Wind and solar projects now being approved in California are mostly above the state's market price referent (MPR), which is supposed to keep them cost-effective, a state regulator told an energy conference in San Francisco Monday.
That was the snapshot offered by Timothy Alan Simon, a member of the California Public Utilities Commission (CPUC), in his remarks to the Law Seminars International "Energy in California" conference. While saying he is "bullish on natural gas," even in the wake of the recent pipeline tragedy in a San Francisco suburb (see related story), Simon said he is not optimistic about untangling the renewable portfolio standard (RPS) quagmire any time soon.
He characterized the state having a "high degree of uncertainty" regarding RPS because of the failure of the legislature to pass a bill (SB 722) to codify what Gov. Arnold Schwarzenegger established via an executive order last year -- a 33% RPS goal by 2020.
A long shot for some eleventh-hour action still this year may come in an eventual budget solution hammered out between the governor and the state legislature.
"I'm told by our office of government affairs that there is the possibility that in the efforts of the governor and legislature to obtain a budget to resolve our $19 billion deficit that there could be an opportunity to pass an RPS bill still this year," Simon said. "I would say, frankly, that I am not the most optimistic in this regard."
Simon called the MPR an "ever-moving and fascinating" target, noting that it is supposed to be a benchmark for the state's push into more renewable-based electricity supplies, but in the past two years "the "vast majority of the projects we have approved have been over the MPR." Some of that is due to depressed natural gas prices and some to "the high cost of bringing renewables into the California grid," he said.
"It's a concern...and someone has to pay for this, which is critical to my role in protecting ratepayers," Simon said. He said the CPUC has to balance the need to keep utility rates down and at the same time create "fertile ground" for renewable development.
For the state's immediate RPS goal -- 20% by 2010 -- Simon said that while more than 1,000 MW of renewable-based power has come on line in recent years, it has not resulted in "any equivalent increases in the major utilities' RPS percentages" due to increases in load over the years, expiration of some renewable contracts and decreases in generation from existing resources. If these factors were held constant, the additions would have resulted in the utilities having a combined 18% RPS, rather than the 15% currently calculated, he said.
"To meet the current 20% RPS target, four major new transmission lines costing $4 billion are needed, and three of those are under way. To meet the 33% RPS target in 2020 seven additional lines at a cost of $12 billion will be needed."
Under the argument surrounding renewables -- are they "too cheap to meter or too costly to build" -- economic consultant James Heidell, a vice president with Colorado-based NERA Economic Consulting, questioned how realistic California's renewable targets are when the goals are analyzed in terms of the added capital investment by the three major electric utilities -- Pacific Gas and Electric Co. (PG&E), Southern California Edison Co. (SCE) and San Diego Gas and Electric Co. Heidell calculated that SCE must increase its rate base 66% in the next five years from $15 billion to $25 billion. PG&E needs to increase from $19.4 billion to $24 billion.
"Moody's [Investors Service] put out a report this summer saying they were worried about consumer backlash against higher utility operating costs, high capital costs, and the question is what does this mean in terms of backlash against renewables," Heidell said. "This is becoming a tough sell, and people start questioning whether the green energy and green jobs carry the day. If unemployment rates stay high for a few years, I think you have to plan on a certain amount of pushback.
"A lot of these technologies are really a 'bet-on-gas-prices' because if gas prices stay at $5 and $6, there is a very different economic outlook for renewables. I think increasingly it is going to be a very tough sell on higher utility bills when peoples' incomes are not going up."
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