United States

United States

Relief as PG&E restructure plan promises to honour wind deals

The US's largest utility, Pacific Gas & Electric (PG&E), said it will honour its long-term renewable-energy contracts -- including those for some 2.15GW of wind power -- as it struggles to exit bankruptcy.

PG&E buckled under the weight of liabilities from widespread wildfires in California in 2017 and 2018
PG&E buckled under the weight of liabilities from widespread wildfires in California in 2017 and 2018

But the insolvency court proceedings — and possibily even litigation — will stretch over months, if not years, and will create uncertainty for wind companies with PG&E power contracts.

Wind lobbyists responded with cautious optimism to the plan.

"I would describe it as a positive step, but there is still a lot of uncertainty out there," said Danielle Osborn Mills, the American Wind Energy Association’s California representative.

PG&E's plan to retain its power purchase agreements (PPAs) is more a relief than a win, added Nancy Rader, executive director of CalWEA. "We’re in defence mode here," she said.

If parts of the plan are not accepted, companies losing out would be expected to sue PG&E for damages.

Victims of California’s recent wildfires are first in line to be paid. The bankruptcy judge, Dennis Montali, said in August he did not anticipate that PG&E’s plan would be final.

Indeed, the plan keeps the project owners – including NextEra Energy, Pattern Energy, Avangrid Renewables, EDP Renewables, EnXco, Marubeni and Quinbrook Infrastructure Partners — mired in uncertainty regarding their California operations. 

In 2018, PG&E paid an average of around $0.08/kWh for wind power to meet California’s renewable portfolio standard, according to the regulators.

Burning issues

The San-Francisco based utility has 5.2 million customers, and the $18-billion Chapter 11 bankruptcy, filed in January, is the largest for a utility in US history.

PG&E buckled under the weight of wildfire liabilities.

In 2017 and 2018, fierce wildfires blamed on PG&E’s equipment razed tens of thousands of buildings, including many homes in northern California, killing more than a hundred people and smothering the San Francisco-based utility in lawsuits from victims seeking compensation.

California has a semi-arid climate, and climate change is making wildfires more common, even as the state leads the country in policies to combat the crisis.

PG&E’s owner submitted its reorganisation plan to the federal bankruptcy courts in San Francisco on 9 September.

Minor changes have been made to some solar contracts, for example by which date solar power must be supplied — but not to wind contracts.

The utility’s intention to uphold its PPA contracts did not come as a surprise, given previous statements by the state governor, legislature and regulators that the company must do so.

In fact, a lawyer for the California Public Utilities Commission (CPUC) had testified that PG&E would need regulators’ permission to cancel any contracts in order not to interfere with state policy.

California has a renewables portfolio standard of 50% by 2030.

Still, there was concern that the utility would seek to get out of legacy wind contracts because the price of renewable energy has dropped so much since many of the contracts were signed in 2008-2010.

According to Lazard, the levelised price for wind has dropped 9-10% nationally in the last three years alone.

The annual contract price for all technologies in California bought by investor-owned utilities has fallen 11.5% on average from 2003 to 2017, CPUC figures show.

Have you registered with us yet?

Register now to enjoy more articles
and free email bulletins.

Sign up now
Already registered?
Sign in