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Explore Energy is a cross-campus effort of the Precourt Institute for Energy.

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Revamping Palo Alto's Green Energy: A Deep Dive into Renewable Portfolio Management

Lihan and Lena in front of city hall
Lihan with Lena Perkins, Emerging Technologies Manager | Senior Resource Planner with the City of Palo Alto Utilities.

Lihan Huang, MS '24 Civil and Environmental Engineering
Karl Knapp Energy Fellow in City Government, City of Palo Alto Utilities

California has long been a leading state in the renewable energy sector, with renewable resources supplying 54% of the state's total in-state electricity generation in 2023. At the City of Palo Alto Utility (CPAU), we have been at the forefront of this movement, providing 100% carbon-neutral electricity since 2013. 

Our electric portfolio includes solar, wind, and hydroelectric generation—each contributing to our carbon-free energy goals. And we also generate electricity from landfill gas, which avoids harmful methane emission while powering local homes and business. On top of these sustainability benefits, CPAU has also excelled in meeting reliability goals, balancing generation profiles, and purchasing additional market power when renewable supplies are low, all while maintaining competitive electric power rates.

To continue our success in reliability and rate advantages, my work at CPAU involved developing three new hourly resolution models. These models were designed to better visualize the load-resource balance in our energy mix, as well as to assess their financial exposure and net energy value. We focused on visualizing how Locational Marginal Prices (LMP) at different generation sites, would impact our hedging strategies. The model captured the hourly mismatch between load and generation, highlighting our exposure to market prices. With recent volatility and wider price spreads—due in part to high natural gas prices, overgeneration of solar, and insufficient transmission—this model became critical in adjusting our market purchase and sales strategies to improve financial hedging.

One of the most significant lessons I learned from this experience is that being physically hedged does not necessarily equate to being financially hedged. While renewable energy projects contribute similarly to carbon neutrality, the different fuel types in a renewable energy mix bring significant variations in generation profiles, location, and their ability to provide stability. These factors greatly influence their market value, which in turn affects a utility's profitability and hedging strategy. This experience deepened my understanding of budgeting for different energy projects and the complexities involved in optimizing a renewable resource portfolio.

Palo Alto financial balance chart
A chart depicting the net market exposure by fuel type. Solar generation, which peaks around noon, sees its market value significantly reduced due to negative LMP driven by its remote locations. In contrast, large hydroelectric power, with its highly flexible generation profile, captures favorable energy prices, particularly during the late evening peak hours, making it a more profitable resource.

Throughout this project, I applied my data analysis skills to develop the models while quickly immersing myself in the intricacies of the energy market. CPAU offered a rich learning environment, with frequent seminars on the California energy market and opportunities to delve into other topics of interest, such as zero waste and electrification. This experience was invaluable in allowing me to absorb industry-specific knowledge.

At the same time, I built strong relationships with my mentor and the resource management teams. Given that we were developing an entirely new model, this required extensive scoping, back-to-back discussions, and support from everyone involved. I'm deeply grateful for the encouragement and trust they placed in me to revamp such an important and complex model. I especially want to thank my mentor, who consistently encouraged me, sparked my potential, and applauded my efforts on this project.

In summary, my work at the City of Palo Alto Utility not only played a role in optimizing our renewable resource portfolio but also provided me with deep insights into the complexities of the energy market. This experience has significantly shaped my understanding of energy project budgeting and strengthened my passion for driving innovation in the renewable energy sector.