Calif.’s renewable energy rules created a boom, and now also a bust

Source: Anne C. Mulkern, E&E reporter • Posted: Wednesday, January 16, 2013

LA JOLLA, Calif. — California’s renewable energy mandate has fueled growth of green power so swiftly that utilities here won’t need to buy much more for several years, officials said yesterday.

Pacific Gas and Electric Co. (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric Co. (SDG&E) all are on track to hit the state’s 33 percent renewable portfolio standard (RPS) by 2020.

They’ll reach that target with energy already under contract, creating a bust for developers that were hoping for continued growth, experts said at the American Wind Energy Association’s (AWEA) regional summit

“The good news, bad news is that we’re incredibly successful,” said Catherine J.K. Sandoval, a commissioner with the state’s utility regulator. “For you as developers, the bad news of California being incredibly successful is that we really don’t need a lot of contracts right now.”

The Golden State’s RPS, requiring one-third of all power to come from renewable sources, is the most aggressive in the country. Gov. Jerry Brown (D) has said that proportion is intended to be a floor, not a ceiling, although he has not made any official moves to expand it further.

Because of the RPS, California is the country’s dominant player in green energy, said Tanuj “TJ” Deora, director of energy and environment at forecasting firm IHS.

By 2025, renewable power generated in the state will represent one-fifth of the nation’s total, he said.

“Clearly, California is the big market,” Deora said.

The mandate became 33 percent in 2008, when then-Gov. Arnold Schwarzenegger (R) increased it from what had been 20 percent by 2010. The following year, “a lot of developers with big balance sheets came in wanting to build in California,” said Paul Douglas, supervisor of renewable procurement and resource planning at the California Public Utilities Commission.

It created competition, he said, and the amount of green power demand yet to be filled dwindled quickly. Los Angeles-based utility SCE now has so much energy from renewable power, it is selling surplus outside the state, Douglas said. “So that’s a real glut,” he added.

Will some projects fail?

The big utilities aren’t expected to solicit more green power contracts before 2017 for SDG&E and closer to 2020 for SCE and PG&E.

The wind industry will stay busy in California building out the projects under contract, said Tom Darin, Western regional representative with AWEA.

Darin disputed that wind developers have entered a period of economic bust for new projects in California, saying that “it’s a flatter period of growth.”

Some are questioning whether the surplus of renewables might actually turn out to be a “phantom glut,” said John Pimentel, president of Foundation Windpower, a Menlo Park, Calif., company. It is part of a larger company that also has a solar arm, PV2 Energy.

Competition between developers led to contract terms that are favorable for the utilities but might not be sustainable, he said.

“We’ve seen the utilities push back on pricing and terms to a point where we’re concerned there may be significant projects that are not financeable and may never come to fruition,” Pimentel said.

Douglas with the CPUC, however, noted that both regulators and the utilities assume that a certain number of contracts will fail. There are extras built into planning, he said, to ensure that the power companies will still hit their RPS mandate.

The failure rate historically has been about 40 percent. But because the market has matured, Douglas said, companies and utilities have learned more about what is needed to make projects successful.

An analysis of future projects also looks at transmission. All of the ones that are included as part of the 33 percent RPS have planned connections to the grid, Douglas said.

Because of the economic downturn, Douglas said, there is less need for new transmission than what was expected several years ago. It’s possible that there’s a forecasting error in the analysis of contracts, he explained. If that happened, utilities would need to solicit more green power.

There could also be new demand if the Nuclear Regulatory Commission does not allow the San Onofre plant in San Diego County to restart one of its generators, said Darin with AWEA. The facility — which provided power to 1.4 million households — has been closed since a radiation leak in January 2012.

 Shifting markets

Developers that still want to sell projects in California might want to consider targeting city-owned power companies or cooperatives, said Deora with IHS.

There also are opportunities in repowering, in which companies tear down wind developments built decades ago and replace them with updated equipment, said Mark Tholke, vice president of origination for EDF Renewable Energy’s West Region.

That company’s predecessor, enXco, in 2001 acquired a site with a wind project that had been built in 1989. Earlier this year, EDF removed the older turbines and put up new ones. The project, located southwest of Sacramento, produces 10 times the energy on the same land footprint, Tholke said.

That underscores the efficiency gains of the new technology, he added.

Other renewable developers are seeing success in the distributed generation market, where smaller projects are built, said Pimentel with Foundation Windpower. The company focuses on small wind that is placed adjacent to businesses. Clients include Wal-Mart, Safeway and Anheuser-Busch, with wind helping to make beer in Fairfield, Calif., Pimentel said.

There is a new political push for distributed generation, he said, but that has been more focused on solar power.

“We’re one of the few players who’ve figured out how to use wind to support that policy goal,” Pimentel said. Even so, he said, “we find it is an educational process with our customers each time to explain and quantify the benefits.” The biggest challenge, he said, is that the small projects must clear the same environmental hurdles as utility-scale wind. It can take six months to two years to get all the approvals.