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Mixed messages on renewables portfolio

The California Senate Energy, Utilities and Communications Committee decided to pass two comprehensive electric utility industry restructuring measures, neither of which fully addresses the needs of the wind industry, while there was mixed response to other measures, including the one containing AWEA's "renewables portfolio standard." Legislators said a cost cap would restrict future development of clean power plant while utilities criticised its lack in the standard. Biomass is making the renewables portfolio appear expensive.

What was billed as a crucial vote on the American Wind Energy Association's proposal to protect -- and ultimately expand -- existing wind capacity in California instead disintegrated into a free-wheeling discussion on June 11 that raised more questions than answers about the role the California Legislature will play in the deregulation of America's largest and most diverse electricity market.

The Senate Energy, Utilities and Communications Committee decided to pass two comprehensive electric utility industry restructuring measures -- neither of which fully addresses the needs of the wind industry -- while only taking pot shots and notes on other measures, including AB 1202, a measure being carried by Republican Assembly member Tom Woods that includes AWEA's "renewables portfolio standard."

In a nutshell, AB 1202 requires all generators selling into the huge $20 billion California market to buy 10% of supply from renewables. The bill establishes a credit system allowing sellers to meet their obligation by purchasing credits from wind or other renewable developers. This concept is up against a rival measure, AB 1123, that would earmark roughly $100 million annually to renewables development, along with $500 million for energy efficiency and research and development.

Though some legislators, including the Democratic committee chair Senator Steve Peace, seemed to prefer AB 1202 over AB 1123, others, such as Republican Bill Leonard, are suspicious of the hidden price tag associated with AB 1202. When Leonard queried supporters of AB 1202 about costs associated with the "renewables portfolio standard," no one was forthcoming. Leonard sits on the conference committee that will ultimately decide the fate of the renewables portfolio standard before any comprehensive restructuring legislation lands on Governor Pete Wilson's desk. Leonard's opposition could be a major roadblock. He is no fan of wind, complaining at one point about the high bills he has to pay from Southern California Edison because of power purchase contracts with independent wind and other renewable producers.

At the June 11 hearing, Hap Boyd, manager of regulatory affairs for Zond Systems pointed out that wind "is the lowest cost renewable resource -- and the price is going down." When Leonard (and Peace) asked why the industry then needed assistance, Boyd quickly added, "We are not yet as low as a gas-fired combined cycle plant, but far lower than a nuclear power plant. We would love to go head-to-head with nuclear power."

While the specific price tag of the renewables portfolio standard is unknown, annual costs are estimated at between $225 and $500 million. The bulk of this cost is not associated with wind power, since its generation costs are dropping closer and closer to market prices. Provisions of AB 1202 designed to assist biomass producers, one of the most costly of renewable resources due to high fuel collection expenses, are the primary culprit.

AB 1202 actually started out as a bill designed specifically to halt closure of biomass plants, one of the most popular renewable resources in the state because they help subsidise wood waste management and fire prevention. The bill was recently expanded to include the broader AWEA standard, but still earmarks 1.8% of the state's electricity supply for biomass (leaving 8.2% for wind and other renewables). The measure, as currently drafted, has now also garnered the support of the geo-thermal industry and the Union of Concerned Scientists, which helped generate 200 letters of support for the bill. Oddly enough, AB 1202 author Tom Woods was not its most enthusiastic advocate, referring to his bill as an "ugly duckling." Nevertheless, he pointed out that $6 billion has been invested in a renewable energy infrastructure in California, and warned that state policy makers needed to think about "long term energy needs" and not simply let the lowest price resources dominate the system in the near term.

Among the aspects of AB 1202 lauded by Senator Peace, ironically enough, was the lack of a cost cap, a feature of AB 1123 he criticised because caps might get in the way of future renewables development by limiting support. This comment was just one of many mixed messages he, and his fellow legislators, sent. Peace also noted that a provision of the bill setting initial renewable capacity percentages at 90% of current installed renewable capacity in the state would lower generation asset costs closer to real market prices and therefore lower the amount ratepayers would ultimately have to pay for stranded investments.

Among those opposed to AB 1202 is Southern California Edison. It says any revenue generated by sale of renewable credits should go to ratepayers. (Under AB 1202, revenue would go to wind and other renewable developers). Additional objections include the lack of a cost cap and the set-aside for biomass. Others in opposition include San Diego Gas & Electric, municipal utilities and large industrial consumers, the latter group complaining that the standard is inconsistent with a competitive market. Interestingly, Pacific Gas & Electric, which buys significant wind capacity, is in support of the bill, though it fears the market for renewable energy credits may invite fraud.

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