Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Climate change affects both the demand and supply side of
electricity markets, thus potentially altering seasonal wholesale
power price profiles, system planning, and carbon dioxide
(CO2) emission reduction strategies. Recent drought and
heat waves across the Western U.S. highlight the urgency of
incorporating climate change analysis into power system modelling.
Researchers at IHS Markit conducted an analysis of the California
Independent System Operator (CAISO) power market under various
future climate change scenarios. For simplicity, we did not
simulate supply side responses. In essence, we evaluated "what if"
various climate change scenarios occurred overnight before system
planners could respond.
Climate change can alter hydropower production and
electricity demand
Hydroelectric generation in CAISO is affected by the
amount and type of precipitation that falls in
California and the greater western United States, and when
precipitation falls.
Climate change projections show a decrease in summer hydropower
availability and an increase in winter and spring availability,
largely coinciding with the "wet season"—October-May, although
lagged. The shift in hydropower timing results from a greater
proportion of winter precipitation falling as rain, which cannot be
stored in the mountains as snow, and earlier snowmelt, which
accelerates runoff relative to historical patterns.
The relationship between electricity demand and warming
temperatures is more straightforward. Warmer year-round
temperatures mean heating demand during the winter and spring is
lower and cooling demand during the summer is greater.
Combining two climate change channels—electricity
demand and hydroelectric generation patterns
The interactions between hydropower and electricity demand
amplify the effect on wholesale power prices. For example, during
September, lower hydropower availability overlaps with periods of
elevated electricity demand, raising wholesale power prices. Absent
any supply response, simulated prices increase by close to 50%
under a 2.3 °C warmer case, a larger impact than
the sum of the individual effects from hydropower and demand due to
nonlinearities in the power system.
Needless to say, adjustments to supply resources, as well as a
host of other fundamental market elements not reflected in the
current system, would alter these simulated prices. For example,
significantly more battery storage or pumped hydroelectric
resources could temper simulated market prices.
The shifts in hydropower production and changes in demand are
two of many factors that system planners and market participants
are considering with respect to climate change. These two factors
can combine to produce impacts that are larger than their
independent effects. Similar amplifying impacts may also exist if
more climate-affected variables are considered.
Participants in the CAISO market and policymakers would be wise
to be mindful of the compounding effects of climate change that
could result in more extreme outcomes than the sum of the
individual, independent effects indicates when managing wholesale
power price risk, planning the power system, assessing reliability
criteria, and designing policies to reduce power sector
CO2 emissions.
