Signing LA's feed-in tariff ordinance

On the heels of signing several large contracts for solar, The Los Angeles Department of Water and Power recently established a feed-in tariff program to source solar power closer to home.

Some thoughts on the program details and development:
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LA’s city-owned utility, the Los Angeles Dept of Water and Power (LADWP) has historically lagged behind other big California utilities when it comes to investing in solar, which currently provides far less than one percent of the energy delivered to its customers. However, LADWP and City leaders continue to make big strides to change that. Last week, LA City Council unanimously approved two long-term solar power purchasing agreements, taking a decisive step in achieving Los Angeles’ renewable energy goals of 25% renewable power by 2016 and 33% by 2020 and creating hundreds of local jobs.

The agreements are for 460 megawatts of clean solar power. LADWP says that combined with a new LADWP-owned property that will support a 250 megawatt solar project, and a commitment to procure 150 megawatts from rooftops in the City through the Feed-in-Tariff (FiT) program, solar will provide enough green energy annually to serve approximately 331,000 Los Angeles households. (see LADWP’s press release here for more info)

Congratulations, LA, for taking another important step towards a brighter clean energy future. We salute you!

Late this week, the Los Angeles Department of Water and Power got right down to business and began accepting applications for the demonstration program portion of its new feed-in tariff. (See our earlier blog post about City’s leaders’ recent approval of the program.)  Through June 29, the utility will accept competitive bids for projects as small as 30 kW and as large as 999 kW, plans select a total of 10 MW of projects and will use the bid information to determine a standard price for future solicitations. (See the LADWP website for more program details.) LADWP has included some valuable project viability criteria that are likely to help real projects get built, including a development deposit of $50 per kW.

Let the bidding begin, allowing Angelenos to start making use of all those acres of sunny LA rooftops!

Every program faces unforeseen challenges after first launch, and smart program administrators make adjustments along the way. Gainesville is no exception.  When the municipal utility’s feed-in tariff program launched a few years ago, 8 years of contract availability–a total of 32 MW–sold out in 4 months, most to one or two developers.  Since then, a large chunk of contracts have dropped out, and the utility has taken some of the lessons learned from their experience and incorporated them into a new FIT, version 2.0.  Going forward, about 6.2 MW of contracts will be available from 2012 to 2016 under the new structure.

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A look at the arc of solar policy development in Spain can shed some helpful lessons for policymakers.  The upshot: if a government is uncomfortable with unlimited cost exposure and sets caps on the amount of development, that decision triggers additional policy considerations.  The implications are important for the project development process, as capped programs inevitably work very differently than uncapped programs. » Read the rest of this entry «

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. » Read the rest of this entry «

On July 15th, the interstate electricity regulators at the Federal Energy Regulatory Commission (FERC) issued a ruling with ramifications for feed-in tariffs in the United States. In an Aug 4 article for Greentech Media, Vote Solar’s Adam Browning discussed options for designing state wholesale DG solar programs that comply with the FERC ruling. We have reprinted the text below.

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A feed-in tariff, in its common form, is a requirement for utilities to buy wholesale electricity under a fixed-price contract. That’s electricity delivered to the grid for resale to other utility customers, as opposed to retail electricity that is used on-site; this approach lowers the consumer’s utility bill through mechanisms like net metering. This market mechanism is popular in Europe; FERC’s recent ruling provides clarity regarding just what states can and can’t do when it comes to feed-in tariffs here in the U.S.

The history behind FERC’s recent decision starts in 2007, when the California Legislature passed AB 1613, which established a feed-in tariff program for small combined heat and power systems in the state.  As the California Public Utilities Commission began implementing the new law, some investor owned utilities objected on the basis that the state does not have the jurisdiction to mandate this kind of program.  Their argument: the Federal Power Act gives FERC exclusive authority over wholesale electricity sales in interstate commerce, and states are pre-empted from setting wholesale power rates that exceed utility avoided cost.  This is not a new issue — energy practitioners have been confronting it for a long time.

