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Mystery: How Much Will Californians Pay for Renewable Energy?

How much will Californians pay for the growing amount of renewable electricity now that large solar farms have begun to take shape in some of the remote corners of the state? That's an intriguing question that seems to draw no good answers.

A report by the Little Hoover Commission, an independent state agency that studies state government agencies and recommends policy changes, released a report yesterday that looked at California’s efforts to get 33 percent of its electricity supply from renewable sources by 2020. The report warned that regulators and policy makers appeared to lack a good understanding of the rate increases that will come as a result of achieving this 2020 goal.

“The commission’s concerns center on reliability and a lack of clarity regarding the aggregated costs of implementing the state’s consolidated energy goals,” the report said. “The failure to assure reliability or an unanticipated spike in rates could sour Californians on renewable energy policy, which would have repercussions nationwide and beyond.”

The commission wants Gov. Brown to take charge and come up with good estimates for the rate impacts and figure out whether the various regulations and agencies that are in place to achieve the renewable energy mandate will in fact enable the state to reach its energy and environmental goals efficiently. Such a comprehensive assessment is necessary and should be made public so that Californians won’t be surprised by any sharp rate increases, the commission said in the report. 

The state has always prided itself on passing progressive environmental legislation. The renewable energy goal, along with plans to reduce the state’s greenhouse gas emissions to the 1990 levels by 2020, have set California apart from rest of the country. But implementing these goals also have required a steep learning curve for regulators – including the California Public Utilities Commission and the California Energy Commission – as they tweak and tinker with rules to accommodate efforts to achieve the goals.

The utilities commission, for example, has approved solar power sales agreements between solar farm developers and utilities knowing that the contracts were more expensive than bids submitted during the same time. The commissioners typically reasoned that the higher costs were justified to help utilities integrate renewable energy into the grid and to make sure the state could achieve the 33 percent renewable energy goal by 2020. In some cases, state regulators approved many projects so close to one another partly to make sure the developers could take advantage of a federal tax incentive that was about to expire.

Although solar energy development is newer than, say, wind energy generation in the state, solar energy is poised to play a bigger role in the state’s electricity supply over the next decade or so. There is far more flexibility in where solar energy equipment could be installed – from the roofs of warehouses and homes to large tracks of land in the desert. Wind and geothermal energy development, in contrast, face more restrictions on where they could find ample wind and underground steam reservoirs to run power plants. Solar electricity is still more expensive than fossil fuel-based power, though its cost is falling.

Giant solar farms are just beginning to materialize in California. BrightSource Energy is building a 392 MW project in Ivanpah, on the eastern edge of the state. First Solar and SunPower are setting up two projects that will total 800 MW in the Carrizo Plain in central California (see my photos of the two projects).

I’ve asked the utilities commission for any estimates on the potential rate increases as a result of enforcing the renewable energy mandate. Terrie Prosper, the commission’s spokeswoman, told me  earliert this year that she didn’t have those figures available partly because many factors could alter the forecast along the way. For example, solar and wind farms can’t produce power around the clock, so they will need backup power to make up for any shortfall in order to meet demand. The backup power will likely come from natural gas power plants. The price for natural gas, though low now, will likely increase in the coming years, so the cost of pairing renewable energy generation with natural gas power plants could shift significantly.

The utilities commission's energy is doing a 5-year rate forecast, and so far it showsthat there will likely be an overall rate increase of 2-3 percent per year on average (adding in inflation), Prosper said. The need for infrastructure improvements -- replacing aging power plants and transmission lines, for example -- will drive most of the rate increases even if there were no renewable energy mandate, Prosper said in an email today. 

The CPUC’s Energy Division has been working on a 5-year rate forecasting project and its analysis shows that overall rates will increase on average by 2-3 percent per year over the next 5 years. This tracks inflation. The drivers of the rate increase are the general need for infrastructure improvements, most of which would be needed even if there were no renewable energy mandate.  So it's still unclear what will be the impact of the shift to using more renweable electricity.

Prosper also said there is no legislative mandate for the utilities to do a rate impact analysis of their efforts to comply with the renewable energy mandate.

In a press release from May this year, Pacific Gas & Electric said, “The costs of the RPS program have only begun to appear on customer bills, as projects begin to come online in significant quantities. PG&E is aware of these costs, and will mitigate them whenever possible. We believe the total cost of the RPS program will increase rates one to two percent per year, until 2020.” I asked Southern California Edison then for its own rate impact estimate and was told that it hadn’t done the calculations.

The Division of Ratepayer Advocates, the consumer advocate within the California Public Utilities Commission, responded to the Little Hoover Commission report by stating that its own analysis showed state residents will likely face a rate increase of 5-9 percent total by 2020 to help pay for the premium of renewable energy. 

Lead image: Mystery Money via Shutterstock

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