After the Aliso Disaster: Less Gas Storage, More Clean Energy Through Increased Market Efficiency

By: Mark Brownstein & Tim O’Connor

The nearly four-month disaster at the Aliso Canyon storage facility owned by Southern California Gas Company has spurred widespread calls to close the sprawling underground reservoir, and cast intense scrutiny on the 13 other similar facilities around California. But others, including Governor Jerry Brown and key state agencies, say the facilities may be needed to keep the electric grid running reliably.

Ironically, one reason for dependence on this fossil fuel is California’s renewable energy boom.

As things currently stand, there aren’t enough responsive resources on the grid to simultaneously manage the large daily swings in consumer electricity demand typical in California and swings in renewable energy output due to variations in time of day and weather.

A more robust grid in combination with innovative energy storage and energy management technology will eventually reduce these swings, but may take decades to fully deploy.  Until then, fast-acting gas-fired generation is necessary for balancing system operations. This has become a rallying cry for SoCalGas and the rest of California’s oil and gas industry in the wake of Aliso Canyon.

By championing the status quo, these companies are ignoring actions that can be taken right now to reduce natural gas dependence by making the state’s gas and electricity markets more efficient and competitive. There’s no excuse for holding back reforms that can begin the transition away from co-dependence.

The Codependence of Gas and Renewables

The marriage of gas and renewables in the electricity market springs from inherent variability in wind and solar power flows. The more of these resources there are on the system, the more utilities depend on the quick on-off response of natural gas-fired power plants to balance the load – particularly in surge periods such like early summer evenings when solar output falls rapidly but cooling demand from air conditioning remains high.

Officials are acutely aware of the relationship (after all, nobody wants a blackout on their watch). In his January 6 Emergency Declaration, Gov. Brown directed a half-dozen state agencies overseeing the Aliso response to “take all actions necessary to ensure the continued reliability of natural gas and electricity supplies in the coming months during the moratorium on gas injections into the Aliso Canyon Storage Facility.”

In response, the California Energy Commission (CEC), California Public Utilities Commission (CPUC), and the California Independent System Operator (Cal-ISO ) expressed serious concern about closing the facility, because existing gas pipelines aren’t big enough to feed all power plants in the Los Angeles basin, and that those plants depend on gas from Aliso Canyon to meet “rapid changes in electricity demand that occur every day.”

Utilities See Renewables as Opportunity for Gas

This codependence creates a number of perverse incentives. First, it effectively gives utilities like SoCal Gas a virtually endless justification for sites like Aliso Canyon – and their three other fields in Southern California. What’s more, SoCalGas and other companies have actively latched on to renewables as a new growth opportunity – supporting solar and wind as they hold monopoly power over the regional pipeline and gas storage market.

In their most recent bi-annual report to CPUC, SoCal Gas and the state’s other gas utilities stated as clearly as can be said that “the intermittent nature of renewable generation is likely to cause the electric system to rely more heavily on natural gas-fired generation” and with “higher daily fluctuations of gas usage in the future … [the] gas system will need to be able to accommodate such operations.”

With rising penetration of intermittent renewables in California through the state’s recently mandated 50% renewable portfolio standard, as long as competing solutions are locked out of the market – as they are today – gas utilities will remain in the catbird’s seat.

Opening Up a Cleaner, More Dynamic Electric Grid

Reducing reliance on big natural gas storage facilities like Aliso Canyon – and on huge bulk supplies of natural gas in general – requires smarter solutions for reliably managing the swings that come with renewables. In November, our colleague Gavin Purchas wrote about time-of-use pricing, and linking the California wholesale electric market to its neighbors to the north as ways to enhance stability. Similarly, Larissa Koehler wrote about growing availability of utility-scale battery storage in the California energy system.

While new technologies and smarter rate structures for customers can deliver big returns, fundamental change materializes when energy markets where the big bets get made are actually transformed. Fostering real competition between natural gas and emerging clean energy resources here would allow battery storage, demand response and other technologies and energy management solutions to play on equal footing, spur innovation and capital investment, and take a bigger share of the market now wholly owned by storage and combustion of natural gas.

First and foremost, the job of creating open, competitive markets falls to the state and local regulators who decide the rules of the game. Entities like the Cal-ISO that develop rules for “fast-ramping” resources to support renewable integration; and the Los Angeles Department of Water and Power that develops long term Integrated Resources Plans. The Federal Energy Regulatory Commission, which oversees wholesale gas and electric markets, also has a role to play, as described recently by EDF’s Jonathan Peress.

Smarter, More Efficient Markets

Creating accurate and efficient price signals for the services that gas provides in both the gas and electric markets can determine the optimal mix of resources, while better meeting the goal of reducing dangerous climate and air pollution, and the risk of another Aliso Canyon disaster.

How California handles this challenge will have broad implications for other states as rapid renewable energy growth continues. Standards that allow more kinds of companies to get paid for providing services that keep the electric grid stable and balanced are a huge opportunity. Reducing the need for gas combustion and gas storage by allowing new alternatives to compete is part of the solution. In a future blog post, we will provide additional specifics on how such competition can be fostered.

Image Source: Flickr user Travis