Here Comes the Sun - How Renewables Are Displacing Natural Gas from the West Coast

The rise of renewable energy has transformed power markets in the U.S. West Coast states, particularly California. The Golden State has added significant renewable power generation capacity in recent years. Additionally, record precipitation in the Pacific Northwest and California this year boosted hydroelectric generation in the region. These factors have reduced the natural gas market share of power generation in California and other Pacific Coast states, which has important implications for the U.S. gas market as a whole, especially considering that the Eastern U.S. is increasingly oversupplied and pushing its gas supply westward. Today, we look at the year-on-year changes in the West Coast power generation sector and their effect on the gas market this summer and longer term.

As we noted in our latest gas supply-demand series, Summertime Blues, increasing generation from renewable sources has made a notable dent in the natural gas market share of power generation this summer. This isn’t a new trend, but one that’s been developing over the past several years. What’s different now is that as less natural gas is needed out West, particularly in California — the second largest natural gas consumer in the U.S. after Texas — it has the potential to exacerbate oversupply conditions in the Central U.S., which is already being targeted by growing gas production from the Marcellus and Utica shales that is pushing south and west.

We’ve discussed the various factors driving the huge changes in energy balances in California previously in California Sunset and California Scheming. One big factor has been the state’s push for renewable energy and energy efficiency. In 2011, the state enacted a renewable portfolio standard (RPS) law that required every utility and other electricity retailer to serve 33% of their load with renewable energy by 2020. That target was later increased to 50%. In early 2013, California regulators also implemented a carbon cap-and-trade market, which effectively acts as a tax on non-renewable energy imports and in-state energy production (see AARGH Matey! Cap'n Trade Sails On in California). The program resulted in higher power prices and incentivized higher imports of power sourced from fuels with low or no carbon emissions, such as hydroelectric generated power from the Pacific Northwest.

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