Its Not Easy Being Green July 2009

8/3/2019 Its Not Easy Being Green July 2009

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It’s Not Easy Being Green: California’s 33% RPS ChallengeBy Gary L Hunt

No one ever accused California of being timid, this state prides itself on “embracing the

new” but achieving a 33% RPS standard as part of an overall AB32 strategy to reducegreenhouse gas emissions as proposed by Governor Arnold Swarzenegger is proving to bea daunting challenge. What’s new, you ask? What’s new is the subtle but growing

pushback coming from some significant players and advocates of green energy who fear over-reaching especially in the current economy might hurt green energy more than help it---if California stumbles.

Why do they fear California might stumble?

Because achieving the AB32 goal of emissions reduction goes beyond what California can

realize on its own. It requires financial and policy support from the Federal Governmentand other states. Boosting California’s renewable portfolio standard to 33% by 2020 is, by

itself, a breathtaking goal for any state---even the sixth largest economy in the world.Attempting to do so when your state is co-dependent on others is a very daunting challenge.

Realizing that 33% renewable energy goal means California must almost triple the amountof renewable electricity from 27 terawatt hours (TWh) today to about 75 TWh in 2020and requires seven new transmission lines to deliver that additional 75 TWh of electricity

just within the state.

To realize California’s 33% RPS goal, Governor Swarzenegger is mobilizing California

state government to get with the program. And two of the most important state players, theCalifornia Energy Commission and the California Public Utilities Commission haveendorsed the goal. But because they must make decisions based upon the preponderance of

the evidentiary record in the case of the CPUC to be sustained in any court challenge, theseagencies work closely to build that record and perform the necessary due diligence inarriving at decisions.

Accordingly, the CPUC just released a report outlining its preliminary analysis of efforts

needed to implement the 33% RPS goal. It is a meaty, thoughtful and candid report statingthat achieving the 33% goal will take longer---2024 not the 2020 desired---and cost more---

-as much as $12 billion in new capital investment mostly in new transmission lines just inCalifornia to get such large scale renewable energy to market; raise utility rates evenhigher----CPUC estimates that under its current 20% renewable portfolio standard theaverage residential electric bill will already increase 16.7% by 2020; and may not be cost

effective---- because natural gas prices would have to be higher than $13.87/MMBtu andany proposed CO2 tax would have to be higher than $100 per ton for renewable energy to

be an effective hedge against fossil fuel prices from today’s typical utility portfolio. 1

Put that in perspective, in the most recent auction of emission allowances in the ten Northeastern states which are part of the Regional Greenhouse Gas Initiative (RGGI) theclearing price for the roughly 31 million CO2 emissions allowances that were just sold

1 http://www.cpuc.ca.gov/PUC/energy/Renewables/hot/33implementation.htm



dropped in the latest auction for the 2009 vintage to $3.23 per allowance. The RGGIauction for the second three-year control period beginning Jan. 1, 2012 saw 2.2 millionallowances go for the 2012 vintage cleared at $2.06 per allowance.

Achieving the full potential for renewable energy goes well beyond California borders herein the WECC as well. The Western Governors Association on June 15th joined forces with

US DOE to release a report entitled Western Renewable Energy zones-Phase 1 mapping thehigh potential renewable energy resources throughout the West. 2 The report calls for $115

billion of investment in new high voltage transmission lines to connect renewable resourcesto markets. California is, of course, an active participant in this WREZ initiative and many

expect this effort to feed into the US DOE Report to Congress in September 2009 on the National Interest Electric Transmission Corridor (NIETC) requirement of the EnergyPolicy Act of 2005.

