A Free-Market Energy Blog

‘Energy Imbalancing Market’: Bailing Out California Green Power Two Hours/Day

By -- November 13, 2013

“An Energy Imbalance Market would mainly have to rely on cheap hydropower in the Western U.S. to offset high green power prices and high peaker power prices during the sunset hours of the day. Ironically, California banned hydropower as “renewable energy” under the California Global Warming Solutions Act …. Now, cheap hydropower has to come to the rescue of the green power grid.”

California is trying to do a quick splicing job to its green energy grid by creating an “Energy Imbalancing Market” to cut off an emerging daily two-hour energy-pricing crisis. The crisis isn’t so much an imbalance of the availability of electrons but imbalanced electricity prices during the sunset hours of each day.

In today’s California energy market, the grid operator must balance loads and resources within its borders. In an Energy Balancing Market, the grid operator schedules resources across regional balancing authorities to balance energy. An energy imbalance is the difference between live demand and prearranged scheduled resources. California is part of the Western Interconnection Coordinating Council (WECC), which includes 33 control areas shown here. The Federal Energy Regulatory Commission (FERC) has approved California’s implementation of an Energy Imbalancing Market by October 2014.

California’s “Duck Chart” Problem Can’t Be Ducked

An emerging problem with California’s new green power grid is how to ramp up enough conventional power each day when solar power is sunsetting and mostly nighttime wind power isn’t spinning enough yet to take over.

In California, this ramping problem is called the “duck chart” problem. This is because the profile of the ramping up of conventional energy at sunset each day to replace solar power looks like the profile of a duck with a tail, protruding belly, and a beak (see here). As shown on the chart, this ramping problem becomes more pronounced in about 2015 and critical by 2020.

The “duck chart” shows there is a demand in California to ramp up 13,500 megawatts of conventional power in a narrow two-hour window of time at sunset each day to replace solar power going offline. That would be enough power for about 6,750,000 homes per hour.

Warren Buffet to the Rescue

In response, California’s electric grid operator –- the California Independent System Operator (ISO) – is negotiating with the Warren Buffett-owned Pacificorp electric power company to provide cheap hydropower to rescue California’s attempt to shift to 51 percent green power by 2020 or sooner.

Cal ISO’s 2014 -2016 Strategic Plan calls for an imbalance market. However, an imbalancing market was never envisioned in its Five Year Strategic Plan 2009 – 2013. The California Energy Commission (CEC) addresses a balancing market in its Integrated Energy Policy Report of 2012, but not in its 2010 report. California’s imbalance market is a hastily improvised plan to cut off an emerging crisis.

An imbalancing market would be a real time backup energy market that could dispatch power immediately or within five minutes notice. But the primary purpose of an EIM would not be to assure the delivery of ramp up power but rather to balance out the high prices that would result during peak sunset hours of the day.

What is primarily “dispatched” are prices calculated every five minutes. Even green power advocates admit there is plenty of backup imported power available. Each electric utility also has “demand management” plans in place to shift power usage to non-sunset hours to duck the “duck chart” problem.

An Energy Imbalance Market would mainly have to rely on cheap hydropower in the Western U.S. to offset high green power prices and high peaker power prices during the sunset hours of the day. Ironically, California banned hydropower as “renewable energy” under the California Global Warming Solutions Act because it didn’t want such cheaper, clean power to drive green energy out of its protected position in the market. Now, cheap hydropower has to come to the rescue of the green power grid.

The Solution Offers New Problems

Argonne National Laboratories points out several major problems with electricity rebalancing markets.

First, it is a speculative assumption that all generating sources in a Balancing Authority would commit 100 percent of their hydropower and other power sources to participation in the imbalance market. Argonne states that “market price risk” keeps about 99 percent of hydropower generators that are part of California’s Central Valley (water) Project from participating in California’s intra-state rebalancing grid.

Moreover, only about 10 percent of the blocks of electricity offered for market bids by the Southwest Power Administration end up as power actually dispatched. If both the Western and Bonneville Power Administrations do not join California’s imbalance market, the cost savings would be even punier than the estimated 0.2 percent from more efficient transfers of energy across zones.

Limitations on use of federal hydropower due to environmental lawsuits to protect fish also limit the capability to respond to rebalancing market bids.

Most importantly, the report says historical electricity bids in rebalancing markets appear to deviate significantly from production costs. Echoing an earlier WECC report, the Argonne review states: “if market design is not carefully considered, the net benefits could be seriously degraded and costs could potentially overrun benefits.”

