“Why Is California Continuing To Curtail Solar & Wind Energy Production?”
- Jun 10, 2022 12:14 pm GMT
In 2020, California curtailed 1,587,496 megawatt-hours (MWh) of solar and wind energy costing federal taxpayers $39.05 million in Investment Tax Credits provided but not rewarded with the contracted energy production. Why should the average American care? With solar and wind generation promoted as the cheapest energy we can produce, why are we subsiding it with federal investment and production tax credits, respectively, when the California grid cannot handle all of its production?
Unknown to the public, is that in 2019 California curtailed 891,065 MWh of solar/wind which cost federal taxpayers (ITC) $21.92 million, and curtailed 1,504,803 MWh in 2021 costing taxpayers $37.02 million.
Current solar and wind investment tax credit (ITC) benefit:
The investment tax credit (ITC), also known as the federal solar tax credit, allows a solar developer to deduct 26 percent of the cost of installing a solar energy system from federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value.
The ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. Congress has extended its expiration date multiple times, including most recently in December 2020 to extend the ITC at 26 percent for two additional years.
Wind energy has a different tax incentive called the Production Tax Credit (PTC). The PTC is a tax credit that applies to each kilowatt-hour (kWh) of energy a wind turbine generates and delivers to the grid or the end user. At the end of December 2020, Congress extended the PTC at 60% of the full credit amount, or $0.018 per kWh, for another year through December 31, 2021. In 2020, the credit was 60% of the full credit amount. Under the new PTC legislation, qualifying wind projects must have begun construction by December 31, 2021.
California’s solar and wind energy curtailment:
Graph 1 depicts the increasing amount of utility-scale solar and wind energy that is being curtailed in California since 2015. Federal tax assistance in the form of the ITC and PTC have enabled renewable energy to be more competitive with conventional, fossil fuel generation sources.
Graph 1 – California’s solar and wind energy curtailment increase 2015-2020
In 2020, California curtailed over 1.5 million MWh of solar and wind energy, or 5% of the state’s utility-scale solar production, according to the U.S. Energy Information Administration (EIA). In the early afternoon hours of March 2021, the California Independent System Operator (CAISO) curtailed an average of 15% of its utility-scale solar output. The reason for curtailment is that production from solar and wind generators exceeded demand.
To help meet California’s target of 50% renewable generation by 2025, CAISO plans to add another 1.6 GW of utility-scale solar capacity and 0.4 GW of onshore wind turbine capacity in 2021. Combined, these two technologies represent 44% of CAISO’s total capacity additions in 2021. Increases in renewable energy curtailments have followed an increase in new renewable capacity additions to meet this 2025 directive, while solar capacity additions are causing high totals of solar power curtailment.
Graph 2 shows the impact of solar energy curtailment by month for Jan 2020 to Jun 2021, with the highest curtailments in May through Sep.
Graph 2 – CAISO solar energy curtailment Jan 2020 – Jun 2021
In order to use all of the renewable energy produced and to avoid curtailments, CAISO is evaluating more storage. California is commissioning several major utility-scale battery projects this year and plans to add 2.5 GW for 2021 within CAISO.
Please see my earlier Linkedin article, “The Case For More California Energy Storage:, https://www.linkedin.com/pulse/case-more-california-energy-storage-ron-miller-pe-mba-cem/?published=t and “Energy Storage Enables Supply Demand Optimization”, https://www.linkedin.com/pulse/energy-storage-enables-supply-demand-optimization-ron/
California contributed 31% of the nation’s energy storage capacity additions in 2020, and that number may be on a course to expand exponentially as California accounts for 40% of power capacity planned between 2021 and 2023. These planned additions put the Golden State in line to meet its energy storage requirement by 2024.
The industry has been pushing for a stand-alone energy storage investment tax credit of 26%, which currently only applies to solar or solar-plus-storage projects.
Action to reduce curtailments:
- Encourage battery storage for residential and commercial customers
- Increase battery storage systems deployment throughout the grid
- Hydrogen-based energy storage
- CAISO’s Energy Imbalance Market to allow customer outside of CAISO to buy surplus energy
- Increase customer demand response with real-time energy prices
With more curtailment, and more capital required for storage, this is one of the reasons that even with the lower cost of solar and wind, the end-user electric retail customer in California has seen a 3.31% annual increase in prices from 2011-2019 as shown in Graph 3. California electricity prices rose 6.54 times more than the rest of the U.S. during this period.
Graph 3 – Electricity prices in California 2011-2019
The future solar and wind costs and need for tax credits:
In light of Graph 4 which depicts the production cost of energy for solar and wind compared to other generation sources, solar and wind are now the cheapest electricity generation sources available. It begs the obvious question: If solar and wind are the cheapest sources of electricity, why are all U.S. taxpayers subsidizing their construction with tax credits?
Graph 4 – Levelized cost of energy for current generation alternatives
- Curtailments of solar and wind, which have enjoyed federal tax credits, are costing all of the federal tax payers in the country
- The cost of California curtailments alone are in the $35 million range for approximately 1.5 million MWh annually
- Increased solar and wind generation from new facilities will only increase energy curtailment unless steps are taken to accept all renewable energy when it can be produced
Copyright © June 2022 Ronald L. Miller All Rights Reserved
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