PowerFacts
Market Monitor Finds Cal-ISO Competitive for Sixth Straight Year
In the California ISO Market Monitor's sixth annual report on the state of the California electricity market issued in early April 2008, two dominant themes emerged: first, that the electricity market functioned competitively and responded to market conditions and second, that the cost of construction is increasing more rapidly than market prices. Excerpts follow below.
<center>ELECTRICITY MARKET FUNCTIONED COMPETITIVELY AND RESPONDED TO MARKET CONDITIONS</center>
- "For the sixth consecutive year (2002-2007), California's wholesale energy markets remained stable and competitive. Over the past seven years (2001-2007), approximately 14,900 MW of new generation has been added to the CAISO Control Area, enabling the retirement of 5,500 MW of older inefficient generation, resulting in a net increase of 9,400 MW of new generation. Additionally, another 1,800 MW of new generation is projected to be operational in 2008." (California ISO, Market Issues and Performance: 2007 Annual Report, April 2008; p. 1)
- "From a grid operations standpoint, the most notable event of the year was the California wildfires that raged through large portions of Southern California from October 21 to 25. Remarkably, the CAISO, in close coordination with the Southern California utilities and assistance of the control are operator for Baja, Mexico, was able to maintain reliable grid operation throughout the wildfire period... Overall, the market impacts during the fires were moderate and of short duration." (p. 1)
- "The annual forced outage rate in 2007 was approximately 2.6 percent, which is the lowest rate observed [since 2004]. The decline can be partly attributable to the installation of new generation and transmission upgrades in recent years, which have enabled older, high-maintenance resources in California to be reserved for limited critical periods." (p. 9)
- "One significant positive trend that has been reported in prior annual reports has been the sharp reduction in intra-zonal congestion costs. This trend continued in 2007 with intra-zonal congestion costs dropping from $207 million in 2006 to $101 million in 2007." (p. 17)
<center>CONSTRUCTION COST INCREASES OUTSTRIPPING MARKET PRICE</center>
- "The DMM's [Department of Market Monitoring] financial assessment of the potential revenues a new generation facility could have earned in California's spot market in 2007 indicates estimated spot market revenues fell short of the unit's annual fixed costs. This marks the fifth straight year that the DMM's analysis found that estimated spot market revenues did not provide sufficient fixed cost recovery for new generation investment."(emphasis added, p. 3)
- "The assessment of the potential revenues a new generation facility (combined cycle or combustion turbine) could have earned in California's spot market in 2007 indicates that potential spot market revenues fell short of a new unit's annual fixed costs. The gap this year is significantly more pronounced given the recently released estimates from the California Energy Commission on the cost of new generation, which were used for purposes of this analysis." (emphasis added, p. 6)
- "The new cost estimates indicate the average annualized fixed cost of a new combined cycle generating unit is $132.60/kW-year (compared to the previous 2003 CEC estimate of $90/kW-year) and the average annualized cost of a new combustion turbine is $162.10/kW-year (compared to the previous 2003 CEC estimate of $78/kW-year). The dramatic increase is primarily due to increases in construction material costs, siting and permitting costs, and the cost of investment capital." (p. 12)
CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.