The CPUC then petitioned FERC for a Declaratory Order to clarify the subject, and the utilities responded with a petition of their own.  Multiple organizations, including the Interstate Renewable Energy Council, SEIA, CalSEIA, the Solar Alliance and Vote Solar, intervened with arguments for more flexibility.

The decision? From the summary:

“FERC affirmed in its order that its authority under the FPA includes the exclusive jurisdiction to regulate the rates, terms and conditions of sales for resale of electric energy in interstate commerce by public utilities. FERC also explained that the role of States in setting wholesale rates is limited to determining “avoided cost” rates for qualifying facilities pursuant to PURPA.

FERC thus found that the CPUC’s decision under AB 1613, including the CPUC-set price, would be consistent with these federal laws as long as it satisfies certain requirements:

●     The CHP generators must be QFs pursuant to PURPA.

●     The CPUC-set price must not exceed the avoided cost of the purchasing utility.”

In other words, state legislatures and regulators are restricted in their ability to mandate premium, fixed-price requirements.

What does this mean going forward? While this decision clearly limits feed-in tariff options, it does not preclude effective wholesale distributed generation programs. When the issue came up in a recent, similar proceeding — the CPUC’s effort to expand the renewable feed-in tariff program under AB 1969 (R.08-08-009) — parties were required to file legal briefs on this subject. Here are a few policy approaches that fall within state’s price-setting authority:

●     Set the feed-in tariff price at utilities’ avoided cost

●     Establish a more targeted requirement (e.g., solar PV systems from 1MW to 10 MW) and let the market set the price

●     Set a price at avoided cost, and cover the marginal gap to a workable price with a tax benefit or renewable energy credit from a public benefit fund.

There are a few real-world examples of feed-in tariffs that use this approach.  The Sacramento Municipal Utilities District recently issued a feed-in tariff priced on their time-differentiated avoided cost of generation (modeled on expected PV output, it comes out to a levelized rate of about 14 cents per kWh).  All 100 MW of the available contract capacity was immediately sold out, principally in 5 MW chunks (note that similar programs eligible for only smaller sytems have proven less effective).

Another take on this approach comes from California’s SB 32. Passed in 2009, it is a fixed-price feed-in tariff that attempts to raise the ‘avoided cost’ by capturing as much value associated with distributed generation as possible (avoided transmission and distribution upgrades, etc.).

The downside to using the avoided cost approach, of course, is that these costs can vary widely, are the subject of much contention, and there is no guarantee that the final price will be sufficient to deploy renewables.

Which brings us to another option: mandate the desired outcome, and let the market set the price.  The CPUC has proposed a 1 GW pilot program, called the ‘reverse auction mechanism’ (RAM), which elegantly deals with the problem by guaranteeing a market instead of guaranteeing a price.  Utilities would be required to do multiple annual solicitations for systems from 1MW to 10 MW in size, and the best price wins.  All parties to the proceeding seem to agree that this approach is jurisdictionally compliant.  We are currently waiting on the Administrative Law Judge assigned to the matter to issue his proposed decision.

We have some real-world examples of logic behind this market approach. For the past several years, Southern California Edison has had a voluntary Renewable Standard Offer program, consisting of a fixed-price offer to buy renewable energy from systems under 20 MW in size, with the price set at the Market Price Referent (‘MPR’ is calculated annually by the CPUC; it’s the 20-year levelized cost of energy of a combined-cycle natural gas plant, meant to represent the next marginal unit of generation).  In 2009, SCE contracted for 140 MW of PV.  It’s a great story — here are significant amounts of solar purchased below the cost of fossil fuels.

The big question, though, is whether this pricing will work in the future. Natural gas prices have plummeted, and the MPR went down about 20% this year.  Is the new ‘avoided cost’ price enough to deploy solar?  This could pose a significant problem.

To address this concern, SCE recently announced that it will change its pricing approach going forward.  Instead of pricing solar based on the cost of natural gas, they will price solar based on the cost of solar as bid.  In order to make sure that the bids are viable and not aspirational phantom projects, the program requires development security of $20/kW and project development timelines.  To reduce parasitic transactional costs and help developers line-up financing ahead of time, the program uses standard, non-negotiable contracts.  In order to drive projects that can come on-line quickly and don’t need new transmission, this policy is only applicable to projects under 20 MW.  (Note that SCE also has a similar program for rooftop PV systems that are 1MW to 2 MW in size.  On July 27, it released the results of the first solicitation: 60 MW of projects throughout its service territory.)

