for the year, continuing a trend of modest declines since 2012. The department attributed the drop-off to the growth of rooftop solar capacity, which the ISO estimates may have reached 4,000 MW last year.

Grid-connected solar reached a milestone in 2015, surpassing wind to become the largest source of renewable generation in the CAISO system. Solar output increased 38% during the year and accounted for nearly 7% of system energy. Wind output fell slightly, accounting for 5% of total supply. In 2014, solar provided less than 5% of system energy, below wind’s 5.6%.

Geothermal generation also accounted for about 5% of supply, gaining 24% over the previous year. The department attributed the increase to a group of geothermal units formerly outside CAISO’s footprint coming under its control.

In total, non-hydro renewables accounted for 18% of supply — not counting renewable imports — compared with 40% from natural gas and 8% from nuclear. Hydro (5%) and imports (28%) made up the balance.

While NV Energy did not join the CAISO-run Western Energy Imbalance Market (EIM) until the final month of 2015, Collins reiterated the ISO’s observation that the utility’s membership quickly unified what was previously a fractured market. (See NV Energy Has Smooth EIM Integration, CAISO Says.)

“The inclusion of Nevada really changed the dynamic of the market,” Collins said. The increased transfer capacity from NV Energy’s transmission network has significantly improved the link between CAISO and the PacifiCorp East (PACE) balancing area, creating more uniform pricing for imbalance energy, he said.

“We see the optimization creating a one-EIM price for those regions,” Collins said.

Other highlights of the report:

• Hydroelectric output dropped for the fourth straight year in the face of extreme drought, falling to one-third the 2011 level. Snowpack in the Sierra Nevada mountains — a natural store for run-of-river hydro operations — was at 3% of normal on May 1, 2015.
• Net imports fell 2% from 2014, mostly because of decreased imports from the Southwest. The department said the drop-off likely stemmed from lower price differentials between Southern California and the Palo Verde trading hub in Arizona.
• Intervals of negative pricing in Southern California during the second quarter were attributed to combined surpluses of wind and solar generation during a period when outages on the Path 15 transmission line limited flows to the northern part of the state. Negative prices in the 15-minute market occurred in about 4.7% of intervals during that quarter, compared with an average of 2% for the year.