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California Energy Markets / Bottom Lines

[July 7, 2017 / No. 1444]

Puente Power Project: Needed Resource or Potential Stranded Asset?

Is the Puente Power Project licensing proceeding at the California Energy Commission shaping up as a referendum on the future of natural gas power plants in California?

A CEC committee on July 3 issued a proposed decision for the Palmdale Energy Project that will allow its new owner -- a subsidiary of Summit Power -- to build a 645 MW combined-cycle gas plant rather than a 570 MW hybrid combined-cycle gas and solar trough plant, but far more attention has been paid to Puente, a nominal 262 MW rapid-start, fast-ramping, gas-fired plant proposed to replace two units with once-through cooling technology at the aging Mandalay Generating Station in Oxnard.

Developer NRG Energy, which has an approved 20-year power-purchase agreement for Puente with Southern California Edison, contends the plant, estimated to cost $235 million to $270 million, is the only feasible alternative to meet the need in the transmission-constrained area. Others say the plant is unnecessary, has the potential to become a stranded asset in the future, and is not consistent with California's efforts to transition away from fossil fuel.

"The broader concern is that as California considers and then approves more natural gas infrastructure, it's adding to the difficulty of transitioning away from the use of fossil fuels," said Steven Weissman, senior policy advisor for the Center for Sustainable Energy and a lecturer at UC Berkeley's Goldman School of Public Policy, who has studied the use of natural gas.

'We know it’s needed, and we expect the study will prove that.'

A Center for Sustainable Energy study written by Weissman and three contributors found the average age of a California power plant at retirement is 35 years, which means plants that are licensed now or in the near future could be operating well past 2050. For California to meet its climate goals, the use of natural gas for power generation has to be phased out in the years between now and then, Weissman and his co-authors argue in the study.

But if investors in a power plant see the ability for a project to continue to produce a return, it could create a significant amount of pressure on regulators and the market to keep that plant in operation, Weissman said.

In the first part of a final staff assessment, released in December, energy commission staff found the project would be consistent with all laws, ordinances, rules and standards, with the exception of land use. In order to approve a license, the CEC would have to make override findings, which the City of Oxnard, which opposes the plant, would surely fight.

Earlier this year, however, the committee overseeing the proceeding -- Commissioners Karen Douglas and Janea Scott -- requested additional evidence on certain topics, including alternatives.

That led to the California Independent System Operator embarking on an unusual study -- it has agreed to identify and evaluate potential resource alternatives to Puente. The formal study the grid operator is conducting for one power plant is the first of its kind, according to the energy commission.

It's late in the game for such a study -- NRG proposed Puente in 2015 to meet a post-2020 local capacity requirement in the Moorpark sub-area that fulfills reliability criteria. The need was determined by CAISO, and the California Public Utilities Commission, in a 2013 decision[D13-02-015]. It directed Edison to procure 215 to 290 MW in the Moorpark sub-area, which is part of the Big Creek/Ventura local reliability area.

The CEC in its final staff assessment said preferred resources cannot fully substitute for generating capacity in providing reliability services. Still, staff analyzed the extent to which energy efficiency, demand response, renewable generation, energy storage and even technology such as synchronous condensers could meet local capacity needs or other project objectives.

For the alternatives study, the grid operator expects to consider portfolios developed with Edison, including:

  • Scenario 1: A base scenario that includes 135 to 150MW of distributed preferred resources and storage, with the remainder filled by in-front-of-the-meter battery storage.
  • Scenario 2: Similar to Scenario 1, but adds a ~240 Mvar reactive device and reduced storage.
  • Scenario 3: Similar to Scenario 1, but assumes the retirement of the Ellwood Generating Station, and increases the amount of storage.

NRG is confident the results of the study will reinforce the need for the plant.

The study "certainly is unusual, however we understand the need for prudence," said Dawn Gleiter, senior director of development for NRG's West region. "We know it's needed, and we expect the study will prove that."

CAISO is looking at technically feasible options, but that doesn't mean they are commercially viable, she added.

Jim Caldwell, a consultant for Oxnard whose comments at a May 1 CAISO Board of Governors meeting helped prompt the study, said in July 5 comments on the grid operator's study proposal that a primary concern was that the study does not include the potential for transmission upgrades to at least partially mitigate the LCR need.

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CAISO is also understating how much energy efficiency and demand response might be in the Moorpark area, he added. And the study should consider relying on the third 130 MW, non-OTC unit at Mandalay, as well as synchronous condensers at Mandalay Units 1 and 2 -- which have a combined capacity of 436 MW -- as a short-term fix to allow longer lead time to develop other preferred resources.

Clean Coalition urged CAISO to develop a fourth alternative -- studying a larger component of solar PV with storage, rather than the 25 MW that is currently being considered.

There is also the question of how long the Puente plant would operate. NRG has pitched the project as a bridge to help California as it transitions to a future that is less reliant on fossil fuels, but it is seeking a 30-year license for the plant (as most developers do). If Puente operates beyond its 20-year PPA, it could still be operating as California ramps up its efforts to meet its 2050 climate goals, in part by phasing out natural gas use.

"Economics will determine if at the end of 20 years it is needed and commercially viable," said NRG spokesperson Dave Knox. If the plant is needed once the current PPA ends it would save the state from building another power plant at that time, he noted. "If it is viable it will stay on line; if it would not be economical it would be closed." -Mavis Scanlon

Bottom Lines is excerpted from Energy NewsData's California Energy Markets publication. If you aren't a current subscriber, see for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of California Energy Markets.

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