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Regaining California’s Clean Energy Edge

California, by sheer weight of its populace and its ambition, often leads the nation and the world on environmental issues. But on clean energy, California squandered its early leadership in many ways. Fortunately, there are efforts underway to reverse this trend, and California is ripe to regain its clean energy edge if the right policies are implemented and bold steps are taken.

By Craig Lewis



 The Current Situation 


California is often touted as a clean energy leader in the U.S. With some of the most ambitious policies and incentives in the country, and the best solar resource profiles, it is no surprise that more solar PV is deployed each year in California than any other state. But compared to places outside the U.S.A., California’s leadership is non-existent and the truth is that California is far from reaching its own clean energy and new economy goals.

Other regions of the world have long surpassed California’s efforts in renewable energy and are now lapping the ‘Golden State’ in every respect. Figure 1 clearly shows how the German solar market makes California look like it is standing still.

It could be easily argued that California started both the solar and wind industries and in the early years, was the dominant leader with respect to innovation, manufacturing, and deployment in both industries. Today, however, California manufactures less than 5% of the world’s solar equipment, and almost no wind turbines are manufactured here.

Unfortunately, as with manufacturing, California is also lagging badly on the deployment front. Texas is now the unchallenged leader in wind power, with about four times the installed capacity of California (10,000 MW versus 2,500 MW).



When it comes to solar, California has had the biggest slide compared to its international counterparts. At one time, California was the world’s largest solar manufacturer and provided the largest market for deployments as well. (It is worth noting that there is a strong correlation between the location of renewable energy jobs and renewable energy deployments: job creation is concentrated where deployments are happening.) Today, California lags far behind many European markets. Germany, highlighted above, deployed more than 17 times the amount of solar PV that California deployed last year; despite the fact that California has a solar resource that is 70% better. That multiple is expected to grow as Germany is on track to deploy roughly 25 times more solar than California in 2010.

Spain’s solar market continues to be more than twice the size of California’s solar market even though Spain has roughly the same sized population and electric load. In 2008, Spain deployed 2,600 MW of solar to California’s 178 MW. Even though Spain reduced the size of its solar program after 2008, Spain is still expected to deploy more than twice the amount of solar compared to California in 2010.

More generally, a disappointing and little-known fact is that California had a higher percentage of renewables deployed in 1990 than we do today. While California generated 16% of its electric power from renewables in 1990, the state only generated 15% of its power from renewables in 2009. Even worse, in the eight years since California implemented its Renewable Portfolio Standard (RPS), the state’s major regulated utilities have made essentially no progress, with close to the same percentage of renewables today as they had in 2003.

The California Solar Initiative (CSI), created in 2006, is often touted as a successful program, but since it only applies to ‘Retail Distributed Generation’ (RDG), also known as net metering, the CSI does little to scale solar deployments. The majority of commercial properties are not even viable for net metering because they are non-owner occupied and/or ‘split-metered’  with separate meters for each of several tenants. Also, RDG projects are limited in size to the amount of on-site demand, and CSI incentives only apply to projects sized 1 MW or smaller. Even if the CSI goal of 3,000 MW is reached over its 10-year program duration ending in 2016, the total amount of solar under the CSI program would only constitute less than 2% of California’s total electric demand. California needs to be adding far more than this amount every year in order to reach its 33% mandate on schedule, by 2020.

At the other end of the scale, large central-station renewables, often referred to as ‘utility scale’ energy, have also failed to perform in California over the last decade due to problems with transmission and permitting. New transmission lines take more than a decade to build, and permitting central-station energy projects of any kind requires many years as well. California’s RPS program has been implemented to focus on a central-station strategy but has only resulted in roughly 1 GW of new generation deployed over 8 years. For reference, in order to reach the 33% RPS mandate with solar by 2020, the equivalent of 4 GW of solar needs to be deployed every year between 2011 and 2020.



The Opportunity


The solution for the massive RPS challenge relies on unleashing the market segment that lies between the RDG and the central-station extremes. Efforts are finally underway in California to get back in the game by following Germany’s example and tapping the vast potential of the ‘Wholesale Distributed Generation’ (WDG) market segment. WDG is comprised of 20 megawatts-and-smaller renewable energy projects that are interconnected to the distribution grid, with all energy production sold to a utility at wholesale rates. A 20 MW project is small enough to interconnect to the distribution grid and fits on a relatively small area. 20 MW of solar, for example, fits on about 100 acres, or less than a quarter section of land for those who think in terms of sections (1 section = 1 square mile = 640 acres). At the same time, 20 MW is large enough to deliver a significant amount of power: 20 MW of solar meets the peak load of roughly 20,000 homes.

The ‘Wholesale’ refers to the fact that renewable energy generators sell power directly into the grid, rather than offsetting on-site demand, as is the case with net-metering. And the ‘Distributed’ refers to the fact that these systems are closer to load than large, remote central-station facilities. Distributed facilities can be dotted around the state where they are needed, and where they provide significantly higher value by avoiding line losses, congestion losses, and massive investments associated with transmission. At a minimum, WDG projects provide 15% greater value than transmission interconnected projects, because Transmission Access Charges (TACs) are avoided. TACs cost roughly 1.5 cents for every kWh that is converted from the transmission grid to the distribution grid on its way to serving a load in California.

WDG can scale in a cost-effective and timely fashion. WDG avoids the abovementioned limitations of RDG since the revenue does not depend on who is using the energy. And since WDG is not dependent on transmission or pristine lands, projects can be built quickly, taking months to construct and deliver energy rather than years.