This may be why all the official government studies of imbalancing markets are “benefit-only” studies, not cost-benefit studies (see here, here, and here). Benefits are estimated to be from $146 million to $294 million per year. However, this only reflects 0.72 percent to 1.36 percent of total regional electric production costs. Any inefficiency in the grid, such as transmission line congestion, could easily offset any benefits.

This is why skeptics contend that U.S. Department of Energy Secretary Steven Chu and the Western Area Power Administration (WAPA) have urged only one-sided benefit studies of imbalancing markets be conducted instead of balanced cost-benefit studies (see here, here, and here). The WAPA markets and delivers hydropower from federally owned dams to 15 western states.

Costs and Redundancies

The American Public Power Association (APPA) says costs of an imbalancing market could run $1.25 billion, or $3.50 per megawatt hour, over the first ten years of operation. More worrisome for the APPA is that an imbalancing market would morph into a redundant grid regulating bureaucracy called a Regional Transmission Organization (RTO).

Cost Shifting

Because an imbalancing market would operate regionally over the entire western U.S., there would be what is called cost shifting. This is where electric generation paid for by customers in one region (likely Utah, Arizona, Oregon, Wyoming, or Idaho) would be dispatched to benefit other customers (in San Francisco or Los Angeles). California would duck its energy price spike during sunset hours of each day by an indirect subsidy of cheaper, importer hydropower described as a rebalancing market.

As Kenneth Rose, PhD, stated in his Critique of the National Renewable Energy Laboratory Analysis of the Proposed Energy Imbalance Market (EIM) in the Western Interconnection:

Just seven of 29 Balancing Authorities would receive 93 percent of the total Energy Imbalance Market participants’ adjusted production cost ‘savings’ with 10-minute BAU (Business-As-Usual scenario). Of the remaining Balancing Authorities, 16 are estimated to have modest benefits, measured as a reduction in adjusted production costs, and 6 would see modest to severe net costs. Moreover, between half and two thirds of the total “societal” savings of $146 to $294 million in estimated production costs would be received by non-participants with an Energy Imbalance Market. The three large California investor-owned utilities (Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, all are non-participants) account for 24.5 percent of the total estimated benefit.

An Energy Rebalancing Market as Rent-Seeking

California’s Energy Imbalancing Market is a scheme to mainly use cheap federal hydropower from the Bonneville and Western Area Power Administrations and Warren Buffet’s Pacificorp’s portfolio of dams, power plants, and wind farms to bail out California’s green power grid from a looming two-hour pricing meltdown each day. Ironically, green power would make California more dependent on imported power at critical peak ramping times. There is no apparent contingency plan if California’s Energy Imbalance Market doesn’t all turn out “ducky.”

In the 1930’s cheap hydropower from Hoover Dam pumped water through the Colorado River Aqueduct to originally create suburban Los Angeles. Hoover Dam needed the hydroelectric sales to amortize dam construction costs. History seems to be repeating itself with California’s so-called Energy Imbalancing Market.

California needs indirect federal subsidies to fix the design flaws of its reckless green power law and quasi-monopolistic green power market. Just as California’s Cap and Trade emissions permit trading program is a subterfuge of an auction market for a tax, its Energy Imbalance Market is a sort of rent seeking spot market that would shift California’s short excessive costs of green power onto taxpayers and other regions.


  1. Otter  

    Morning Wayne!

    I have passed this article on to a friend who has the misfortune of living in California. I am hoping to put together my own article on the side-effects of going ‘green’ energy, and would like to quote from and link to this article.


  2. Tom Tanton  

    nihil sub sole novum…speak Latin so Jerry will unnderstand…and maybe someday California will understand the importance of capacity (only thing useful when markets are ‘out of balance’)…although they are already signing multitudes of capacity contracts.


    • wlusvardi  

      If I understand the Energy Imbalancing Market design correctly, it is a shift away from capacity and spinning reserves to a real time 5 minute ahead market and away from Cal-ISO’s one day ahead market. California would untether itself from backup conventional natural gas power and depend on the instant availability of hydropower in the Western U.S. But if the grid is congested at California’s sunset hours, then what?

      Also, an Energy Imbalancing Market would shift away from the “User Pays” principle. Californians would not have to pay the full brunt of the high price of green power during sunset hours. California would “cost shift” by relying on cheap hydropower during those hours.


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