United States

United States

Auction yields nine successful bids -- California incentives for 250 MW

Seven wind power plants with a total capacity of 249 MW were among nine successful bidders in a recent auction for financial incentives conducted by the California Energy Commission (CEC). The projects are expected to go on-line by December 2002 -- but if the success rates for the two previous auctions is applied, only half will meet their targeted deadline.

The CEC awarded $40 million to the nine projects, nearly $30 million of which went to wind. Oak Creek Energy Systems in Kern County received awards for four projects totalling over $12 million. The company's Ed Duggan says the likelihood of completing them all by the end of 2002 is high if California can get its electricity house in order. "Although we're still owed a lot of money, it looks like things are heading in the right direction now," says Duggan, referring to the inability of California utilities to pay their bills. "We think we have good projects and a shot to get them in by the end of the year." Oak Creek's projects, all in Kern County, have a combined capacity of 104 MW.

California's deregulation woes have been a factor in the low completion rate of projects selected in two previous auctions, held in June 1998 and November 2000. Those auctions provided $200 million to 72 renewable generating projects totalling 1000 MW. The wind power industry also took the bulk of those incentives, receiving funding for 750 MW of capacity. Only about half -- 35 of them with a combined capacity of 200 MW -- are completed, however, says the CEC's Percy Della. He adds, though, that projects don't receive payment until they're on-line and producing energy, so the incentive payment is not wasted.

Todd Lieberg, also of the CEC, says none of the projects have been terminated. One reason is that the rules for each auction differed. "The second and third auctions were meant to bring new renewables on-line quickly," Lieberg says. "Thus, it was expected that most of the bidders would have already done a lot of the preliminary work."

Sticks and carrots

The most recent projects are to be on-line by July 1, 2002, but if they are completed sooner, they get a 10% bonus payment. If they come on-line afterwards, they are subject to a penalty of 10% after about one month and 50% after July 1, 2003. "If the project is not on-line by July 2, 2003, the award may be further reduced or terminated," he says. Rules for the second auction are similar, setting the 10% bonus date at June 1, 2001 and July 1, 2001 to receive full funding. The drop dead date is January 1, 2002.

On the other hand, the first auction set a deadline of December 31, 2001, but Assembly Bill 995 passed in 2000 also gave the CEC the discretion to extend the deadline as far out as 2007 if the developer encounters any problems beyond their control, according to Lieberg.

Other projects awarded incentives during the third auction include a 50 MW project at Altamont Pass to be developed by Altamont Winds Inc, which is a company owned by Pacific Winds Inc of Boise, Idaho; the 15 MW Alta Mesa VII project at Palm Springs developed by Mark Technology; and the 80 MW High Winds Power LLC project in Solano County by FPL Energy. In addition to the wind plants, winning projects include a 30 MW facility powered by used tires and a 21 MW small hydroelectric plant. Successful bidders will receive incentive payments of up to $0.015/kWh, paid for the first five years of project operation in addition to the federal production tax credit, which adds a similar amount.

The California auction process is unusual in that it allows bidders to name the size of the incentive they want to receive. The CEC simply accepts bids, from the lowest to the highest, until the money runs out. To qualify for funding, projects have to be located in California and produce renewable electricity for sale, not just for on-site use. The award money comes from the proceeds of a systems benefits charge on all retail customers, which was put in place as part of the state's move to a deregulated electricity market.

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