Cali Considers New Clean Power Feed-In Tariffs
California state regulators have spent the last few years trying to revise a program that was meant to boost small-scale renewable energy generation but wasn’t popular because it wasn’t lucrative enough to attract many takers. Now, a new proposal has emerged that would up the project sizes allowed and rely on auctions to pick winners and losers.
An administrative judge with the California Public Utilities Commission issued a proposal this week to expand what was once called the feed-in tariff program. It might still be called feed-in tariff by some, but it’s quite different from the kind of polices that have made Germany and other European countries hot solar markets.
Instead of setting solar electricity rates that utilities must use to buy power from independent project developers (European style), California’s proposal would require investor-owned utilities to hold two auctions per year and sign power purchase deals from developers with the lowest and most plausible bids.
While the 1-gigawatt proposal aims to lure more project developers, it also comes with complex pricing control mechanisms, said Adam Browning, executive director of Vote Solar Initiative, an advocacy group in San Francisco.
“This program is an elegant solution and provides a very compelling and workable model for generating whole sale distributed generation,” Browning said.
The new procurement process would apply to projects from 1-megawatt to 20-megawatt in size. It also would circumvent a sticky issue that showed up last month when the Federal Energy Regulatory Commission said states don’t have the authority to set wholesale electricity rates that would exceed “avoided costs.”
Utilities can buy power in order to avoid the expenses of building and operating their own plants. So the term “avoided costs” is often used to describe the prices utilities would pay for power, which in most cases comes from fossil fuel power plants that make up a big chunk of the electricity generation facilities in the country. In California, avoided costs refer to the prices for power from combined-cycle natural gas power plants. Renewable energy producers wouldn’t make a profit if they sell power at the same rates that apply to electricity from natural gas power plants. Renewable energy in general is more expensive to produce than power from burning fossil fuels.
“The proposal is designed to be compliant with federal law, so that utilities aren’t going to sue you up the wazoo,” Browning said.
The proposal would replace a feed-in tariff program that the CPUC approved in 2007 as a way to encourage water and wastewater treatment plant owners to install renewable energy projects and help utilities to meet a state mandate requiring them to have 20 percent of the electricity from renewable sources by 2010. Each project, which could use solar, wind, geothermal, among others, couldn’t be larger than 1.5 megawatts.
The CPUC later expanded the program to include other retail customers for all three investor-owned utilities: Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric. But the rates set for those contracts, based on prices for power from natural-gas power plants, just aren’t enticing, especially when the state has other incentive programs that are more lucrative.
Enlarging the size of eligible projects to 20 megawatts each could make them cheaper to design and build them than the smaller projects. At the same time, proponents have reasoned, the project is not so big as to make it difficult to line up financing.
Some solar energy advocates have championed subsidies for small and mid-size power projects – as opposed to those with hundreds of megawatts each – by arguing that those projects could lined up financing a lot quicker and be built closer to existing transmission lines. Mega projects, on the other hand, typically require hefty investments, which could be billions of dollars in some cases.
These mega projects also tend to require new transmission lines in order to ferry electricity from remote regions to cities. Building those transmission lines are expensive, which would be paid for by utilities and sometimes also project developers.
This is not to say that project developers who build near existing transmission networks don’t need to pay for sending electricity to the grid. California charges developers interconnection fees no matter where the projects are located. The California Independent System Operator is currently changing the process for approving interconnections for projects up to 20 megawatts (see draft proposal and an addendum). The ISO board is set to consider the proposal next month, said Gregg Fishman, a spokesman for the ISO.
Meanwhile, regulators plan to approve some large renewable energy projects. California Energy Commission approved a mega project on Wednesday: a 250-megawatt project by NextEra Energy Resources, the first of its kind in 20 years.
For more research on cleantech financing check out GigaOM Pro (subscription required):
Today’s passage (8/27/10) by the California legislature of the California Energy Storage Bill (AB 2514) first introduced by Skinner and now ready for the Governor’s signature into law is a very positive step towards the cost-effective integration of more renewable resources in California. See a press release on this topic at our site.
It’s great to see California pushing energy innovations. I hope the financial incentives make it work. Do low energy bids lead to high quality solutions?
Although the RAM might sound like a Feed-In Tariff (FIT), it is far from being one, and it fails to resolve the critical failures that exist in California’s Renewables Portfolio Standard (RPS). True FITs have three fundamental features:
1) Fixed price: A fixed price allows property owners, developers, and investors to do the math before bidding to determine if they can deploy a renewable energy project in an economically viable fashion; before spending at least $100,000 participating in a solicitation process (like an auction). Solicitation processes require site control in order to bid, and at a minimum, this is defined as an option to control the property for the duration of the project.
2) Standard MUST-TAKE Contract: A must-take feature is fundamental to solving California’s RPS failure, which today has a project failure rate in the high 90s. In other words, more than 97% of the projects bid into California’s RPS solicitation processes today are rejected by the utilities. The level of parasitic transaction costs represented by this failure rate is immense, and those dollars evaporate rather than being available for investing to get viable renewable energy projects online. Again, under the RAM, each failed project will have generally invested at least $100,000 just to submit a bid.
3) Guaranteed Interconnection: Since distribution-grid interconnected projects in the United States require that 100% of any network upgrades to the grid will be paid for by the developer, the utilities should be mandated to pre-identify where on their distribution grids new generation can be interconnected in an economical fashion. Otherwise, many projects that “win” in an auction/solicitation process will never be built due to network upgrade assessments that turn the economics upside-down for many of those “winning” projects.
The 2011 REESA FIT legislation will result in 2GWs of solar per year instead of only 200MW. To learn more, go to http://www.FITCoalition.com
Craig Lewis
California can achieve the 33% RPS mandate, and do it with extremely competitive renewable pricing if it makes the necessary commitment to renewables. If the price isn’t known, if the contract is not a standard must take and if interconnection is not guaranteed California will end up with a half hearted effort that will surely disappoint on multiple levels. Larger, well financed companies will play the odds and some projects will get built, but there won’t be a renewable revolution. Manufacturers and developers will not make the strategic, long term commitments to locate and invest here, and the policy makers will ultimately state that renewables were given their day and unfortunately not capable of solving the problem with any scale. It’s simply bull. Make the necessary commitment, and the companies will come…and drive down costs through the dramatic increase in volume. We are getting close to avoided cost of energy in solar. We can get there. We don’t need extraordinary FIT rates such as in Germany. We need modest rates and predictable outcomes.
I am in awe of the capabilities of the renewable industry in California. Let’s turn it lose and rejoice in the outcome…jobs, technological development, clean renewable energy, self satisfaction that we did it cheaper and smarter than anywhere else on the planet, and we did it with scale. The RAM program will not scale and will only disappoint.
Jeff