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California Approves Solar Contract Despite High Cost

Should consumers pay more for renewable energy in order to promote a certain technology? That's an interesting question raised by California regulators on Thursday, when they approved what they acknowledged to be a pricey contract for Abengoa Solar to sell power to Pacific Gas & Electric.

The California Public Utilities Commission voted 4-1 to approve the 25-year contract, which will allow Abengoa to build the 280-megawatt solar farm called Mojave Solar in southern California. The company already has secured construction permits from state and federal regulators, as well as a $1.2 billion loan guarantee from the U.S. Department of Energy to help pay up to 80 percent of the project’s cost.

The commission staff recommended against approving the contract, saying it was way too expensive. Utilities can recoup the cost of buying renewable energy by raising rates. Contract price and terms are confidential, however, so it’s difficult to compare all those contracts that the three big utilities have signed over the years. Commissioner Mike Florio, who casted the lone “no” vote, said during the meeting that the contract will cost $1.25 billion over 25 years.

But commissioners who voted for the contract said price shouldn’t be the only deciding factor. They said the technology Abengoa will be using can produce power more consistently than, say, solar panels, and that consistency is valuable even if it isn’t reflected in the contract price. They also suggested that the state has a responsibility to support a variety of renewable energy technologies.

Abengoa plans to install rows of curved mirrors that will concentrate and direct the sunlight to create steam, which will then be piped to run a turbine to produce electricity. It’s not alone in using concentrating solar power or CSP (solar thermal) to generate power; other developers such as BrightSource Energy and SolarReserve are doing something similar.

“It’s worthwhile to spend a little more on projects like the Mojave Solar so the (state’s) renewable portfolio doesn’t rely heavily on a single technology. In other words it’ll be more balanced,” said Michael Peevey, the commission president who led the effort to approve the Mojave Solar contract.

California has had a renewable energy mandate for nearly a decade now, and the most recent change requires utilities to get 33 percent of their electricity from renewable sources by 2020. The state mandate doesn’t say utilities have to choose solar or any type of solar technology. The eligible types of renewable energy include wind, geothermal and ocean power.

One of the commission’s responsibilities is to make sure the price of a renewable energy contract is reasonable and won’t saddle consumers will a big rate hike.

But several commissioners also believe that California should support different technologies. They noted that most of the recent proposed projects use solar photovoltaics (PV) instead. The price of solar panels has fallen more than 50 percent in the past few years, and an oversupply problem has caused many solar companies to close factories or even file bankruptcies. Energy Conversion Devices announced this week that it would suspend manufacturing all together and furlough 400 workers, and it plans to lay off 500 people by the end of this year.

The price decline has prompted some CSP plant developers, such as Solar Trusts of America, to switch to using PV.

The commission certainly has said "no" to expensive contracts before: they didn’t support a contract from a Canadian company to sell power from an ocean energy farm to Pacific Gas & Electric (PG&E). Ocean power remains elusive because developing equipment that will work well in salty water is tough and has taken longer than some of its supporters have anticipated. PG&E once devoted time and money to develop ocean power projects along the California coast, but it abandoned them mostly because they were too expensive. 

Ultimately, the commissioners voted for Abengoa’s contract mainly because Abengoa already has spent five years and $70 million to develop Mojave Solar and has gotten all the permits and financing to start construction. They noted that getting permits and financing are so tough that many other renewable energy projects had floundered as a result. 

“Mojave Solar is one of the utility-scale projects and is fully permitted. That in itself should be given a strong weight,” said Commissioner Timothy Simon.

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