Growing supply of renewable energy dampening California merchant generator margins
New York, October 06, 2015 — The expectation of additional solar, wind and hydro-based power entering the California Independent System Operator Corp.’s (CAISO A1 stable) grid is credit negative for the state’s merchant generators and companies that market electricity at competitive rates, according to Moody’s Investors Service. Forward prices reflect this market expectation and indicate that energy margins for natural gas-fired power plants are anticipated to decline, even as natural gas and power prices stabilize.
“Wind and solar power have grown rapidly in California, reaching around 16% of CAISO’s power market by megawatt-hour (MWh) generation in 2014,” Vice President — Senior Analyst Clifford Kim says. “Had hydro power output in California not been muted by drought conditions, renewables would have represented close to 30% of the CAISO market in 2014.”
Numerous factors have driven renewable energy growth, including a mandate that renewables provide 33% of retail power by 2020, as well as a recently-passed bill increasing these standards to 50% by 2030.
The report, “Flood of Renewables Throws Cold Water on Outlook for California’s Power Generators,” says that since 2009, CAISO’s wind and solar power quadrupled — a significantly higher growth rate than comparable power markets like the Electric Reliability Council of Texas (ERCOT) — as a percentage of MWh generation.
“The market has already factored in expectations of more renewable energy in California that is pushing down the outlook for margins,” Kim says.