Testimony of Jan Smutny-Jones

Senate Energy and Utilities Committee
Hearing on California’s Renewable Resource Portfolio Standard (CA RPS)
February 26, 2008

Testimony of the
Independent Energy Producers Association (IEP)
Jan Smutny-Jones
Executive Director

Senate Energy and Utilities Committee
Hearing on California’s Renewable Resource Portfolio Standard (CA RPS)

February 26, 2008

Testimony of the
Independent Energy Producers Association (IEP)
Jan Smutny-Jones
Executive Director
 

The Independent Energy Producers Associations (IEP) is pleased to submit comments on the California Renewable Portfolio Standard (CA RPS). IEP represents about 80% of the existing renewable generation base. Since 1992, IEP has work with other organizations to advance the development of independent renewable projects. This has resulted in real “steel in the ground”, actually generating renewable electricity for California consumers. Historically, at least since 1976, renewable energy (or alternative energy), has had significant bi- partisan support as an integral component of California’s energy supply mix. The value of diversifying our resources base with non-fossil electric generation has been well understood. The benefits of renewable energy generation in reducing air pollution, as well as, providing local jobs and taxes, has garnered wide public support. However, today, in a post AB 32 world, the need for renewable energy as a principle supply of California’s electric generation is greater than ever. Simply put: California cannot meet its greenhouse gas emission reduction standards without a significant investment in new renewable generation facilities. It is in this light that we need to assess progress with the existing RPS structure.

The CA RPS has governed the development of new renewables for the investor-owned utilities for over 5 years now. Now is the correct time to assess how well the RPS is working and what changes may be appropriate. We are only two years away from the 2010 target for achieving 20% of retail sales from renewable resources. The time is short, even with the CPUC-approved “flexible compliance” tools which allow the IOUs up to an additional 3 years to be fully compliant (2013). Is the CA RPS going to deliver on its promise of diversifying the resource base and serving a vital role in achieving California’s GHG emissions reduction standards?

The independent power industry has been the primary engine for building the existing renewable infrastructure for California over the past 20 years. These companies are poised to invest significant capital in California to help meet all future renewable infrastructure needs. However, sadly these companies and the financial institutions that support them are investing AND putting “new steel in the ground” nearly everywhere but in California.

Let’s review what’s occurring elsewhere from the perspective of building new renewable infrastructure. Investment is accelerating internationally in China and Europe, particularly in committed European countries such as Germany, Spain, and Ireland. “New Steel” is being placed in a number of other regions within the US, particularly in Texas, throughout the mid-west, and the Northwest along the Columbia River.

Texas with 4256 MWs has far surpassed California with 2439 MWs in actual installed wind. A more startling statistic is that in 2007, Texas added 1618 MWs, Colorado added 776 MWs and Oregon added 447 MWS while California only added 63MWs of new wind facilities. California is losing its leadership position even though some renewable technologies, such as wind, have very favorable tax treatment and can be built in relatively short timeframes.

California is missing a great opportunity to attract this capital given the importance of the Federal Production Tax Credit (PTC) for wind. Last year, in 2007, the global market for wind was about $35 to $40 billion. About $9 billion was invested in the U.S. market, which result in about 5244 MWs. Importantly only about 1% of this U.S. investment went to the California market. While it is true that some states have better wind resources than California, all of them face the same international competition for capital and uncertainty regarding the long term nature of the PTC; yet, they have managed to get new steel into the ground at a rate far superior to California’s track record under the CA RPS.

These investment opportunities are not limited to wind. Geothermal, contributes 2541 MWs of capacity or about 5% of California’s generation mix. Currently there is 700 MWs to 1200 MWs under various stages of near term development. There is an additional 4000MWs of longer term potential in California and Nevada. Today, there is about 350 MWs of Solar Thermal in California’s supply mix. There are extensive development activities involving thousand of new megawatts of solar capacity occurring in California’s deserts. California has some of the best solar resources in the nation (see attachment). California also, has abundant under utilized biomass resources which produce about 550 MWs of capacity. This is down from a peak of about 800 MWs. There are opportunities to encourage more extensive use of biomass. California is awash in potential renewable generation.

Missed opportunities are costing California. Since passage of the California RPS in 2001, only 450 MWs of new renewable, “real steel”, have actually come online. This performance pales in comparison to what’s happening nationally and globally. In contrast, nearly 400 MWs of new renewable capacity was installed in California just the three years prior to the initial passage of the CA RPS. While IEP recognizes that building new generation anywhere is difficult, time-consuming, and expensive, it is clear: the barriers to renewable development in California are homegrown and we need to look here at home for solutions to bringing down the barriers to development.

