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RENEWABLES GENERATE NEW COMPETITION

The American Wind Energy Association's "renewable portfolio standard" for California is now supported by most renewable technology groups and earmarks 10% of electricity supply for renewables. However, details of transforming this policy option into reality have generated new proposals, chief amongst which are from Independent Energy Producers, where internal disagreements are rife, and Vince Schwent of the California Energy Commission. Other proposals address the problem of stranded costs.

The debate over how best to implement the California Public Utilities Commission's approach to renewable energy development continues to generate new ideas and proposals, as well as concerns about how clean power sources not yet as competitive as wind power will enter a deregulated market in California. Though the CPUC decision issued in late December of last year gave tacit approval to a "renewable portfolio standard" -- a concept first put forward by the American Wind Energy Association (AWEA) -- the details of transforming this policy option into reality have created a deep rift within the Independent Energy Producers (IEP) and have resulted in a series of new proposals designed to replace or augment AWEA's initial plan.

Competing proposals were previewed at an April 17 workshop and a subsequent May 3 meeting. The good news for wind developers is that AWEA's approach to the standard, as developed by consultant Nancy Rader, has garnered the support of the geothermal and biomass industries and therefore appears to have lined up the most political support at this time.

Rader claims AWEA is not threatened by the competition from other proposals. "Our approach is straightforward, simple and market-based," she says. In the latest rendition of AWEA's standard, every retail seller of electricity would be required to include a minimum level of renewable energy in its supply portfolio. Eligible technologies are wind, geothermal, solar electric, solid-fuel biomass, landfill gas and existing solid waste-to-energy facilities. Projects that use 25% or less fossil fuel back-up would be granted full credit as a renewable facility, while others would only be granted credit for the fraction of output generated by renewable fuels.

Under the AWEA proposal, 10% of California's electricity would be earmarked for renewable resources. Beginning in 1997, 0.2% per year increases in renewable capacity would need to be added to California's electricity system over a five year period -- a figure derived from the amount of renewable capacity that was to be added via the Biennial Resource Plan Update (BRPU). The standard would have to be met by retail sellers on an annual basis. If these sellers preferred not to become directly involved in renewable energy development, they could purchase renewable energy credits from other entities co-developing or owning existing renewable capacity.

AWEA's new wrinkles

The initial mandated amount of new renewable energy is less than existing capacity -- approximately 90% of the 1993 renewable energy production figures -- to ensure some competition to provide the lowest cost clean power supply to the state's consumers. One new wrinkle to the AWEA proposal are proposed penalties to those sellers that do not comply with the standard. While one option would be to make up the renewable energy shortfall in the next calendar year, AWEA also proposes fining renewable energy delinquents the equivalent of $0.06/kWh for shortfalls.

The standard would be repealed once "renewables and market prices equilibrate," says Rader. She notes that AWEA prefers not having an artificial sunset for the standard to ensure that new wind and other renewable projects could be more easily financed.

AWEA's new strategy is to include this latest version of the renewable portfolio standard in Assembly Bill 1202, a bill pushed by the biomass industry and which has already cleared the Assembly in the California Legislature last year. One feature of the existing bill that would be incorporated into the amended legislation is a separate set-aside for biomass facilities, which are among the most expensive renewable resources on the system, but which have strong support due a wide range of benefits beyond the production of electricity, including improved solid waste management. Another goal of AWEA and its legislative allies is to impose the standard not only on investor-owned utilities, but also on publicly-owned utilities.

Rival propositions

The chief rival proposal to AWEA's has been put forward by Independent Energy Producers (IEP). However, infighting between the wind and renewable developers and the gas-fired cogeneration and power marketer members has prevented IEP from moving to the forefront of the political debate. Nevertheless, IEP believes its approach to the standard -- which would only be imposed upon "regulated retail sellers" (distribution utilities) -- is the most viable politically since it would not require any new legislation. Among the new aspects of the IEP approach is development of a "renewable energy trademark" to certify customers are, indeed, purchasing green electrons. Whereas AWEA proposes that the California Energy Commission certify compliance with the standard, IEP suggests that distribution utilities take on this role. IEP believes these regulated remnants of today's utility monopolies are the most logical entities to implement the standard since they will continue to have accounting, reporting and metering relationships with all customers, including those choosing to become direct access purchases of electricity.

The one new proposal for a renewable portfolio standard that generated the most interest at the April 17 workshop was presented by Vince Schwent, an energy specialist at the California Energy Commission. Schwent's primary concern is that technologies not yet fully commercial or cost-competitive, including photovoltaics, will be frozen out of California's market. His proposal, therefore, creates several bands of technology costs to ensure a sustained, orderly development of new renewables. "Technologies still coming down the technology curve will have no place to go," under AWEA's approach, says Schwent.

Under his approach, 10-15% of the amount of renewables competing within the standard would be earmarked for bands of technologies other than wind and other technologies already competitive with alternatives. For example, he proposed that 1.9% of the resources procured through the standard be earmarked for technologies in the $0.045-0.075 /kWh range -- technologies such as solar thermal. The next tier would only consist of 0.3% of the standard's resources for technologies costing $0.09 -$0.12 /kWh, the current cost of large-scale PV. Schwent's final category -- earmarked for 0.05% of the standard -- would also set-aside for technologies costing up to $0.30/kWh.

Schwent claims his tiered approach would ensure that not all of the new resources added would be wind and that the additional costs from these "small slivers of the market" would be well within "the noise" of market pricing.

Coping with stranded costs

Among the other proposals that might compliment a renewables portfolio standard was an idea forwarded by Rich Ferguson, national energy chair of the Sierra Club. He claims that imposition of a Competition Transition Charge (CTC), designed to collect stranded costs from ratepayers such as nuclear investments, could exceed $0.05/kWh. He argues this CTC should be waived for those who choose to use customers who volunteer to purchase 100% of their electricity needs from renewables such as wind. "While there is considerable evidence that many customers would be willing to pay more for renewable electricity than they are paying now, there is no doubt that the CTC will be an enormous market barrier for most, if not all, renewable technologies," says Ferguson. "Customer incentives which offset the CTC would allow renewables to compete immediately against utility average costs -- roughly $0.075/kWh -- rather than low utility marginal costs of $0.025/kWh," he adds.

On May 3, both Pacific Gas & Electric and Southern California Edison also laid a utility-sponsored renewable portfolio standard on the table. According to AWEA's Rader, however, it falls short in at least a couple of critical areas, including the omission of renewable capacity increases over time. A $0.02/kWh penalty for non-compliance is "clearly inadequate" says Rader. While the collected funds would be earmarked for renewables, Rader complains that such a low penalty would encourage market participants not to comply with the standard and "create a pot of money that must be publicly administered. With a higher penalty, we can rely on the market to allocate those funds through competition, avoiding the bureaucracy."

Ryan Wiser, a Lawrence Berkeley Laboratories policy analyst who is serving as a moderator of the so-called Renewables Working Group and will edit a report due to be presented to the CPUC on July 1, acknowledges that AWEA's approach is still the front runner, but that his report might include as many as four different standards.

Wiser observes that representatives from both PG&E and SCE have been generally supportive of the notion of a renewables standard. San Diego Gas & Electric, nonetheless, is leery of the concept since it has the least amount of renewable capacity on-line and fears that it will face more costs associated with complying with the standard.

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