Analysis: Drought in California Could Almost Halve Hydropower Output, Boosting Electricity Prices

The extended California drought could lead to a decrease in the amount of hydropower being produced. According to the U.S. Energy Information Administration (EIA), California may produce 8% of California’s hydropower electricity generation compared with the 15% produced in normal precipitation conditions.

The EIA expects that the dip in hydropower generation will lead to an increase in energy-related carbon dioxide (CO2) emissions by 6%, a roughly 5% increase in wholesale electricity prices throughout the West, and an 8% increase in electricity generation from natural gas, according to a press release.

Recently, California energy officials issued a forecast for the state’s electrical grid. They say the electrical grid cannot keep the electricity on in summer and months if extreme events, heatwaves, and wildfires take a toll.

California Governor Gavin Newsom warned that he would have no choice but to order strict cutbacks on statewide water usage if residents and businesses did not cut their consumption. In April, the California Department of Water Resources said that the statewide snowpack was only 38% of average after three months of dry conditions.

Analysis by the EIA examined six of California’s hydropower facilities, which represent 22% of the state’s hydropower capacity.

A brief explanation of CA’s energy forecast, resulting price surge

• The dip in available hydropower production will also ramp up the state’s natural gas-fired generation. According to the EIA study, this could lead to an average increase in wholesale electricity prices of 5% across the West and an increase in carbon dioxide emissions by 6% from the state’s energy sector.

• California is facing events including tariff and supply chain issues affecting the deployment and completion of projects, according to the CEO of the Independent Energy Producers Association, Jan Smutny-Jones.

• According to the U.S. Information Administration, California’s hydropower generation will drop from 15% of the state’s average electricity production to only 8% due to California’s extended drought.

How the CA drought is affecting the power grid

California is currently in the third year of drought conditions impacting the state’s hydroelectric resources. According to the EIA, most of the state’s reservoirs have low water levels stored. Its two largest ones, Lake Oroville and Lake Shasta, were at historically low levels of 67% and 48%, respectively. Energy experts warn the drought could have far-reaching impacts across western state markets.

Forty-one percent of California was classified as under exceptional drought last summer, which led to lower hydroelectric generation. According to reports, the hydroelectric generation was 48% lower in 2021, which is lower than the state’s 10-year average. According to EIA data, the generation of natural gas in California in July 2021 was the highest of any month since September 2015.

Drought conditions combined with the transition to ‘cleaner energy’ = perfect storm

California’s drought conditions come as the state transitions from traditional forms of energy toward cleaner energy sources. According to the EIA study, while transitioning from natural gas to other forms of power, the state’s total share of dispatchable resources is now lower than seven years ago.

According to electricity industry economist Debra Warady, “The thing about hydropower is that it is a very flexible resource and can ramp up and ramp down pretty quickly. So, in that sense, it’s a very good match for helping to meet the variation in renewable generation.”

The analysis modeled scenarios ranging from a “median case” to a “drought case,” based on the median water supply between 1980 and 2020. While California has added wind and solar in the past few years, and the gas fleet will be in operation less, Smutny-Jones added, “But we’re going to need to keep it for periods of time [like] we’re experiencing right now, where we could have [a] long drought.”