Yesterday the California Public Utilities Commission voted 5-0 to approve the state’s new “Renewable Auction Mechanism” – or RAM – program to spur mid-sized solar and other renewables. This next-generation feed-in tariff program will require California’s investor-owned utilities to purchase power from renewable energy systems up to 20 MW in size. That opens a nice new solar market opportunity between the small commercial and residential systems supported by California Solar Initiative rebate program and the large-scale utility systems already driven by the 33% RPS requirement.
The newly approved 1-GW program uses a clever design to balance aggressive renewable goals with sustained value to ratepayers. Here’s how: California’s three largest utilities will hold biannual competitive auctions into which renewable developers can bid. Utilities must award contracts starting with the lowest cost viable project and moving up in price until the MW requirement is reached for that round. The program will use standard terms and conditions to lower transactional costs and provide the contractual transparency needed for effective financing. To ensure project viability and realistic pricing, the program requires development security and relatively short project development. Utilities must file implementation plans in the next 60 days, and the program is expected to be operational this spring. Dig into the full program yourself here on the CPUC website.
CPUC Commissioner Nancy Ryan said it well, “The RAM will bring California ratepayers more clean energy bang for the buck and promises good, green jobs where they are needed most.”
Hear hear, huzzah, and hip-hip-hooray. In other words:
“The Solar Alliance applauds the CPUC for creating and approving this RAM Program, which will open up a significant market potential in California for simplified renewable energy procurement,” said Sara Birmingham of the Solar Alliance.
“At scale, solar is more cost effective than the fossil fuel alternatives. All it takes is the right market mechanism to turn the opportunity into reality, and we thank the Commission and Commission staff for their vision,” added our own Adam Browning.
The response from industry eager to sell into the new program has also been strong:
“This program is a great step forward in facilitating the expansion of distributed solar power generation,” said Marc Van Gerven, CEO of Q-Cells North America, a global leader in developing solar power systems. “We are committed to partnering with utilities and the CPUC in continuing to grow solar adoption and California’s leadership in the renewable energy market.”
“This program is a thoughtful design that helps keep the state on track with its renewable energy obligations and goals but in a cost-effective and pragmatic way. We are very excited about the significant opportunity it provides solar developers,” said Polly Shaw, Director of External Relations for Suntech America, one of the world’s largest solar energy companies that has regional headquarters in San Francisco.
“The passage of the Renewable Auction Mechanism by the CPUC today marks the beginning of a new era for the solar industry in the United States and will allow us to reduce air pollution, increase energy independence and create new green jobs much more quickly. We are very grateful to the CPUC staff and commissioners for their hard work to develop this program over the last two years” said David Hochschild, Vice President at Solaria, a solar manufacturer headquartered in Fremont, California.
So why all the hubbub? Here’s a reminder of why we’re so excited about the RAM procurement model as an effective and efficient new mechanism for getting more solar onto our utility grid:
1. Small to Mid-Sized Project Size Expedites Solar Development
CPUC analysis identifies transmission as the single most significant barrier to development of large-scale renewable projects that have been the focus of much utility solar activity to date. While the state works out its transmission solutions, this proposed program stimulates immediate activity by establishing a market for smaller (up to 20 MW) renewable projects that can be incorporated into existing utility distribution infrastructure. These smaller projects will also likely be easier to finance, another critical hurdle in the current economic climate.
2. Market-Based Pricing Delivers Long-Term Value in a Dynamic Market
Some governments have used fixed-price feed-in tariffs to drive renewable energy development. One point of difficulty has been getting the fixed pricing right. If the price is set too low, it does not stimulate the desired level of market activity. If the price is set too high, ratepayers pay unnecessary costs, suppliers throughout the value chain are not encouraged to reduce prices, and the program can lose political support. In contrast, the CPUC program uses competition to establish a price that is both sufficient for project development and protective of ratepayers. By continuing to deliver maximum ratepayer value by driving down installed solar costs and capturing changes in market conditions, the bidding mechanism is also more likely to provide a long-term market for the growing solar industry. Instead of guaranteeing a price, this approach guarantees a market—providing necessary long-term certainty to developers.
3. Standardized Program Design Reduces Transaction Costs
Standardized contract terms and conditions level the playing field and reduce parasitic transaction costs associated with project development. Multiple annual solicitations provide more continual access to selling opportunities. And strong project viability criteria, including development security, reduce the problems associated with underbidding and speculative developers holding contracts but failing to deliver. The program builds upon best practices to create a fluid, functional competitive renewable energy market.
4. Three little words – One. Thousand. Megawatts.
It’s not every day you get another gigawatt of solar added to a state’s energy mix. To put that in perspective, 1 gigawatt is more solar PV than the entire U.S. installed in all of 2010. RAM may deal with solar in bite-sized chunks, but in total it will bring a significant amount of new PV on-line in just two years. And that’s just the beginning for this pilot program.
The CPUC really knows how to send 2010 out with a bang. We can’t thank the Commissioners and Commission staff enough for all their hard work to get this pioneering program across the finish line. Happy new year all!