United States

United States

Fixed purchase prices unlikely -- California rumours

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Rumours swirled last month in California and beyond that state regulators might consider changing the structure of the state's renewable energy market to base it on standard power purchase prices, similar to the so-called "feed-in" payments operative in Germany. The rumour was based on a recommendation buried in a 300 page Integrated Policy Report released recently by the California Energy Commission (CEC) that the state consider offering standard offer contracts as a way to accelerate deployment of renewable energy.

California's market framework requires utilities to work towards providing 20% of their power supplies from renewables by 2010. Progress has been slow since lawmakers implemented the state's renewable portfolio standard (RPS) law in 2002 and it is widely expected the target will be missed by most utilities. Though big power purchase contracts for green electricity have been signed, most wind projects are held up by transmission constraints.

But considering a new system of standard offer contracts is the wrong way to jump-start the market, says Nancy Rader of the California Wind Energy Association (CalWEA). "Let's just point out that the energy commission has no authority to do what they recommend -- and so far there has been no interest shown in the legislature or the Public Utilities Commission. There is no support for paying more than is necessary for renewables," says Rader.

At a practical level, California's Public Utilities Commission (CPUC), and not the CEC, is the regulatory agency governing the state's major electric utilities, setting prices, enforcing the RPS law, and generally overseeing the markets. Even if the CEC's recommendation carried much weight, Rader says standard offer contracts are a bad idea for pure cost reasons.

"The feed-in-tariff is sort of a fantasy that is somehow going to resolve the hard issues we have to face, but the big risk is if they don't set the price right," says Rader, explaining that if prices are set too low, renewables deployment will stagnate, but set too high there will be an overheated rush of generators of all sizes, overwhelming the market and forcing hard decisions over who gets contracts and grid connections. "You would end up with a lot of the problems that we resolve now by having competitive bids and by having the utilities scrutinise the likelihood of the project materialising."

The only instance standard offer contracts might make sense is for small projects that cannot handle the high transaction costs associated with competitive utility contract negotiations, says Rader, who adds that CalWEA has long been an advocate for standardising and simplifying the processes in California for energy contracts and for how utilities request new sources of power. But where to draw the line between small projects and large projects under a standard offer scheme could be tricky and politically charged. Rader says the 10 MW threshold is not a bad figure to consider, but says that "above that, and we really lose the benefit of the RPS concept which is that bulk-scale renewables should compete against each other to produce renewables at the lowest possible cost."

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