The California Public Utilities Commission issued a new proposal today designed to significantly increase the amount of solar energy installed in the state. It is kind of like a feed-in tariff, but different. Call it a feed-in tariff v2.0.
The proposed program would require utilities to purchase electricity from mid-size solar and other renewable energy technologies of 1 to 10 MW. At least twice a year, utilities would issue a request for proposals for qualifying renewable projects. The regulatory body would set a revenue requirement for each solicitation (i.e. the total amount of money that could be spent). Utilities would then rank bids by price, then be required to take the cheapest ones first until the money runs out. Losing bids are free to bid into the next solicitation.
On first read, there’s a lot to like. The CPUC’s proposal presents an elegant solution to many of the challenges that have bedeviled efforts to grow sustainable renewable energy markets in California and around the world.
It puts steel in the ground. California’s strong Renewables Portfolio Standard has resulted in signed and approved contracts for more than eight gigawatts of large-scale renewable energy projects across the state (with another six GW of contracts of signed contracts under review by regulators); however, many of the planned projects have yet to be brought online. CPUC analysis identifies transmission as the single most significant barrier to large-scale renewable project development. This new proposed program stimulates immediate activity by establishing a market for smaller renewable projects that can be incorporated into the existing utility infrastructure without the construction of new transmission. The smaller projects will also likely be easier to finance, another critical hurdle in the current economic climate.
It gets the price right. Some governments have used standard-offer, fixed price feed-in tariffs to incentivize renewable energy development. The difficulty with this approach is finding the right price. If the price is set too low, it does not stimulate the desired market activity. If the price is set too high, ratepayers pay unnecessary costs, suppliers throughout the value chain are not encouraged to reduce prices, and the program can lose political support. By using a market mechanism to determine the contract price, the CPUC’s program uses competition to establish a price that is both sufficient for project development and protective of ratepayers. With the price of solar modules coming down 40 percent over the past 6 months and predictions for a lot further to go, it’s hard to see how else to do it. This method harness and accelerates cost reductions by encouraging the whole value chain to work together to be competitive (read this for the role of silicon and recent market dynamics in solar’s costs). We expect dramatic market activity at price levels that will attract the interest of policymakers around the country.
It can be implemented quickly. As a practical matter, the proposed auction mechanism can also be implemented much more quickly than some alternative approaches. There is real urgency in the matter, as the U.S. Treasury Grant Program, established as part of the stimulus package, is only available to projects that have begun construction by 2010. If approved, this program could be delivering results within the grant eligibility window.
It overcomes legal hurdles. In an earlier phase of the proceeding, one of the state’s largest utilities, Southern California Edison, challenged the CPUC’s authority to establish a feed-in tariff, claiming that the Federal Power Act only gives the Federal Energy Regulatory Commission the authority to require purchases above ‘avoided costs.’ Under this federal law, California regulators are restricted in their ability to set specific prices. This proposal elegantly avoids SCE’s legal challenge by establishing a specific requirement for electricity of a certain type, and letting market mechanisms establish price levels.
We’ve spent a year on this docket, and will spend a lot of time going over the details of the proposed program to guide our suggestions for further development. I guarantee that a lot of people will also have opinions on modifications. But initial impressions are that there is a lot to like. The program ensures that renewable energy projects will be built quickly and at the lowest cost to ratepayers. And it throws the doors wide open on an entirely new renewable energy market in the state: mid-sized solar projects that generate clean electricity for all Californians. Coupled with the highly successful California Solar Initiative program for customer-owned solar, the gigawatt of utility-owned/IPP distributed generation program, and existing channels for large utility-scale projects, California will be able to lay claim to one of the most comprehensive and dynamic solar markets in the world.
A chat with Sen. Bernie Sanders on his new 10 million solar roofs bill
Comments
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Dave from Canada Posted 12:52 pm
28 Aug 2009
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CALSEIA Posted 11:44 am
31 Aug 2009
There is a heated debate within the solar industry on reverse auctions and their potential adverse impacts to the industry and the ratepayers. Concerns about reverse auction include: high transaction costs that will lead to high degrees of market concentration, inability of smaller and new enterprises to compete in a reverse auction, lowball bidding that results in projects that cannot be constructed and further delays California's goal to increase the use of renewable energy generation, and higher ratepayer costs.
CALSEIA has strongly advocated for a fixed price tariff that will encourage an open and free market for new solar projects to be built in California. In every discussion on fixed price contracts, CALSEIA has objected to any comparison to what we propose with the German fixed price contract (aka feed in tariff). The fixed price contracts that CALSEIA is encouraging California policymakers to adopt is based on the value of the generation - just like any other property, but in this case, it would be kilowatts. The purpose of the German Feed in Tariff was a combination of support for renewable energy and developing a native renewable industry in Germany – Germany deliberately added value for renewable to accomplish these goals. They also incorporated a phase out schedule to reduce the rates paid as the program grew.
The CPUC addressed potential adverse consequences to reverse auctions in a Commission Decision related to utility construction projects: “On the issue of costs, reverse auctions may not consistently result in lower prices than sealed bids. Reverse auctions permit bidders to start the bidding high in order to maximize the opportunity for profits. They need only reduce their bids in response to the bids of others. The potential for a utility accepting an artificially high bid in a reverse auction would be especially pronounced where a market for labor, services or supplies is not highly competitive. The prospect of such a circumstance would be higher for construction projects than, for example, in a solicitation for building maintenance. We would also expect limited price competition where a construction project has very specialized elements, for example, using new techniques or technologies.” (D.04-12-056) Fixed price contracts have been shown to be less expensive to ratepayers than all other policies (see: http://www.summitblue.com/attachments/0000/0398/r11_-_The_Cost_of_New_Jersey_s_Solar_PV_Transition.pdf).
CALSEIA recommends a fixed price approach for projects 3MW and smaller and to establish the fixed price based on a bid solicitation that uses the median price of the bids. For projects larger than 3MW, use the reverse auction. Larger projects, because of their amount of real estate necessary for these larger projects, will always be ground-mounted applications. Projects less than 3MW will vary between roof mounted and ground mounted applications. This approach will solve the transaction cost problem, ensure that ratepayers receive the lowest cost for solar generation, and create thousands of jobs in communities throughout California, and more important, prevent concentration of market power and encourage competition in an industry that should be expanding.
CALSEIA would prefer to continue to grow a vibrant market in California that allows solar construction and manufacturing companies to compete to build projects for California's clean renewable future at a cost that is advantgeous to the ratepayers.
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