Hydropower is the foundation of the Pacific Northwest’s power system, providing about 50 percent of the region’s annual energy generation (the amount of electricity produced over a year) and 54 percent of its flexible capacity (the maximum rate of generation; important in meeting periods of peak loads).
It is a low-cost, clean energy resource, and the hydropower system can be operated to adjust its generation up or down quickly to meet fluctuations in demand. In fact, it is this unique characteristic–the ability to shape generation to fit the needs of an increasingly dynamic power system–that has been a key tool in helping to add other renewable energy resources like wind and solar to the power grid.
The hydropower system can be operated to adjust its generation up or down quickly to meet fluctuations in demand...a key tool in helping to add other renewable energy resources like wind and solar to the power grid.
While hydropower can provide the full range of flexibility services to operate the electric grid, most of these services are not marketed to grid operators. Because robust markets for these services have not been developed, operators must rely on their own resources, like natural gas or coal, and they sometimes build new plants, instead of using the hydrosystem’s flexibility. Consequently, consumers end up paying more for their electricity.
With today’s emphasis on producing carbon-free electricity in the West’s power grid, and with many retiring coal plants, these services will be even more valuable in the future. Finding a better way to offer and pay for these services will help to ensure the competitiveness of the hydrosystem.
An Evolving West Coast Power Grid
The Bonneville Dam, 40 miles east of Portland, Oregon, was built between 1934 and 1938 – the first federal hydropower plant on the mainstem of the Columbia River. After the era of large-scale dam building throughout the region ended in the early 1970s, hydropower continues to be the Northwest’s predominant resource, followed by energy efficiency, coal, natural gas, and renewables.
Over the past several years, renewable resource generation has grown significantly, spurred by initiatives like state renewable portfolio standards, federal production and investment tax credits, and the Public Utility Regulatory Policies Act (PURPA).
While the energy from hydropower is variable across months or years, wind and solar generation can have dramatic swings within minutes or hours, and a project may not be able to provide power when the system needs it. Conversely, there are times – especially during the spring runoff when both renewable and hydropower production are high – when supply exceeds demand.
Historically, the Northwest has exported its surplus power to California during certain times of the year, with the revenues benefiting Northwest customers. But, as the power system has evolved to include more competitive resources, energy prices are consistently trending downward and price volatility on short timescales is increasing.
Most of the recent resource additions in the region have been wind and solar projects, with the hydrosystem complementing their generation by using its flexible capacity to help balance their ups and downs.
As low-cost natural gas plants and increasing amounts of renewable generation have come online, north-to-south export sales have fallen off substantially during the mid-day when solar is peaking. When this happens, prices fall on the spot market as gas-fired plants on the margin reduce their prices in order to continue operating. Low cost Northwest hydropower resources reduce their export sales, choosing instead to serve load more locally.
This glut of supply lowers electricity prices, reducing revenues and making it difficult for project owners to recover the cost of selling energy and still provide the reliability services needed to keep the power grid in balance.
Traditionally, energy and capacity have been the most important services for grid reliability, but there are a host of other additional services that are critical and have often been provided without compensation. The growing amount of wind and solar generation on the grid only intensifies the need for these services. Debate is ongoing about how a market could be structured to provide reliability products efficiently and economically.