Meanwhile back on the front lines there are other issues being added to California’s punch

list of potential problems by some influential players including:

• Let’s Make Efficiency More Efficient. On May 28th, the California Division of

Ratepayer Advocacy (DRA), part of the CPUC, released its analysis of the big threeCalifornia investor owned utilities energy efficiency proposals to the CPUC concludingthat the $4 billion request to double energy efficiency program spending would result in

only 6 percent more in energy savings than previous programs that cost ratepayers 50%less.3

• Does Doubling Down on Solar Roofs Make Sense? On June 18th the same DRAcomplained that state regulators were making a bad decision when they doubled the

size of the SoCalEd solar rooftop program telling the Commission the program is notworth the estimated $2 billion utility customers may have to pay for it given cheaper

alternatives available.

• Celebrate Achieving Net Metering Goals, Don’t Raise them. A day later The SanJose Mercury News reported in its June 19th edition that PG&E went on record

opposing Assembly Bill 560 which would increase the cap on net metering from2.5% to 10%. PG&E is near the current 2.5% cap, ahead of other utilities, and arguesthat expanding the cap would be unfair non-solar customers who must subsidizerebates and credits for solar customers. AB 560 proponents say raising the 2.5% capis necessary if California is to achieve its one million solar roofs goal by 2016, but Northern California interests want to see utilities in Southern California catch up to

PG&E before they sign up for a 400% expansion of net metering.

• Solar Credit Rules are not Broken, Don’t Fix Them. AB 920 requires utilities to

rollover solar credits to the power grid or pay them out in cash at year end at a lower rate. PG&E also opposes this bill as well, according to news reports, saying the bill

requires non-solar customers to further subsidize solar users. PG&E is ahead of other California utilities in reaching its solar use goals, but is under increasing pressure to

raise those targets. Under current California rules, solar customers receive full retailrate credit on their monthly bill for surplus power provided to the grid and use those

2 http://www.westgov.org/wga/publicat/WREZ09.pdf 3 http://www.dra.ca.gov/DRA/News/090528_ee.htm



credits during the calendar year to offset their energy use when consuming power from the grid. Unused credits expire each year.

CPUC Approach to 33% Implementation Analysis

In producing its implementation assessment, the CPUC developed a base case using the

current 20% RPS standard by 2020 and four alternative scenarios each representing analternative strategy to reach the 33% RPS target. The report outlines key modelingassumptions and approaches which appear to be generally accepted analytics methods. It

also evaluated the probable timelines for achieving the 33% goal based upon historicexperience, current practice as well as with and without “process improvements” to speed

things up.

The CPUC reference case assumes California’s likely renewable energy mix in 2020 basedupon current state law and existing RPS contracts. All other scenarios assumed current

statutory and regulatory out-of-state deliverability requirements for renewables intoCalifornia but that approach limits the analysis of inter-state approaches across the broader

WECC market which might affect consideration of options such as out-of-state tradablerenewable energy credits (REC).

Below are the four scenarios and two additional sensitivities the CPUC developed:

• 33% RPS Reference Case: Assumes California’s current renewable procurement path, which depends on new technologies, likecentral station solar thermal.

• High Wind Case: This case adds more wind resources in Californiaand the Mexico state of Baja California which are often less expensivethan the solar thermal found in the scenario above.

• High Out-of-State Delivered Case: This scenario assumes morehigh voltage interstate transmission wi l l b e b u i l t connectingCalifornia utilities to large scale, lower cost wind and geothermalresources across the WECC, but does not include tradable RECs withno delivery requirement.

• High Distributed Generation (DG) Case: This scenario assumes adistributed generation system evolves connecting many smallscale renewable resources closer to local distribution andtransmission facilities and substations since few HVDC transmissioncorridors are built to enable access to remote renewable resources to

meet the 33% RPS.• All-Gas Sensitivity: This scenario modeled the supply mix in 2020

assuming no new renewables are added beyond 2007, and Californiameets its incremental electricity needs with gas-fired combined cyclegeneration. This is a very useful comparison of a traditional portfolioapproach given California law’s prohibition of new coal or new nuclear generation compared to the 33% RPS in 2020. This scenario essential becomes the price to beat in the competitive wholesale power market.



• 2008 Costs Sensitivity: This scenario models the current cost of electricity in California to enable comparisons of costs of portfoliooptions across the 2020 scenarios compared to today’s costs.

