Stakeholders Debate RPS Costs

By Published On: March 27, 2009

As California sets its sights on a 33 percent renewable energy standard a key issue is containing the costs in a mandated green power market. The answer is likely to remain elusive, witnesses told a legislative panel in Sacramento March 25. “What you have is a seller’s market,” William Ichord, Sempra Energy vice president of government relations told the Assembly Select Committee on Renewable Energy. The California Public Utilities Commission is approving renewable energy deals that cost more than comparable electricity produced by a natural gas-fired plant, he said. He referred to a benchmark comparison known as the “market price referent.” The hearing came as both the state Assembly and Senate weigh legislation--AB 64 and SB 14--to raise the state’s renewable energy standard from 20 percent in 2010 to a third or more by 2020. John White, executive director of the Center for Energy Efficiency and Renewable Technologies, said that renewable energy may be more expensive than gas-fired power today, but is unlikely to remain so in the future. Green energy, he said, can provide a good price hedge against volatile natural gas prices. White further suggested that legislation to raise the renewable energy mandate may be moot because the California Air Resources Board has concluded that the state’s utilities must hit the 33 percent green power mark to cut greenhouse gases enough under the state’s climate protection law, AB 32. “This game may not be worth the candle,” said White, referring to the pending renewable energy bills. Matt Freedman, attorney for The Utility Reform Network, recommended that the state consider a number of steps to contain costs--from streamlined permitting for projects to tax relief for green power developers. Freedman, who has sat on a secret CPUC panel that reviews power purchase agreements between utilities and green power generators, was skeptical of a cost cap, use of out-of-state renewable energy credits, or a CPUC just and reasonableness cost review, as outlined in the SB 14. Any cost cap is likely to be litigated for up to three years, he told lawmakers. When it comes to just and reasonableness review, he said that it would ultimately prove subject to “the predilection” of CPUC members. Shannon Eddy, Large-scale Solar Association executive director, also urged lawmakers not to pursue a price cap. She suggested leaving the market price referent in place. Independent Energy Producers Association policy director Steven Kelly called the market price referent an ineffective measure of the cost of green power under the state’s renewable energy portfolio standard program. The underlying cost of natural gas changes constantly and the referent is out of date by the time the CPUC sets it each year, he said. The best way to contain cost is to open more avenues for green power developers to market their power to utilities, such as feed-in tariff programs in which they have to buy power for a set price from any developer. This would create competition that helps check the price of power, Kelly said. Others backed allowing utilities to purchase unbundled renewable energy credits from out-of-state green power developers. The unbundled instruments confer renewable energy credit solely to the utility that purchases them. The utility that actually purchases the output from the wind or solar facility originating the credits cannot claim it as renewable energy. Lawmakers expressed concern that third parties could manipulate the credit market, which could suddenly raise the price of energy. Freedman added that if utilities used out-of-state credits it would eliminate many of the benefits California is seeking under its green power standard. These include in-state economic development and job opportunities and cleaner air due to less use of fossil fuel power plants in smoggy cities.

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