This market-based approach is FERC-compliant, captures the latest in solar’s cost reductions and delivers that value to ratepayers, and helps drive down solar’s costs by sending helpful market signals throughout the solar value chain. Think of it as the next generation of the feed-in tariff: FIT 2.0.

So, even though the FERC decision clearly restricts states’ feed-in tariff authority, it is important to recognize that there are still ways of designing successful programs for procuring wholesale distributed generation.

FERC may have recently put the kibosh on states implementing European-style Feed-in Tariffs for the moment, but that doesn’t mean the U.S. is left high and dry without ways to drive wholesale solar markets. We’re seeing daily action from utility PV programs that play by FERC’s rules.

Just today, Southern California Edison announced 60 MW worth of contracts under its new wholesale distributed generation (WDG) program. These winning bids will be installed on 31 rooftops and five ground-mounted sites across SCE’s service territory and deliver clean, reliable, wholesale power to the grid (as opposed to meeting on-site load).This is the first traunch of contracts for the utility’s 500 MW distributed solar program – half of which the utility will own and half of which must be contracted like this through independent producers.

As you may recall, SCE proposed the program as a mechanism for meeting its RPS requirements. The RPS may have set the end-goal of 20% by 2010 (with efforts still underway to increase to 33% by 2020), but it was the utility that opted to develop distributed solar to meet part of that requirement – a departure from the previously exclusive focus on large-scale projects in the 10 – 500 MW range. SCE’s move into WDG is significant for a few reasons:

1. It was a clear example of utilities recognizing the value of power being generated within the distribution network – a solid case for developing more rooftop solar.
2. It opened up a new type of solar development – adding to a nice robust wholesale policy framework that supports diverse market participation (large-scale and distributed systems, utility-ownership and independent industry alike). That’s in addition to the state’s retail program that encourages customers meet their own electricity needs with solar (CSI plus net metering). We think all that diversity of opportunity’s a good thing for building a resilient solar market and lowering solar costs for everyone.
3. The program used a competitive solicitation process rather than a fixed standard contract offer – a policy approach designed to ensure projects get built at the best cost to ratepayers. Today’s announcement validates the competitive auction mechanism that we’re also seeing arise in the utility’s RPS procurement more broadly and in the CPUC’s to-be-launched twist on the Feed-in Tariff (because the incentive model doesn’t set a wholesale price, it’s another innovative way states can support wholesale solar development without stepping on FERC’s jurisdictional toes).

Northern California’s PG&E has a similar program in the works, so expect to see more WDG on the way.

On Monday, I gave a presentation at the NARUC summer meeting in Sacramento.  For energy wonks, it’s kind of like getting invited to the all-star game.

I was invited to speak on the panel “Feed-in Tariffs and other Tariff Designs as the Tools for Ramping Up Renewable Resource Development.”  The invite came based on presentations we’ve given and work we have done on the subject before the California Public Utilities Commission, the Arizona Corporation Commission, and the Nevada Public Utilities Commission – bodies that regulate the electric utilities in their respective states.

If you will forgive the self-serving aside, Commissioner Wagner of Nevada introduced the segment by saying “Colleagues, if Vote Solar is not working in your jurisdiction, you should ask them to come.  They provided timely and accurate data, analysis and policy expertise, and were instrumental in helping us with our renewable energy agenda.”  Or words to that effect. The validation of Jim and Annie’s work last year was much appreciated, especially since NV was one of the very few wins in a brutal year for solar.  Let me return the favor by celebrating Commissioner Wagner as a fierce and effective champion for renewable energy and NV ratepayers.

