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Solar and Wind, Plus More Geothermal

August 28, 2018


AB 893 would mandate that utilities and CCAs buy 2,500 megawatts of solar and wind by 2022, before federal tax credits expire.

On Thursday, California legislators were introduced to a new clean energy bill, one with a decidedly shorter-term goal than shifting to a 100 percent clean energy grid by 2045 (SB 100), or creating a pan-Western region grid over the coming decade (AB 819).

Instead, the new bill, AB 893, aims to force utilities to buy about 2,500 megawatts of wind and solar power over the next four years — a move its supporters say will fill a widening gap in the state’s utility-scale renewables market, and save hundreds of millions of dollars in federal tax credits that could otherwise be lost.

At least that’s what AB 893 would do under the new amendments added to it this week. Prior to this late-breaking change, the bill was solely about requiring the state’s investor-owned and public utilities, community-choice aggregators (CCAs) and direct energy providers to buy about 5,000 megawatts of geothermal power under the state’s renewable portfolio standard — a proposal that was rejected by the legislature in 2014.

But the newly amended bill makes several important changes to the original framework, according to Rick Umoff, California director of state affairs for the Solar Energy Industries Association.

First, it splits up the mandate, with about 2,500 megawatts to be made up of wind and solar power, and the remaining 2,500 megawatts to come from geothermal and biomass resources, he said. Second, it would put those 2,500 megawatts of wind and solar power on a fast track for procurement starting in 2019, to ensure that they’re eligible for federal tax credits set to expire for projects not started by the end of next year.

“If we’re going to take advantage of those, we need to start moving now on procurement,” Umoff said. “But we’re not seeing very robust procurement of wind and solar at the moment.”

That’s a problem for meeting the state’s goal of reducing economy-wide greenhouse gas emissions 40 percent from 1990 levels by 2030.

According to the California Public Utilities Commission (CPUC), California will need to procure about 10.3 gigawatts of solar and wind by 2030 to meet the utility sector’s share of this goal, said Umoff. But if it isn’t able to meet part of that requirement with projects that receive the existing federal tax credits, the total cost to consumers of meeting that goal is likely to increase.

Resolving market uncertainty

Analysis done as part of the CPUC’s integrated resource plan filed last year indicates that failing to develop a significant amount of projects that are able to take advantage of federal tax credits could cost California ratepayers an additional $143 million per year, he noted.

While tax credits are just one of nearly two dozen variables that could affect these long-range costs, the CPUC’s “model results indicate that utility-scale solar PV and wind procured within [the] next 1-3 years to take advantage of federal tax credits are part of [a] least-cost solution for 2030,” the CPUC wrote in a November staff report.

AB 893 is meant to create a pathway to capturing the value of these tax credits in a California renewable energy market that’s now filled with “near-term uncertainty around who is procuring, and how the procurements will be structured,” Umoff said.

California’s utility-scale renewables market has slowed in the past year. Investor-owned utilities Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric have already satisfied their RPS requirements, leaving them with little incentive to buy more. And while CCAs have launched around the state with the express goal of increasing their customers’ share of renewable energy, most lack the balance sheets and creditworthiness to contract for renewables on their own.

“One thing this bill is trying to do is resolve this uncertainty in the market,” said Umoff. AB 893 would apportion these procurements across the various load-serving entities in the state, roughly based on their proportion of load. CCAs would have the opportunity to procure projects on their own behalf, or if they’re unable to, have the investor-owned utility procure on their behalf, he said.

Political opposition and support

The bill faces significant political opposition. Prior to this week’s amendments, AB 893 was opposed by the state’s investor-owned utilities, its two big public utilities in Los Angeles and Sacramento, and the CalCCA group representing CCAs across the state, along with Shell Energy North America, a big direct-access energy retailer in the state. Business groups including the California Chamber of Commerce and building, real estate, shopping center and farming organizations are also opposing the bill.

This opposition was largely centered on the concern that the massive new geothermal procurement mandate would force utilities into expensive contracts and increase electricity costs for ratepayers.

But AB 893’s supporters, which include the Solar Energy Industries Association, the California Wind Energy Association, the Large-Scale Solar Association, and geothermal project developers, say the bill’s new emphasis on short-term solar and wind procurement, at today’s low prices and with the benefit of federal tax credits, should significantly reduce the risk of procurement costs rising out of control.

AB 893 backers are also seeking the support of labor unions, which may see it as promoting more in-state jobs for solar, wind, geothermal and biomass projects, Umoff said.

The groups that have opposed the old version of AB 893 did not immediately issue statements on the newly amended version introduced Thursday. However, the business groups opposing the original version of AB 893 wrote in a letter that they were concerned that version of the bill would force utilities to meet its geothermal mandate by “purchasing out-of-state power and purchasing geothermal at the expense of other renewable resources” — which is a concern that the new version of the bill might be seen as allaying.

Umoff also noted that, compared to the state’s current portfolio of about 24,000 megawatts of solar and nearly 13,000 megawatts of wind power, an additional 2,500 megawatts over four years represents “a limited number of procurements.”

AB 893 would also subject its 10-year contracts to a cost-containment review process similar to the one performed under the current renewable portfolio standard, and would apply more relaxed timelines for the procurement of the geothermal resources that were the bill’s original focus, he said.

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