The CPUC 33% RPS Implementation Study Findings

1. Electricity prices will be higher in 2020 no matter what.

• Average California electricity costs per kilowatt-hour will go up16.7% in 2020 because of current renewable procurement comparedto 2008 in real terms even if no new renewable energy is added.

• Total California electricity expenditures will be 2.8% higher in 2020 because of the existing 20% RPS standard than they would be under

the all-gas sensitivity analysis.

• In 2020, total California electricity expenditures will be 7.1% higher

compared to the 20% RPS, and 10.2% higher compared to an all-gasscenario if California implements the 33% RPS standard.

2. Achieving the 33% RPS goal is likely to take longer than the 2020 target.

• 2024 is most likely. Using past practice as a guide and assuming no external

risk of delay the most likely schedule for reaching the 33% target is 2024.

• 2021 is best case. The best case timeline is 2021 assuming no external risks, no

resource constraints in processing numerous transmission and generationapplications, and that CAISO successfully implements its planned new processto review and approves more than one major transmission application per year.

3. Weakest Link Failure Scenario is still plausible. The CPUC modeled Timeline 2B isinstructive because it models the implication if two of the proposed renewable energyresource zones failing to resolve external constraints preventing renewable projectsgetting to market such as failure to get approval to build new high voltage transmission

in a timely manner and other risks. It is instructive because some of these risks appear all too common causes for project delays.

Congress is Retreating after Feeling the Heat

The pressure to mitigate the costs and disruptive implications of new green energy policies

is being hotly debates behind the scenes in Congress where pressure from constituents is

reshaping the legislative action. So instead of joining California at the front lines, it looksmore likely that Congress will reduce the proposed RPS standards and water down other provisions of both the Obama energy and emissions reduction plans in order to gain thevotes needed for passage before the President goes to Copenhagen at the end of the year.

The House Energy and Commerce Committee approved a reduced national RPS standardof just 6 percent to start with a gradual increase to 20% by 2020 down strikingly from the

25% advocates had sought. Chairman Waxman (D-CA) said the votes were not there to



pass a stronger measure even in his own Democrat party. US House AgricultureCommittee Chairman Collin Petersen (D-MN) and about 40 Democrats have been holdingtalks with House Majority Leader Steny Hoyer (D-MD) trying to reach a compromise onenergy and emissions legislation these rural Democrats fear with adversely affect their

states’ interests. Over in the US Senate, the same pushback is happening, Senator Jeff

Bingaman (D-NM) has been unable to get fellow Democrats to support RPS standards.The current Senate version of the bill has a reduced 15% RPS down from the 25% goal proposed by President Obama.

Lead, Follow or Get Out of the Way

California’s willingness to be a pacesetter and its ambitious 33% RPS goal and AB32

emissions reduction targets are applauded on all fronts. But even its biggest supporters areworried about whether these goals can be achieved at costs consumers will be willing to pay. Others worry about whether California is too far out front on these goals whenDemocrats in Congress looks like they are pulling back from the President’s equally

ambitious goals. Another camp worries that achieving California’s renewable energyaspirations requires that the other states making up the WECC interconnect join forces with

California and the US Government to build the energy infrastructure---mostly transmission---to make it feasible.

California’s tradition is to set the pace for the nation, beat the drum of progress and wait for

the rest of the states and the Federal Government to catch up. But not even the GoldenState has attempted such an ambitious policy feat with so little gold left in its coffers to

carry it out if it has to go it alone.

Some days, Sacramento feels like California’s friends and allies are behind it---way behind

it!

Gary L. Hunt is a regular contributor to Green Edison offering analysis and insight about issues shaping the energy industry

from his experience as a state utility regulator, utility executive, and trusted adviser on energy markets, strategy and risk as

President, Global Energy Advisors and until recently as VP-Global Analytics at IHS/CERA. He can be reached at

[email protected] or network with him at http://linkedin.com/in/gh8431.

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Its Not Easy Being Green July 2009