California Approves Innovative Program to Spur Mid-Sized Solar

Rosalind Jackson, Vote Solar
December 20, 2010 | 2 Comments

Last week the California Public Utilities Commission (CPUC) voted unanimously to approve a new program designed to drive small to mid-sized renewable energy development. Called a "Renewable Auction Mechanism" (RAM), this next-generation feed-in tariff program will require investor-owned California utilities to purchase electricity from solar and other renewable energy systems up to 20 MW in size.

Solar advocates and industry representatives applauded the CPUC for its innovative approach to helping California meet its renewable goals and build a strong new energy economy.

Full text of the proposed program can be found here (PDF).

The Commission vote establishes a 1-gigawatt (GW) pilot program for power from eligible mid-sized renewable energy systems. The program requires California’s three largest investor owned utilities to hold biannual competitive auctions into which renewable developers can bid. Utilities must award contracts starting with the lowest cost viable project and moving up in price until the MW requirement is reached for that round. The program will use standard terms and conditions to lower transactional costs and provide the contractual transparency needed for effective financing. To ensure project viability and realistic pricing, the program requires development security and relatively short project development. Utilities must file implementation plans in the next 60 days, and the program is expected to be operational this spring.

The RAM procurement model addresses many of the challenges facing wholesale renewable energy policy in California and around the world:

Small to Mid-Sized Project Size Expedites Solar Development

CPUC analysis identifies transmission as the single most significant barrier to development of large-scale renewable projects that have been the focus of much utility solar activity to date. While the state works out its transmission solutions, this proposed program stimulates immediate activity by establishing a market for smaller (up to 20 MW) renewable projects that can be incorporated into existing utility distribution infrastructure. These smaller projects will also likely be easier to finance, another critical hurdle in the current economic climate.

Market-Based Pricing Delivers Long-Term Value in a Dynamic Market

Some governments have used fixed-price feed-in tariffs to drive renewable energy development. One point of difficulty has been getting the fixed pricing right. If the price is set too low, it does not stimulate the desired level of 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. In contrast, the CPUC program uses competition to establish a price that is both sufficient for project development and protective of ratepayers. By continuing to deliver maximum ratepayer value by driving down installed solar costs and capturing changes in market conditions, the bidding mechanism is also more likely to provide a long-term market for the growing solar industry. Instead of guaranteeing a price, this approach guarantees a market—providing necessary long-term certainty to developers.

Program Designed to Reduce Transaction Costs

Standardized contract terms and conditions level the playing field and reduce parasitic transaction costs associated with project development. Multiple annual solicitations provide more continual access to selling opportunities. And strong project viability criteria, including development security, reduce the problems associated with underbidding and speculative developers holding contracts but failing to deliver. The program builds upon best practices to create a fluid, functional competitive renewable energy market.

2 Comments

jason mahon
March 14, 2011

FYI. PG&E is trying to change this program in ways that will make it more difficult to compete and raise costs for new green energy providers.

I stumbled upon this when I was doing interconnection for Waste to energy in my capacity at Oakland Waste. I wanted to put it out there because there is a deadline of March 17th for responses to the CPUC. It's about the new Renewable Energy Program the CPUC created in December and the changes that PG&E want to make to it... It's too late for print but not for a blog/social stuff.

http://oaklandwaste.wordpress.com/2011/03/14/new-renewable-energy-program-under-attack/

Robert Freehling
December 21, 2010

It's great that the RAM opens opportunity for 1000 Megawatts of new distributed renewable generation in California, uses fixed terms and conditions in contracts, increased the distributed generation project size cap to 20 Megawatts, and requires utilities to take offers up to the auction allocation.

On the other hand:

1. the claim that this program is "innovative" is overstated. The auction is a "hybrid" between some features of feed-in tariff programs and a tweak to conventional market bidding.

2. The RAM is not "feed-in tariff." The essential feature of a feed-in tariff, as explained in the CPUC ruling (on p. 3), uses administratively fixed prices, which the RAM is specifically designed to avoid.

3. The RAM does not have the pricing design, scope of democratic participation, nor the program scale to qualify for a claim of "best practices", though some other best practices are included.

4. The fixed price of a feed-in tariff reduces project risk and developer costs. A "competitive" RAM structure in this market sector may cause underbids to get a contract, which can lead to project default or unprofitability. At this point a RAM is unproven for saving money or whether it will work well.

5. While the RAM likely expands the playing field, it cannot fairly be said to level it. Only those who can afford to risk losing everything in upfront development efforts, and willing to bid low, are likely to be players. This RAM will be relatively exclusive compared to democratic feed-in tariff programs worldwide where farms, businesses and homeowners can participate on equal terms with energy giants.

6. This is only a 1000 Megawatt pilot program out of roughly 20,000 Megawatts of new generation for California's 33% renewables target; the RAM might supply 1% of California's electricity. Feed-in tariffs in Germany can build 1000 Megawatts of solar PV per month; in Portugal feed-in tariffs increased renewables to 40% of electricity in a few years.

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Rosalind Jackson

Rosalind manages media, member and donor relations for Vote Solar, a non-profit working to make solar energy a mainstream resource across the U.S. Prior to joining Vote Solar, Rosalind spent five years directing and implementing PR campaigns...