Study: Half of Renewables Contracts Failed

A worldwide review of renewables development contracts with utilities shows that half have never materialized. The study, done for the California Energy Commission, suggests that hurdles placed in the path of project developers to eliminate economic risk to utilities may be raising the price of electricity. "Utility purchasers and electricity regulators must confront the reality that signed renewable energy contracts will not always yield operational projects on the time line given in the contracts themselves," said Ryan Wiser, KEMA consultant. The study, Building a "Margin of Safety" into Renewable Energy Procurements, found that "the tools used by the state's investor-owned utilities to date to reduce the risk of contract failure have not been altogether successful." Those tools include project proposal submission fees, strict preconditions, preoperation milestones with forfeitable deposits if they are missed, and liquidated damages for construction delays. They "may often have the unfortunate effect of restricting competition and raising bid prices (both of which would be to the detriment of the state's ratepayers)." California's renewables portfolio standard requires 20 percent of the electricity sold by the state's investor-owned utilities to be produced with wind, solar, biomass, geothermal, and other green technologies by 2010 and 33 percent by 2017. There is considerable momentum to push up the mandate to 2010. Setting an "over-procurement" standard to make sure utilities reach the renewable energy targets even if some contracts fail along the way - as done by the California Public Utilities Commission for the 2006 renewable energy procurement round - can help, the report said. However, regulators should also scrutinize utility contract conditions themselves with an eye toward minimizing contract failure. The leading causes of failed contracts are that renewables project developers cannot overcome siting and permitting issues, run into financing problems, face capital cost increases, and have difficulty solving transmission and interconnection problems, the report said. The commission expects the January 12 study to be used by the CPUC as it considers utility contracts aimed at meeting the state's renewables portfolio standard.

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Study: Half of Renewables Contracts Failed

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