RENEWABLE ENERGY. California Implements Renewable Auction Mechanism for Distributed Clean Energy NITED STATES OF

Transcription

1 RENEWABLE ENERGY California Implements Renewable Auction Mechanism for Distributed Clean Energy NITED STATES OF

2 FACILITATING A SHIFT TO RENEWABLE ENERGY SOURCES California s first-of-its-kind renewable energy policy is innovative and market-friendly The U.S. State of California has undertaken significant steps to promote the deployment of renewable energy, which will help meet its goal of reducing greenhouse gas emissions to 1990 levels by the year It is also an extremely important component of the state s economy. 1 The centerpiece of this strategy is the Renewable Portfolio Standard, which requires all retail sellers of electricity in the state to serve a third of their load through renewable energy sources by In 2011, about 20 percent of the state s electricity came from renewable sources. 2 To facilitate the shift to renewable energy, California has implemented a number of policies. These include feed-in-tariffs, tax incentives, net metering, and rebates for purchasers of residential solar systems. One of its most innovative efforts is a market-based procurement process, known as the Renewable Auction Mechanism (RAM), to encourage renewable energy production through small- to medium-scale distributed generation. This type of generation has a number of environmental and economic benefits: it sidesteps land-use and siting concerns, avoids the need for expensive and complex transmission infrastructure, and reduces the occurrence of widespread power outages. Furthermore, distributed generation promotes local job creation by placing the generating sources nearby the users. These advantages have led California to set a goal to produce 12,000 megawatts (MW) of renewable distributed generation by AUCTIONS HELP UTILITIES MEET GOALS Launched in 2010, the RAM is a scheme that requires utilities to buy renewable energy from project developers through reverse auctions. In these auctions, project developers bid the lowest prices they would be willing to accept to develop a project, and utilities select only the cheapest options. The California Public Utilities Commission (CPUC) requires the state s three major utilities to purchase a total of 1,299 MW of generating capacity from distributed renewable energy producers over two years, which equals about 2.8 percent of their total combined peak demand. 4 This goal is being achieved through four reverse auctions one every six months with the first auction having taken place in November At each auction, the utilities aim to buy a quarter of the 1,299 MW total, partitioned among the utilities based on their size (Figure 1). If an auction fails to produce enough contracted energy to meet the targets, or if some contracts 1

3 subsequently fall through, the difference is added to the following auction s procurement targets. Figure 1: Capacity Allocation for RAM Program Utility Total Distributed Renewable Energy Under Program (MW) Share of Total Peak Demand Procurement Target Per Auction (MW) Southern California Edison % 181 Pacific Gas and Electric % 105 San Diego Gas and Electric % 39 TOTAL 1, % 325 Source: California Public Utility Commission; California Energy Commission. Auctions are open to renewable projects from 3 MW to 20 MW that are located in one of the three utilities service areas. 6 Many types of renewable energy are eligible (e.g. wind, photovoltaic solar, geothermal), but projects must be based on a commercialized technology that has been proven in the marketplace. Furthermore, projects must have at least one developer who has previous experience with a project of similar technology and capacity. To provide clarity and certainty about the types of power generation market opportunities available, the utilities are required to determine upfront whether they will procure baseload generation, peaking capacity as available, or non-peaking capacity as available. Auction winners are awarded standard, non-negotiable contracts with the utilities. Although the contracts vary slightly across the utilities, they share some basic common elements. First, all projects must come online within two years of when the contract is executed, with a possible six-month extension for projects that experience regulatory delays but are otherwise on schedule. 7 Furthermore, the utilities require development and performance deposits based on project size, as shown in Figure 2 below. Figure 2: Development and Performance Deposits for RAM Required Deposits 5 MW and Less 5-20 MW Development Deposit $20/kW $60/kW for Intermittent Resources $90/kW for Baseload Resources Performance Deposit $20/kW 5% of Expected Total Revenues Source: California Public Utilities Commission. 2

