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United States

Legislative shots missed their mark -- Industry dodges a bullet in California

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The California wind industry dodged a bullet recently when it managed to stall a bill in the state assembly appropriations committee that would have severely limited California's renewable energy market. Intervention by pro-wind forces meant the committee did not vote on two last minute amendments proposed by legislators to the state's Renewables Portfolio Standard legislation (RPS). One would have allowed utilities to opt out of California's state mandate for renewable energy if transmission was not available. The other would have prevented the trade of renewable energy credits (RECs) separately from the underlying power.

Under the current RPS, California utilities must supply 20% of their power from renewables by 2017 by adding 1% a year until the target is met. To demonstrate compliance with the mandate they must acquire a requisite number of green certificates, either by generating green power or by buying certificates from independent power producers.

A proposal to accelerate the RPS by setting the 20% target for 2010 instead of 2017 had passed in the California Senate and moved to the assembly appropriations committee for consideration before it was sent to the full assembly for a vote. While the bill was in the committee, the amendments were made.

One of these last minute provisions added "transmission out" language that would have allowed utilities, with the blessing of the public utilities commission, to limit their annual procurement to the amount that was deliverable using existing transmission lines. With much of the transmission in wind rich areas like Tehachapi already fully utilised or nearly so, grid capacity already looms as an obstacle to adding significant wind resources.

Opposing the provision, Jan Smutny-Jones of the Independent Energy Producers Association (IEPA) argued that utilities might knowingly select phantom projects -- constrained by transmission -- then use the lack of transmission as an excuse for not meeting RPS goals.

The other last minute amendment would have codified the bundling of RECs with the generated power, rather than allowing them to be traded separately. The current RPS legislation does not spell out whether RECs are bundled, but the public utility commission to date has interpreted the language in it to mean utilities must buy the power along with the RECs. "This clause threatens to further isolate California from the expanding regional market in which RECs are bought and sold as a separate commodity from the energy," argued Smutny-Jones.

Fear of trade

The California Wind Energy Association's (CalWEA) Nancy Rader says unbundling RECs from energy will be a tough go in California, where the energy crisis of 2000-2001 established a deep concern among politicians and residents about free-wheeling energy trading. Although CalWEA lobbied against both amendments, it did not share the IEPA's platform. CalWEA believes the proposed language to bundle RECs merely codifies the existing status. "It was clear to us that it was very unlikely that RECs were going to [be unbundled]," says Rader.

Unbundling of RECs is less of an issue in a market like that in California than in other parts of the country, she adds. "CalWEA definitely supports RECs," she says. "Where you really need [unbundled] RECs is when retailers are relying on a wholesale market, which we don't have in California. So it's actually kind of difficult to have RECs until we have a wholesale market. It's different when you don't have a lot of retail competition and sellers who are severed from generators -- -that's where you really need to have RECs."

RECs lite

V. John White, of the non-profit Clean Power Campaign says his group is taking a "walk then run" approach to RECs, favouring what has been termed a "RECs-lite" tactic to unbundling energy. RECs-lite allows a utility to buy bundled renewables power, have it delivered into California, and count it toward the utility's RPS goal, even if the utility cannot take delivery of all the energy because of transmission constraints. The public utilities commission recently ruled that such delivery will qualify toward the RPS goal. Allowing what are essentially RECs when there are transmission constraints, says Rader, is a step in the right direction.

Although the legislation to accelerate the RPS timeframe stalled in the 2005 session, for all practical purposes the 2010 goal is in effect. The PUC and California Energy Commission have adopted as a target 20% by 2010, effectively making that a binding requirement on utilities.

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