Visit windpowermonthlyevents.com for the latest on our upcoming conferences and webcasts

United States

United States

California utilities hide behind solar smokescreen -- Legal loophole allows penalties to be avoided for failing to bring wind power online

California's utilities are being accused of betting on low-cost, speculative green energy technologies -- particularly solar -- to exploit a loophole in the state's renewable energy legislation that lets them dodge penalties for failing to meet a 2010 deadline for 20% green electricity. Wind power is losing out as the gap between the volume of green electricity contracted by utilities and actual capacity installed grows ever larger.

The growing belief among wind power developers is that utilities are taking advantage of a potential weakness in the state's renewables portfolio standard (RPS) law that allows contracts alone to count towards the requirement for a minimum 20% green electricity in supply portfolios. Provided utilities have made a good faith effort to meet the deadline, penalties will apparently not be applied for failing to comply with the law. Susan Carothers from the state Public Utility Commission (PUC) expects that signed contracts alone will count to meeting the 20% threshold, whether capacity is installed and producing power or not.

Since the law was passed in 2002, the PUC has approved 95 power purchase agreements (PPA) for 5.9 GW of clean power capacity, more than enough to achieve the legal standard, it says. But only about 400 MW of the contracted generation has come online and the proportion of new renewables power has fallen from 14% in 2004 to 12.7% in 2007 as demand for electricity has grown. In December, the PUC conceded that utilities will not meet the 20% benchmark, which would require a 3 GW boost in just over 18 months.

The problem appears to lie in the quality of the contracts being signed. Many are for technologies that are far less certain to be built than proven renewables such as wind and geothermal. The PUC has approved over 1.8 GW of solar thermal PPAs, much of that from commercially unproven technologies such as fields of mirrors that heat up a central power source. A further 1077 solar thermal contracts are pending, along with another 800 MW of solar photovoltaic capacity.

Speculative solar

"I think California is the most exaggerated example of utilities signing contracts that are not viable," says Mark Tholke, who heads wind power development in the Southwest for Enxco, a subsidiary of EDF Energies Nouvelles, "Because of weak non-compliance penalties, steel doesn't get into the ground as the law intended," he adds. "I think it's a harbinger of things to come in states that have aggressive RPS goals." Enxco has brought about 360 MW of wind power online in California since 2002, including 150 MW this year, representing about 63% of all new wind generation online since 2002.

By signing PPAs for solar generation offered at speculative rates, the utilities may be preventing viable wind projects from meeting the 20% mandate. Speculative solar prices are "somehow getting traction" with the utilities, even though technologies have not been demonstrated to work. Meantime, wind projects with average or lower wind speeds cannot compete with solar projects priced unrealistically low. "We're not bidding a speculative price. We're bidding the market price for wind -- what it actually costs, what it takes to put steel in the ground," says Tholke. While utilities scoff at wind projects bidding excessively low prices, the same is not true for solar companies that claim "our technology is so gee whiz bang that we can do that," he says.

Growing cynicism

Laura Wisland of the Union of Concerned Scientists follows California utilities closely. While not necessarily disagreeing with Tholke, she sees no evidence yet of utilities passing up good wind PPAs. A down payment is required of developers to secure a place in the interconnection queue. "They have to put down real cash for that, so these aren't totally fake contracts," says Wisland. The sum, however, was raised six months ago by the California Independent System Operator (CAISO) from a low $10,000 to $250,000 to reduce the number of requests, acknowledges CAISO's Gregg Fishman.

With the 2010 deadline coming up fast, how exactly state regulators will handle utility compliance issues is uncertain. Wisland says that while utilities cannot count contracts towards the renewables requirement, they can avoid non-compliance penalties if a project developer it signed with fails to build the project. "It's really complicated, it's hard to get inside the PUC's head. The PUC is approving all these contracts, so they're having to review to see if they pass the project viability test," she says.

Seth Hilton, a specialist in the California energy market at law firm Stoel Rives, acknowledges that penalties should give the renewables law teeth. "But there are also a list of excuses or reasons why the utilities can say we weren't able to meet our RPS goals, such as the failure of a project, the lack of transmission, or lack of bids to the RPS process." He describes a growing sense of cynicism among industry watchers. "Some people have argued that utilities are going out and thinking, well we'll find this contract, it's cheap, it gets us towards our RPS goal -- and if it doesn't happen, we have a built-in excuse to say, hey, we signed contracts and the projects didn't get built. It's not our fault," he says.

From the California Wind Energy Association, Nancy Rader says Hilton's suspicions are shared by many. She points out, however, that the law encourages utilities to over-procure contracts to mitigate the risk of contracts falling through or technology not living up to expectations. Wind is still getting a substantial number of contracts, she says, but genuine hurdles exist to bringing more renewable energy online in California, in particular a difficult permitting environment and transmission congestion. "Without transmission being at hand, it is hard to separate the wheat from the chaff -- I see the lack of transmission as the greater problem in preventing the establishment of a real market and holding the utilities to account for their decisions."

Hidden benefits

Suspicion of utility duplicity is nonetheless building. Utilities signing PPAs benefit by locking in low wholesale power prices should a project take off, while start-up developers with a PPA in hand are far more likely to attract investors. Solar company Stirling Energy Systems plans to use 11.5 metre circular mirrored dishes that concentrate solar energy to produce 25 kW a unit. It has a PPA with San Diego Gas & Electric for 600 MW that can be expanded to 900 MW and a PPA with Southern California Edison for up to 850 MW. The PPAs were signed in 2005, but only a handful of test units have been built. Even so, the company attracted an investment of $100 million from Ireland's National Toll Roads and in February, Robert Lukefahr left his top post at BP Wind Energy to become Stirling's CEO. Stirling did not respond to interview requests.

Other solar projects -- such as a 550 MW thin-film solar plant proposed by OptiSolar and solar towers proposed by eSolar Inc and Brightsource Energy -- apply technology not yet widely used to commercial success.

Hilton says the PUC is aware of the issues. "There has been concern at the PUC about the viability of projects and the PUC is looking to guide utilities to make the best decision possible with regard to viability," he says. The PUC has proposed new criteria for project sponsor experience, technical viability, and project viability -- providing a more objective guideline for how to impose penalties on non-compliant utilities.

"If you give a lot of points to the commercial viability of the technology, then wind will rate very highly," says Hilton. "If you give more points to issues like developer experience, then potentially other technologies could fair better than wind, so the devil is really in the details," says Hilton. Wisland wonders whether the project viability criteria will be made retroactive to the nearly 6 GW already signed.

Have you registered with us yet?

Register now to enjoy more articles
and free email bulletins.

Sign up now
Already registered?
Sign in

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Windpower Monthly Events

Latest Jobs