WDG represents an enormous source of new renewable generation in California. A comprehensive study by the California Energy Commission found the potential for over 27,000 MW of new 20 MW sized solar projects alone that can connect to the existing grid and be built immediately. 27,000 MW is about half of California’s peak energy requirement.

To tap the WDG segment, the Germans took a U.S. idea--known as a Feed-in Tariff (FiT)--and implemented the most successful renewables program in the world. In Germany, anybody can build and/or own a renewable energy facility and get paid for the power that is delivered to the grid at a rate that is set to make efficient projects profitable. Numerous studies, including multiple from the National Renewable Energy Labs (NREL), have found that WDG FiTs are far-and-away the most effective policy mechanisms for quickly spurring massive deployment of renewable energy without significant cost increases.

FiTs are essentially pre-defined, pre-approved ‘Power Purchase Agreements’ (PPAs), which means that FiTs remove barriers, parasitic transaction costs, and parasitic transaction time associated with solicitation processes, including auction processes. Additionally, the significant level of deployments that are driven by WDG FiTs result in tremendous economic benefits to the regions that adopt them like job creation, increased tax revenue, and the establishment of domestic industries that can become key drivers of economic growth.

Within the last year, the first five WDG FiTs have been implemented in North America: Gainesville, Florida; Province of Ontario; State of Vermont; the Sacramento Municipal Utility District (SMUD), and San Antonio, Texas. These five FiT markets are either already deploying renewables far faster than any other region in North America, or are staged to do so.


The Outlook 


As mentioned earlier, California has set the most ambitious goals in the country with its 20%-by-2010 and 33%-by-2020 mandates. These targets had clearly stated, laudable objectives of reducing pollution, GHG emissions, and dependence on foreign sources of fossil fuels. Additional objectives were economic: create green jobs that could not be outsourced, develop the cleantech industry as the next big driver for economic growth, and increase private investment in the state. But just setting these targets is not nearly enough. California must now adopt new policy mechanisms that allow these important goals to be fulfilled.



California’s existing FiT program (AB1969), implemented in its current form in early 2008, has failed to attract a significant number of projects. Out of a program capacity of 500 MW less than 20 MW were operational at the end of 2009, and none of those were solar projects. In late 2009, Senate Bill 32 (SB32) was signed into law to expand this FiT program, but even this expansion was limited to 750 MW, and the bill failed to include a date certain for implementation. At this point, it is uncertain whether SB32 will ever be implemented and whether its FiT pricing methodology will prove to be effective.

Thus, the California Public Utilities Commission (CPUC) has endeavored to develop its own experiment for the WDG market segment: the Renewable Auction Mechanism (RAM). Unfortunately, the proposed decision for the RAM has been extended to include transmission-interconnected projects and even out-of-state projects. Hence, an alternate decision is required for the RAM to actually be an experiment targeted at the WDG market segment. In general, the RAM offers standard contracts but with the contract price set by an auction process. While the RAM includes some potentially useful policy innovations, it has inherent flaws that make the mechanism significantly inferior to a true FiT. In the end, large, established companies dominate auctions, and the currently proposed RAM locks out new technology and companies, essentially telling innovators they are unwelcome. Also, auctions do not provide the certainty that a FiT provides and is often needed to obtain initial financing for projects.

Even if the RAM were fully successful, at 1 GW over 2 years, the RAM is over 7 times too small to hit the 2020 target and realize the badly needed, near-term economic benefits.

For California to truly kick-start massive renewable energy deployment, the state needs a robust, comprehensive FiT that attracts massive investment in WDG. In the 2009-2010 legislative cycle, there was a fight for the Renewable Energy and Economic Stimulus Act (REESA), a legislative proposal crafted by the FiT Coalition. A recent UC Berkeley study showed that enacting the REESA in California to achieve the state’s 33%-by-2020 target would create 3 times the number of jobs, over 2 billion in additional tax revenue, and stimulate tens of billions in new investment above and beyond the expected scenario with the current RPS program. Furthermore, the adoption of the REESA would cost-effectively fulfill the 33% RPS goal on schedule and provide significant savings to the ratepayers within a few years of the policy’s adoption.

The REESA calls for enacting a FiT for renewable energy projects up to 20 MW in size and delivering an incremental 2% of California’s delivered energy from renewables every year through 2020. As mentioned above, if the 33% RPS were fulfilled entirely with solar energy, then roughly 4 GW of solar would need to be deployed every year. 4 GW is about 20 times more solar than California has ever deployed in a single year and far more than the combined potential of all renewable energy programs currently operational, approved, and/or contemplated by the CPUC. In other words, California has never come close to meeting the annual renewables level that is required for achieving the RPS mandates. The REESA is truly the best policy mechanism to complement California’s ambitious clean energy goals.

While the REESA did not come up for a final vote in the most recent legislative cycle, efforts are underway to reintroduce similar legislation in early 2011. If California is to regain its leadership position in clean energy, the adoption of strong policies to encourage the growth of the WDG market segment is essential. Bold policy mechanisms are needed to complement the state’s bold goals. Seizing the opportunity with the adoption of the REESA or a similar WDG FiT is the right path for California to regain its clean energy edge.


Craig Lewis is Executive Director of the FIT Coalition (www.FITCoalition.com), a leading advocacy organization that is implementing Feed-in Tariffs and other global renewable energy best-practices throughout the United States.



For more information, please send your e-mails to pved@infothe.com.

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