The return of green power

Strong winds blow through Rio Vista in Solano County. Yet plans to run windmills to capture the untapped power there and elsewhere around the state have been stalled, despite millions of dollars in subsidies from the California Energy Commission.

Wind turbines sit idle in other windy areas, including Altamont Pass and a gusty pass at the Tehachapi Mountains, while new wind farms that were awarded millions in incentive funding from the CEC remain on the drawing board despite the state’s push for more energy supplies.

These wind projects and more than three dozen other renewable-energy proposals across the state, which together qualified for more than $150 million in CEC subsidies, have been on hold because state policies have frozen alternative generators out of the California energy market ("Blacking out green power,” SN&R, July 5, 2001).

No green for green
CEC ratepayer-funded subsidies to encourage clean power have been offered but not tapped because the money is doled out when a wind or other type of project starts sending green juice to the state’s power grid.

Market and political forces came together to give fossil fuels a strong advantage over renewable energy during last year’s energy crisis, even at the expense of air quality. But California policymakers recently addressed the problem and offered new opportunities for wind, geothermal and other green energy projects.

A recent order from the California Public Utilities Commission and a newly signed law, Senate Bill 1078, require private utilities to begin buying power from green power generators, something private utilities have been reluctant to do because of the higher cost involved.

“The CPUC decision and the passage of SB 1078, if properly implemented, will go a long way toward creating a market for new renewable projects,” said Marwan Masri, CEC deputy director of technology and renewable systems.

Windmills near Rio Vista (built by Florida-based FPL) soon could be churning out 150 megawatts, and new turbines at Altamont Pass would add another new 100 megawatts. Additional turbines in the Tehachapis (built by Oak Creek Energy Systems) would produce more than 100 megawatts. With CEC assistance, these and many projects would come on line if the private utilities agreed to buy the electricity.

To date, green generators have been unable to finance projects because they could not get contracts for their electrical output. The CEC funding represents only a small portion of the cost, so finding buyers was crucial.

“Even if you could get the equity, there was no way to sell and deliver the power,” said Hal Romanowitz, president of the wind-energy company Oak Creek Energy Systems.

California’s 1996 flawed energy-market deregulation law, Assembly Bill 1890, initially undermined prospects for green power by leaving the power mix up to market forces. Then, after the energy crisis hit, Governor Gray Davis’ administration responded by locking up nearly 99 percent of the state’s energy needs in $40 billion worth of long-term energy contracts with fossil-fueled plants.

Meanwhile, the CEC renewable programs have been offering funding to new projects since 1998 via a competitive auction, so new sources of clean power will be available in the future. The CEC also guarantees certain profit levels to qualifying projects and offers subsidies when prices fall too low. The programs have kept many generators from going under.

“For all the chaos resulting from AB 1890,” said Jonathan Weisgall, vice president of the geothermal-power company CalEnergy Co., “the one ray of light and program that has worked is the energy commission renewable auction.”

Powering up
Clean-power prospects brightened last month when the CPUC ordered Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric to begin buying renewable power. The utilities are required to bump up their green-power supplies by 1 percent annually during the next five years at a capped price. The utilities are expected to begin soliciting competitive bids from renewable suppliers this month.

The other measure that consumer advocates and some in the renewable community believe may help to crack the long-frozen energy market is the enactment of Senate Bill 1078 by Senator Byron Sher (D-Palo Alto). The bill, signed into law September 12, reiterates the requirement that private utilities and energy companies that fuel businesses and homes must increase their renewable supplies by 1 percent annually. The bill, which is far more specific than the CPUC order, goes into effect next year and mandates that 20 percent of power portfolios must come from green resources by no later than 2017.

Public power agencies, including the Sacramento Municipal Utility District, were exempted from the law, and power generated from small hydropower dams cannot be counted as additional renewable supplies.

The new law could create 3,700 megawatts of additional green power during the next 10 to 12 years, Nancy Radar said. She’s the California Wind Energy Association’s policy advisor.

PG&E could meet the 20 percent requirement by 2012, and Southern California Edison could meet it two years earlier. San Diego Gas & Electric is starting at zero and does not have to begin meeting the 1 percent requirement until 2007.

Advocates say that the bill, which was in the works for two years, will diversify the state’s power resources, reduce air pollution and the state’s dependency on imported fossil fuels and increase energy security. California also is joining a dozen other states that require a certain percentage of electricity supplies to come from renewable resources.

Sher’s renewable-energy bill, however, has many contentious provisions.

Unlike the CPUC order, it involves a list of complex implementation criteria that some fear may sabotage the state’s goal to steadily increase the supply of clean power. Under SB 1078, the utilities must sign contracts with renewable-power producers at a capped price, but the cost will be set according to a formula hammered out by the CPUC following a series of public hearings.

Wind and geothermal power, the cheapest sources of renewable power, are expected to blossom, but the law will do little for sun-powered photo voltaic systems, which are at least two times more expensive and provide less power and, therefore, are not competitive.

Regulatory difficulties
SB 1078 was joined with another of Sher’s bills that directs half the $135 million the CEC receives each year to fund renewable projects to cover the cost of renewable supplies the utilities buy in excess of the price established by the CPUC. Higher-cost renewables under SB 1038 will be covered as long as funds are available and, presumably, will replace the renewable auction.

Steven Kelly, policy director for Independent Energy Producers, which represents both fossil-fueled and green power companies, expects the new law to turn into a regulatory nightmare. For starters, a tug of war is expected over the price benchmark the CPUC sets, with PG&E and Southern California Edison trying to pull the number down and renewable generators working to push it up.

Matt Freedman, an attorney with The Utility Reform Network (TURN), insisted that setting a price ceiling on green power would keep sellers in line and prevent generators from manipulating the market to drive up prices. He was not fazed by the looming price war and said, “There is no CPUC policy formula that doesn’t get litigated.”

Kelly also said that PG&E, which is in bankruptcy court, and Southern California Edison do not have to meet SB 1078’s mandate until Wall Street raises their stock back up to investment grade, which could be as late at 2005. He is concerned that the private utilities will use the new law to muck up implementation of the CPUC decision.

Another point of contention is that shortly before passage, SB 1078 was changed to require projects that receive CEC funding to pay the prevailing wage to its workers, which will increase costs further. The provision is a double-edged sword because unions have supported green power, but some renewable companies object because it may undermine their ability to compete for contracts.

Disappearing subsidies
In the wake of all these recent changes, renewable-power generators that sell their juice to public utilities will no longer receive CEC funding from the renewable-energy pot, also known as public-goods money, because now only investor-owned utilities can tap the pot of money.

CalEnergy plans to develop a 185-megawatt geothermal project and sell the output to the Imperial Irrigation District along the border in three years, making it ineligible for a CEC subsidy.

“The single largest renewable-energy plant that will be built in the state is being denied public-goods money,” said CalEnergy’s Weisgall. “The change in public policy sends the wrong signal.”

In spite of the political compromises made en route to passage of the two bills, many people still believe the laws are a major step in the right direction. “Compared to what you have got now, this is great,” said Tim Schmeltzer, CEC assistant director.

John White, head of the Center for Energy Efficiency and Renewable Technologies, was less than thrilled with the final product. But he said enactment of the bills sends a positive signal that California is once again valuing renewable power.

But, White cautioned, the bottom line for California is whether the law ultimately produces green megawatts, which will depend largely on the goodwill of the utilities and a commitment by Davis’ CPUC appointees to make it work.