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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.
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