With all of California state utility PG&E’s efforts to add renewable energy to its electricity portfolio, when a contract to add clean energy fizzles out, it deserves a closer look. Western GeoPower said recently that it canceled a contract with PG&E whereby the utility would have purchased renewable energy from a geyser-fueled geothermal power plant located about 75 miles north of San Francisco.
The deal with Western GeoPower was PG&E’s (PCG) first contract out of the utilities’ renewable efforts; it is also the first renewable contract to die on the vine. The failed deal illustrates the difficult market that utilities face as they try to meet state renewable energy mandates while grappling with the rising price of renewable power.
So what happened? The contract announced back in May 2007 had PG&E purchasing 25.5 megawatts (MW) of renewable energy for its customers throughout Northern and Central California starting in 2010. As recently as December, PG&E put out a release saying the contract had been approved by the regulatory body the California Public Utilities Commission (CPUC).
Well, while the contract was “approved” by the CPUC, the regulatory commission did so at a late enough date in the contract timeline that Western GeoThermal was able to exercise its right to cancel it.
So why use that little step to kill the deal? Simple: The timing gave Western GeoPower a chance to put its contract back out on the market, with the hope of getting a better rate on the price of the renewable power. The price of power has gone up considerably since the contract was signed a year ago, Western GeoPower’s head of investor relations, William Gee, points out. “We canceled the agreement because it was our right to do it,” says Gee.
A CPUC spokesperson says, “Western GeoPower’s (WGP) actions, while legal, are a clear example [of] a seller using market power. That is, WGP terminated its project because it felt that it could get more money, not because it required more money to develop its project.”
Western GeoPower says the project to get the renewable power running off the geyser site will still be ready by the previously announced timeline of 2010. “The drills are on the property right now,” says Gee. But PG&E will no longer be getting that hot deal — either another utility will pick it up or PG&E will be forced to renegotiate and pay more. Gee says there is no lack of interested parties in renewable energy in California.
The contract negotiations show how utilities like PG&E are struggling to meet the state renewable energy mandate, which requires utilities to supply over 20 percent of their electric power from renewable sources by 2010. The lost contract “reflects the challenges that California utilities face in bringing more renewable energy online,” PG&E spokesperson Keely Wachs said.
Currently PG&E supplies around 12 percent of its power from qualifying renewable sources; it’s also been adding on projects like solar thermal, solar photovoltaic and wave energy. Projects like these and that of Western GeoPower’s are not exactly common. The geyser power plant, which uses heat stored beneath the Earth’s surface to generate electricity, is one of the largest producers of geothermal power in the world. A deal to purchase that energy is starting to become a highly sought after contract.
As more utilities face state mandates and get more progressive on clean energy, early adopters like PG&E will start to face more competition for these projects, which means higher prices. And with demand for power expected to rise 50 percent over the next 30 years in the U.S., energy prices will only rise, too. We’ll see if PG&E can find another geyser to tap into, and if Western GeoPower can bring in the rate it wants. But for now, PG&E’s agreement to harness the Earth’s heat has gone cold.