The duck curve creates a number of challenges for energy providers. First, solar power has cut deeply into mid-day demand, which natural gas generators have traditionally relied on as a significant source of revenue. At the same time, the influx of solar power also lowers prices, in some cases even pushing prices negative.
Secondly, the need to ramp generation to meet the late afternoon/early evening spike in demand requires a reliance on natural gas peaker plants, which are generally less efficient and therefore have higher operating costs and higher emissions. Under California’s Cap-and-Trade program, these units were allocated emission allowances that were reflective of much lower capacity factors than their current operations. Now that many of these units are running far more often than they were a few years ago, many are quickly running through their allocated allowances. This requires the purchase of additional allowances in the market, further increasing operating costs. With increasing costs and falling revenues for natural gas plants, many are being forced to mothball or retire. All of this amounts to increased price volatility in the power market.
To help combat the growth of the duck curve, San Diego Gas & Electric (SDG&E) launched a new time-of-use (TOU) schedule in December that shifts daily peak pricing from the mid-day hours to the late afternoon/early evening hours when daily demand spikes. As a result, SDG&E customers could see demand charges during peak hours increase by as much as 54% in the summer and 111% in the winter.
This tariff change increases the value of behind-the-meter energy storage not only for SDG&E customers, but for large energy users across California. An intelligent energy storage system with real-time optimal control can automatically charge an on-site battery system when prices are at their lowest, then transition the building’s load off the grid during peak pricing hours. This creates a win-win situation for SDG&E and their customers—if enough large energy users offset their usage during peak pricing hours with energy storage, the evening spike in demand will round out and reduce SDG&E’s reliance on natural gas peaking plants. And while SDG&E is the first of the state’s major utilities to change its TOU schedules in response to the duck curve, it’s not the only one feeling the effects of this trend. Given how pervasive the duck curve is in California, similar changes are likely to come in other parts of the state.
In fact, the economic conditions that stem from the emergence of the duck curve could become significant enough to threaten the economic viability of natural gas generation plants anywhere renewable generation grows to the point that it disrupts daily grid demand trends. As we discussed in our recent whitepaper, What to Expect from Energy Markets in 2018, the evolution of the US power grid is transforming traditional market dynamics, creating new challenges and opportunities that will have an immense impact on large energy users.