4 A development deposit is required as collateral at the time the contract is executed to ensure the project will be developed. This deposit is meant to minimize underbidding and is returned once the project is completed. Following project completion, project developers must commit a performance deposit which is held by the utility through the lifetime of the contract. With this deposit as collateral, utilities require projects to: perform consistent with the generation profile as described in the contract; hold liability insurance against utility losses; and deliver a minimum level of renewable electricity in any given two-year period. 8,9 For projects producing 5 MW and less, the performance deposit is equal to the development deposit, and the funds are simply rolled over. Larger projects require 5 percent of the expected total project revenue as a performance deposit. 10 In general, the requirements for development and performance deposits are designed to reduce risk to utilities, and hence ratepayers, from uncertainty surrounding distributed generation projects. Besides the risk mitigation mechanisms discussed above, the CPUC has also incorporated a scheme to evaluate the performance of the RAM and monitor its progress. To ensure projects are on track for implementation, project developers must submit a project development timeline at the time of the contract execution, which they must update every six months until the project is completed. Additionally, utilities are required to monitor and evaluate the entire program and prepare annual reports which are posted on their websites. These reports include information about auction design, competitiveness of auctions, average time necessary to complete projects, project status, and other aspects of the RAM. The reports, along with annual program forums held by the utilities with program stakeholders, inform the discussion about various implementation challenges and how the program can be improved as it moves forward. RENEWABLE POWER PROFITS The first three auctions took place in November 2011, May 2012, and December 2012, with the final auction scheduled for the spring of The first auction in November 2011 resulted in the approval of 13 contracts, including 11 solar photovoltaic projects, one wind project, and one geothermal project, with a total capacity of 140 MW. 11 The second auction in May 2012 produced 17 contracts totaling 255 MW. 12 California s RAM is a first-of-its-kind policy that has been praised for its innovativeness and market-oriented design. 13 Competitive auctioning enables utilities to purchase electricity at the lowest available market rates; an analysis of initial auction results showed that the average cost of accepted bids was USD lower than the average cost of residential electricity in California on a per kilowatt-hour basis. 14 Although utilities also incur other costs such as transmission and distribution expenses, the low rate for accepted bids is an encouraging sign for the solar market. Additionally, through its standardized contracts and biannual procurement targets, the mechanism is reducing transaction costs and providing market certainty for investors. Other countries, including the Latin American nations of Peru, Brazil and Uruguay, have also turned to reverse auctions for the deployment of renewable energy. 15 3

5 REFERENCES California Public Utilities Commission. Renewable Auction Mechanism. Web. December 2012 < energy/renewables/hot/renewable+auction+mechanism.htm> ENDNOTES 1 California Air and Resources Board. Assembly Bill 32: Global Warming Solutions Act. Web. January < arb.ca.gov/cc/ab32/ab32.htm> 2 3 Wiedman, Joseph F. et al ,000 MW of Renewable Distributed Generation by 2020: Benefits, Costs, and Policy Analysis. Interstate Renewable Energy Council, Inc., July < GW-report pdf> 4 California Energy Commission. June California Energy Demand: Final Forecast. Web. January < 001/CEC CMF-V2.pdf> 5 California Public Utilities Commission. Renewable Auction Mechanism. Web. December < Renewable+Auction+Mechanism.htm> 6 7 California Public Utilities Commission. Resolution E Web. January < FINAL_RESOLUTION/ pdf> 8 California Public Utilities Commission, op cit. (Endnote #7) 9 Wang, Ucilia Cali Approves 1GW Program to Auction Clean Power. Gigaom, December 16, Web. August < 12 US EPA, egrid energy-and-you/affect/natural-gas.html 13 Wesoff, Eric. California Renewable Auction Mechanism (RAM) Now Official. GreenTechSolar. 18 August Hoium, Travis California Solar Auction Crushes Grid Parity. DailyFinance, April Web. December < 15 CleanTechnica Peru, South American Nations Turn to Reverse Auctions to Accelerate Renewable Energy Development. CleanTechnica, May 31, Web. January < Figure References Figure 1: Capacity Allocation for RAM Program Figure 2: Development and Performance Deposits for RAM First Street, NE, Suite 940 Washington, DC p CCAP CENTER FOR CLEAN AIR POLICY