California clean energy rules may impede imports from rest of West
When a group of Pacific Northwestern utilities teamed up to build a $580 million pair of wind farms in the Columbia Gorge a few years ago, they planned to help pay for the projects by selling excess generation and renewable energy credits to a California utility. Selling some or all of a project's power to California has been a common strategy among Western developers, given the state's enormous appetite for renewable energy. But tapping that market recently became much harder -- just as demand slumps elsewhere in the region.
In 2010, the utilities' plan seemed to be working. Pacific Gas and Electric signed a contract with the 205-megawatt White Creek and the adjacent 99-megawatt Harvest wind farms, located in Klickitat County, Wash. But a year later, California upped its renewable portfolio standard (RPS) -- which requires utilities to draw a certain percentage of their electricity from renewable sources -- from 20 percent to 33 percent by 2020, and also enacted tougher rules for importing power. The state approved hundreds of wind and solar deals inside California, but never reviewed the Northwest utilities' contract, and PG&E backed out.
Without the contract, Public Utility District No. 1 of Cowlitz County, one of the wind developers, had to raise its customers' rates 10 percent to help cover its $150 million share of the projects. In January, Cowlitz put California on notice that it intends to file a $10 million claim against the state's Public Utilities Commission for not reviewing the deal. It also charges that the RPS unfairly discriminates against out-of-state generation, a violation of the Interstate Commerce Clause of the U.S. Constitution.
Developers and utilities are closely watching the case, because California is now the market for renewable energy in the West. Demand elsewhere has slackened; most Western utilities have already satisfied their states' RPS needs and won't be in the market again until near the end of the decade. Meanwhile, the West's overall demand for electricity has sagged along with the economy.
In California, however, utilities have to acquire more than 20,000 megawatts of renewable energy to meet the state's new goals. By 2020, the state will make up 70 percent of the West's renewable energy market, but out-of-state developers fear they face an uphill battle to access it.
The problem lies with what's known as Category 1 contracts, the main "bucket" of power that will be used to meet 75 percent of California's renewable needs. To qualify, projects have to either connect directly to the state's grid or use what's called "dynamic transfer," a complicated process for moving renewable energy between grids. Because most Western grid managers are reluctant to use the process, though, energy development in most of the region is essentially cut off from the California market. Meanwhile, the state's rules for qualifying for Category 1 have not been set, another major obstacle for out-of-state projects.
"You can have access to the California market, if you can also fly a rocket to the moon," gripes Eric Christensen, an attorney representing Cowlitz and a group of Northwest utilities that are also considering challenging California's RPS. "Cowlitz is typical of a lot of people in the West outside of California that invested millions of dollars in renewable projects, only to see the market choked off by California's rearrangement of the regulatory landscape."
Over the past decade, Iberdrola Renewables, based in Portland, Ore., has developed 2,159 megawatts of wind and solar projects around the West -- much of it under contract with California utilities. But because of the state's import rules, the company has now narrowed its focus to building new projects inside California, according to Kevin Lynch, vice president of external affairs.
The state's rules aren't that unusual, says Carl Zichella, director of Western transmission at the Natural Resources Defense Council. "All state renewable portfolio standards place some restrictions on imported power," he says; California was simply trying to capitalize on its own high-quality solar and wind resources to help get through the recession.
Besides, he argues, California's rules for importing power are less of a burden on Western development than the lack of coordination between grids, which would allow for easier transfer of renewable energy across longer distances without as much need for new power lines. Another problem is the lack of a structured Western renewable energy market, where grid operators could purchase power to ensure a constant steam of energy –– something that's necessary because renewable generation in isolation provides only intermittent power.
But such region-wide coordination efforts are a long way off, if they ever happen. In the meantime, many Western developers are banking that California's import rules will eventually prove a serious obstacle to meeting its RPS, given how difficult it can be to build projects within the state. Then, they believe, California will have to ease the rules and again lean more heavily on its Western neighbors for help.
"California has long been a leading policy thinker and it is a very big market," Lynch says. "But I would be kidding you if I didn't say it was a very difficult market to develop in and to sell into -- there's no question."