Renewable and hydroelectric generation has chomped away at natural gas market share of total power generation along the West Coast this year. The latest electric generation data from the Energy Information Administration shows power sourced from renewables (not including hydro) in California, Oregon and Washington combined in April 2017 through July 2017 edged up about 1% year-on-year, while hydroelectric generation averaged 23% higher year-on-year. At the same time, natural gas-fired generation fell 16% year-on-year. The reduced gas-fired generation demand, along with reduced gas storage capacity in the West, has displaced natural gas from the region and disrupted recent gas flow patterns. These shifts provide a glimpse of what gas flows and pricing dynamics could look like as more renewable capacity is added. In today’s blog, we analyze the effects of electric generation trends on regional gas flows.

We began this series in Part 1 with a look at what’s driving generation capacity changes in the West Coast states — California, Oregon and Washington — and how those changes are affecting fuel consumption in the region. We noted the regulatory shifts behind some of the structural changes in capacity, including California’s adoption of the renewable portfolio standard (RPS) law starting in 2011, which required every utility and other electricity retailers to serve 33% of their load with renewable energy by 2020. The rule prompted a surge in solar and wind generation capacity additions within the state. Then there was the 2013 shutdown of what was the largest power generator in the region — the 2,250-MW San Onofre Nuclear Generating Station (SONGS — see California Scheming and Play Me A Songs), which only served to accelerate the solar and wind capacity projects and resulted in an increase in the renewables target to 50% (see California Sunset).

Around that same time, California also implemented a carbon cap-and-trade market, effectively aiming to tax non-renewable energy imports and in-state energy production, which incentivized higher imports of power sourced from fuels with low or no carbon emissions, such as hydroelectric generated power from the Pacific Northwest (see AARGH Matey! Cap'n Trade Sails On in California). On top of all that, throw in the record precipitation, and the resulting increase in hydroelectric generation in California this year, and it’s been a banner year for renewable energy in the West.

While renewables have been getting a boost, gas-fired generation has been seeing the opposite effect in recent years. Structurally, California has been working to retire older, inefficient gas-fired generation plants in order to comply with federal standards. In the past two years, the state — which relies on inflows and storage to meet its natural gas needs — also has been dealing with lower gas storage capacity after operational problems prompted state regulators to initially halt storage activity at SoCal Gas’s Aliso Canyon and Pacific Gas & Electric’s (PG&E) McDonald Island facilities for an extended period before eventually restoring service at a lower capacity.