From the perspective of removing the barriers to renewable development, we offer the following observations of the environment in which we operate, generally in the form of questions, then we offer some specific solutions.

Why are we capping the COST of new renewable to the avoided cost of a gas-fired combined cycle, when the VALUE of new renewables are much higher in light of the state’s GHG emissions reduction standards (AB 32)? Currently, the cost of new renewables as a whole are capped at the avoided cost of a combined-cycle generation turbine (CCGT), also known as the Market Price Referent (MPR), plus available Public Goods Charge (PGC) funding of approximately $75 million a year. We are doing this in spite of the reality that the value and the cost of renewable energy today are totally divorced from the cost of fossil-based generation. The value, and hence cost, of renewable energy is wholly defined in an international market, a market in which China, Germany, Spain, and even Texas are willing to pay the price to pull new investment into their markets. They do this for the environmental/GHG benefits; they do this for the fuel diversity benefits; and, they do this to support indigenous jobs and local economy. Whatever the reason, it simply means that these nations or states, value renewable energy more highly than does California. Capital knows this and flows to those regions fostering investment, competition and innovation. IEP is unaware of an MPR being used anywhere else.

• How can new renewable energy projects be selected in utility RPS Request for Proposals (RFOs) that seemingly are missing site control, financial support, and/or a commercially proven technology? “Least –Cost/Best- Fit” is another homegrown California term that appears to be moving us backwards, not forward. The utilities are supposed to be using a “Least-Cost/Best-Fit” evaluation methodology. What does this mean, if utilities are selecting projects that have no reasonable promise of becoming operational by 2010? Have other projects that could have become operational by 2010-2013, particularly with minor transmission upgrades, being excluded? If so, why?
   
• Why can’t California get new transmission built to known, in-state renewable resource zones? In California, everyone knows where the most significant, renewable-rich resource areas exist. They include the Tehachapi region/395 Corridor (wind, geothermal), the Salton Sea region (solar, geothermal), the Mojave region (solar, wind). This has been known for decades. Yet, we can’t get new transmission planned and built into those regions.

It’s these questions that are worrisome to IEP as we evaluate the performance of the California RPS and assess its prospects for the future. Particularly in an environment where GHG emissions reduction is the cornerstone to California’s energy policy, the California RPS may have become a barrier to needed renewable development, rather than a catalyst. With that in mind, we recommend the following:

1. Recognize renewable project development as a “product” to be obtained in a national/international market and treat it as such. The cost of renewable is what it is, based on market forces. Artificially linking their cost to fossil-fired generation misses the point, and has become a barrier to development. If competitively procured renewable projects become too expensive, in light of the VALUE associated with reducing GHG emissions and enhancing fuel diversity, then don’t buy it. In the meantime, remove the artificial constraint by eliminating the Market-Price Referent (MPR) in project evaluation.
2. Audit the RPS program. While the utilities have entered into approximately 4,000 MWs of contracts (paper), only 450 MWs have become operational (steel). Most contracts are not expected to be operational by 2010 and perhaps not by 2013. Were any projects not selected, because they were slightly higher cost, yet they could have become operational by 2010-2013 timeframe? To what extent is project viability a consideration in the utility procurement process and how does it impact final project selection? To what extent is the lack of transparency in the bid evaluation criteria, (i.e. which factors weigh more than others), hindering developers from proposing projects that best match the utilities’ Least-Cost/Best-Fit needs? What meaningful incentives or penalties exist for the utilities or renewable developers to make the 2010 timeframe? An operational audit of the CA RPS, done by an independent third party might answer these questions and provide guidance on improving the CA RPS.
3. Start the Process of Building New Transmission to Known Renewable Resource Areas Immediately. It took nearly five years before a major transmission line (i.e. Tehachapi, Phase I) was proposed and approved to interconnect a renewable resource area. Given that it can take 7-10 years to plan, site, and construct large new transmission, we cannot wait another 2-5 years to complete the planning process. It is critical to start the process immediate by directing the utilities (working with the CAISO) to submit preliminary conceptual plans by August 2008 to build out at least 3 new, transmission lines to access known renewable resource areas.

IEP thanks Chairperson Kehoe and the committee for addressing this important issue. The issues raised by this Hearing are vital to moving California forward, and we urge the committee, the Governor, and the state’s energy agencies to move aggressively to ensure that renewables serve the vital role that they can in terms of addressing the twin issues of ensuring fuel variability while attaining GHG emission reduction standards. 

Respectfully submitted
 

Jan Smutny-Jones
Executive Director
February 26, 2008