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Why renewable advocates oppose Prop 7

Posted by Adam Browning

Proposition 7 (pdf) is a California ballot initiative that would dramatically increase the state’s renewable energy requirement, to 50% renewables by 2025. Yet most environmental groups and almost all renewable energy companies and trade associations oppose it. Why?

The problem is not with the goal. We urgently need to increase our usage of renewable energy to 50%–and more. The problem is that the initiative is unlikely to deliver the desired result. Most of the opposition comes from a belief that Proposition 7 is so flawed that it will make the task of growing renewable energy markets harder, not easier.

Different groups have found many elements of the initiative problematic. You can read CalSEIA’s analysis here, Union of Concerned Scientists here, and NRDC’s here. (The Solar Alliance, American Wind Energy Association, and the Large Scale Solar Association all also oppose).

The element that we would like to focus on is the market that Prop 7 would establish. Renewable technologies work great—but bringing them to scale is a question of market design and for that reason, we believe this issue is paramount. In our view, Prop 7’s market design is unworkable, and a recipe for disaster.

Here’s why. Under the current process for the Renewable Portfolio Standard (RPS), the California Public Utilities Commission calculates a benchmark that is designed to represent the cost of the fossil fuel alternative (this is known as the known as the Market Price Referent, or MPR, and it is calculated as the 20 year levelized cost of energy of a combined cycle gas turbine, plus some adders). Prop 7 absolves utilities from having to contract at prices 10% above the MPR. While many renewable resources can meet this standard (as long as gas prices remain high), to get to 50% we are going to need a wide range of resources, including some technologies that will initially need extra price support in order to commercialize.

Secondly—and here’s the real crux of the problem—Prop 7 also requires utilities to accept ‘all bilateral offers for electricity’ offered at or below the MPR if a utility does not have enough renewable electricity procured and delivered in a given year. The effect of this ‘must-take’ provision is twofold. First, renewable generators will have no incentive to sell electricity below the MPR. Think about it. If you could produce wind electricity for 9 cents/kWh, why would you sell it at that price if you knew that the utilities had to buy it at 13 cents/kWh? Prop 7 effectively guarantees that renewables will always be priced at the cost of natural gas. The great advantage of renewables is that they provide a hedge against volatility in fossil fuel prices, and the great hope of renewables is that they have the potential of being cheaper than fossil fuels. Google.org’s motto is ‘renewable energy cheaper than coal’, not ‘renewables locked into the same volatility as natural gas.’ Doesn’t have quite the same zing, does it?

Further, one of the limitations of many renewable resources is that they are intermittent and non-dispatchable. Solar generates when the sun shines and wind produces when the wind blows. Under this must-take provision, not only is there no market incentive to develop storage technologies, but the utilities’ challenge of efficiently managing procurement to match generation with load will be significantly compromised. In effect, utilities could be forced to accept massive amounts of night-time wind—at inflated prices—when the grid needs it least, at the expense of contracting for wind or solar resources that match peak demand.

Getting to 50% is an enormously difficult proposition, and will not only require commercializing new renewable technologies, but also require utilities to radically revise their non-renewable generating portfolio to best complement the limitations of intermittent and non-dispatchable resources. It will be hard enough to do this under any scenario. While utilities can absorb a certain level of unscheduled resources, to manage a grid effectively and efficiently at 50%, utilities will have to have significant input on time and place of delivery (via a competitive RFP solicitation process), and the ‘must-take’ provision has the potential to make the whole process unworkable. Prop 7 undermines the ‘least cost best fit process,’ and effectively eviscerates the possibility of rational planning.

If you want to go more in-depth on these issues, read this analysis by Tom Beach of Crossborder Energy.

Over the past year, Vote Solar has had innumerable discussions with energy experts, both in the environmental and renewable industry community, to analyze the impacts of the proposition. This was not a conclusion we came to lightly, and there is no one more depressed about the results than we. We’ve spent the last 6 years working our tails off on a shoestring budget, and the prospect of a well-funded, game-changing ballot initiative is hugely alluring. The fact that that the initiative is so flawed is, frankly, a tragedy of Shakespearean proportions.

We have also had numerous discussions about these concerns with campaign proponents over the past year, but to no avail. We find the campaign’s counterarguments unconvincing (as does the entire renewable energy industry), and our requests that they change course were not accepted.

If the initiative were to pass, can’t some of the more problematic elements be changed later, at the legislature? Unfortunately, the ballot contains a provision that would require any changes to be approved by a 2/3 super-majority in both branches of the legislature. Since any legislative effort would need the votes of the most radical elements in the legislature to meet the 2/3 requirement, those people would be in a position to make demands, and they would have to be accomodated. In effect, Prop 7 would put the future of energy policy in California in the hands of the most extreme members in the legislature. Think about this year’s budget process for a sense of how that might work.

So what is the alternative? The short answer is that advocates are working furiously to put the infrastructure in place for massive growth in renewable energy. As we discussed in our last newsletter, we are working on establishing a new market mechanism for solar delivered at the distribution level. Meanwhile, the great challenge of the day is developing transmission to link the best renewable resource areas to population centers, and do so in a way that maximizes the conservation values that we all share. The Renewable Energy Transmission Initiative is a coordinated regional effort to do just that, and is laying the groundwork for bringing utility-scale solar (and other renewables) to scale. Finally, in 2009 there will be a tremendous legislative push for a reformed 33% RPS. And if those efforts are not successful, there’s always 2010 (Note to any billionaires in the audience: if the ballot initiative simply said: ‘RPS target is 50%, relevant agencies, figure it out’, it would have received a very different response. Let’s talk.)

Renewables are the answer. But to deliver on their promise, they need a market that values value, incentivizes cost reductions, and allows for a well-planned portfolio and well-managed grid. Prop 7 fails on all these points.