You may have heard that California is experiencing an historic drought — the worst in 200 years by some measures. While this might seem like a problem isolated to lawns and swimming pools in the golden state, analysts at TIS Group observed this week that there are some serious implications to the U.S. power grid and economy.
The state hydrological reserve is at only 56 percent of historical average. The most extreme hydrological deficit is apparently in the Colorado River watershed, which is at 25 percent of historic average. Mountain snowpack levels are also well below seasonal averages. A state snow survey team assessment reportedly indicated that on March 5, snowpack water content was only 13 percent of normal for the date and 11 percent of the April 1 average.
This historic drought is having a significant impact on the state’s water resources available for hydroelectric power generation. Hydro power in each month of 2014 fell vs. its levels of one and two years earlier by significant amounts, according to state data. This is forcing California utilities to increase their use of natural gas to generate electricity, according to the report.
Now that air-conditioning season is around the corner, experts are worrying that the shortfall in hydro power will overwhelm the statewide power grid. Officials say a hot, dry summer could increase power demand to the extent that reserves are severely challenged. Yet the severity of the drought has ramifications beyond hydro.
California’s combined nuclear and solar generating plants both use a ton of water resources for the evaporative cooling needed to keep reactor cores and solar system components from overheating, notes the TIS report. The combination of low cooling water levels and hot input water impair cooling and limit power output.
The long-range outlook suggests that drought relief is unlikely ahead of summer cooling demand, so the TIS Group analysts expect that generating capacity will be strained this summer. This could produce a summer of brownouts, higher electrical costs to customers and impose constraints on the state’s economic output.
When you consider that California is the state with America’s largest economy and the world’s eighth-largest at a little over $2 trillion, this is not a small matter. The drought and water rationing unfolding in California has the potential to put a damper on the world economy. The TIS Group analysts conclude this could be another reason for the Federal Reserve to hold off on interest rate hikes until at least December.
Other than reducing your own household’s water and power consumption, there’s not a lot you can do about California’s drought and the ensuing impact it could have around the world. However, you can look for ways to potentially profit from it as demand for alternative energy sources rises …
One idea to consider is Guggenheim Solar (TAN). This ETF seeks to track the performance of the MAC Global Solar Energy Index. Its holdings include: First Solar Inc., SunEdison Inc. and Canadian Solar Inc.
Best wishes,
Jon Markman
