Cali Approves 1GW Program to Auction Clean Power

California wants 33 percent of its electricity from renewable sources by 2020, but hitting that goal might be difficult. To potentially help with the crunch, state regulators approved a 1 GW program Thursday.

The California Public Utilities Commission (CPUC) voted unanimously for what is called a Renewable Auction Mechanism (RAM), which will require the three largest utilities in the state to hold auctions twice per year and sign power purchase agreements with developers who can offer the lowest prices. The RAM program will run for two years and is open to developers of different types of renewable electricity, including solar, wind and geothermal.

“The program will get the best price for ratepayers and provide meaningful market opportunities for small projects,” said Michael Peevey, president of the commission, during the meeting.

The program caps the size of each project at 20 MW. The idea is to encourage projects that can more easily find suitable space closer to cities and suburbs. This approach will reduce the need to build expensive transmission lines to ferry electricity from more remote regions. Proponents believe it also will likely reduce the time it’ll take for developers to secure permits, line up financing and complete the projects.

A 20-MW project is small compared with some of the mega-proposals that have been considered and approved by California regulators. The California Energy Commission has approved nine solar energy projects totaling roughly 4.1 GW in the past four months. Many of these projects are set for the less populated desert in eastern California and have faced strong criticism for their potential impact on the wildlife. One of them, the 709-megawatt Imperial Valley Project, is facing a court challenge from the Quechan Indian Tribe. Earlier this week, a federal judge granted the tribe’s request to temporary halt the project’s development

Proponents say large projects are necessary for the state to meet its renewable energy generation goal, and utilities have been signing deals to buy power from developers of these mega projects. One of them, a 392-MW solar farm by BrightSource Energy, broke ground in October.

The Public Utilities Commission said the RAM program will offer utilities yet another option to add renewable electricity to their supplies before the 2020 deadline. Meeting this type of mandate has proven to be no easy task. The three main utilities — Pacific Gas and Electric, Southern California Edison, and San Diego Gas & Electric — are supposed to get 20 percent of their supplies from renewable sources by the end of 2010. As of 2009, PG&E and SDG&E were far from meeting the mandate. SCE reached 17.4 percent last year. The utilities do have a 3-year grace period to achieve the 2010 goal.

But the RAM program, of course, isn’t perfect. A few commissioners expressed concerns that developers might offer contracts with prices that are way too low for them to actually complete the projects.

“There is a danger that the utilities, in their thirst for price and cost disciplines will unrealistically push the prices of the contracts to a level that (the projects) are unlikely to be built,” said Commissioner John Bohn at the meeting.

To minimize underbidding, the RAM program dictates that contracts, once signed, are not re-negotiable. The program rules also require developers to put down a security deposit of $20 per kilowatt when they sign the contracts with utilities. Developers also have to put down a deposit guaranteeing the power output of their projects. For a project that is less than 5 MW, the performance deposit would be $20 per kilowatt. Larger projects would require 5 percent of their expected revenues.

The program “guarantees an outcome instead of prices. It ensures that ratepayers get the best deal,” said Adam Browning, executive director of the Vote Solar Initiative, a San Francisco advocacy group. “You select projects not based on who is first in line but based on the ability to provide the most value.”

In a separate vote Thursday, the commission also approved a 5-year solar program proposed by PG&E. Again, the intent here is to encourage small and mid-size projects (up to 20 megawatts each). PG&E plans to own 250 megawatts of projects and buy the remaining 250 megawatts from developers. The commission capped the price for the power purchase agreements at $295 per megawatt-hour.

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Photo courtesy of Jay Galvin.