Here’s the presentation (4 MB ppt).  It’s much better with the soundtrack, but in short, given the national nature of the audience, the goal was to:

1. Make the case that solar deserves consideration as a scalable resource, especially as it is now much cheaper than many believe
2. Clarify that there are two markets: retail and wholesale, each with their own benefits from both the customer and regulatory perspective, and therefore each deserving of their own separate policy support
3. Identify the series of decisions that have to be made when designing successful wholesale distributed generation markets (ie: small-to-mid size solar energy systems delivering power to utilities for resale)
4. Walk through the range of policy solutions to effectively drive solar growth given those considerations
5. Briefly discuss the approaches taken by different existing programs across the U.S., and the lessons that should be drawn from the results

This discussion is especially pertinent given the recent FERC decision, which defined the federal vs state jurisdiction over price-setting in Feed-in Tariff type incentive programs.  California and Arizona are pioneering approaches to successful wholesale distributed generation that meet key criteria for sustainable solar market growth:

1. Legal (ie: jursidictionally compliant with the Federal Power act – see FERC decision above)
2. Scalable (ie: are achievable at politically palatable price points)
3. Provide the flexibility and responsiveness to expand the market as price reduces
4. Build strong installer capacity by providing continual market opportunity and avoiding boom-bust cycles

There is a lot more work to be done, but these initial efforts in are on track to bring gigawatts of wholsale distributed solar generation online as we speak.

We’ll put together a webinar on this shortly.

- Adam

The California Public Utilities Commission issued a new proposal today designed to significantly increase the amount of solar energy installed in the state. It is kind of like a feed-in tariff, but different.  Call it a feed-in tariff v2.0.

The proposed program would require utilities to purchase electricity from mid-size solar and other renewable energy technologies of 1 to 10 MW.  At least twice a year, utilities would issue a request for proposals for qualifying renewable projects.  The regulatory body would set a revenue requirement for each solicitation (i.e. the total amount of money that could be spent).  Utilities would then rank bids by price, then be required to take the cheapest ones first until the money runs out.  Losing bids are free to bid into the next solicitation.

On first read, there’s a lot to like.  The CPUC’s proposal presents an elegant solution to many of the challenges that have bedeviled efforts to grow sustainable renewable energy markets in California and around the world.

It puts steel in the ground.  California’s strong Renewables Portfolio Standard has resulted in signed and approved contracts for more than eight gigawatts of large-scale renewable energy projects across the state (with another six GW of contracts of signed contracts under review by regulators); however, many of the planned projects have yet to be brought online. CPUC analysis identifies transmission as the single most significant barrier to large-scale renewable project development.  This new proposed program stimulates immediate activity by establishing a market for smaller renewable projects that can be incorporated into the existing utility infrastructure without the construction of new transmission. The smaller projects will also likely be easier to finance, another critical hurdle in the current economic climate.

It gets the price right.  Some governments have used standard-offer, fixed price feed-in tariffs to incentivize renewable energy development. The difficulty with this approach is finding the right price.  If the price is set too low, it does not stimulate the desired 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.  By using a market mechanism to determine the contract price, the CPUC’s program uses competition to establish a price that is both sufficient for project development and protective of ratepayers.  With the price of solar modules coming down 40 percent over the past 6 months and predictions for a lot further to go, it’s hard to see how else to do it.  This method harness and accelerates cost reductions by encouraging the whole value chain to work together to be competitive (read this for the role of silicon and recent market dynamics in solar’s costs).  We expect dramatic market activity at price levels that will attract the interest of policymakers around the country.

It can be implemented quickly. As a practical matter, the proposed auction mechanism can also be implemented much more quickly than some alternative approaches.  There is real urgency in the matter, as the U.S. Treasury Grant Program, established as part of the stimulus package, is only available to projects that have begun construction by 2010.  If approved, this program could be delivering results within the grant eligibility window.

It overcomes legal hurdles.  In an earlier phase of the proceeding, one of the state’s largest utilities, Southern California Edison, challenged the CPUC’s authority to establish a feed-in tariff, claiming that the Federal Power Act only gives the Federal Energy Regulatory Commission the authority to require purchases above ‘avoided costs.’ Under this federal law, California regulators are restricted in their ability to set specific prices.  This proposal elegantly avoids SCE’s legal challenge by establishing a specific requirement for electricity of a certain type, and letting market mechanisms establish price levels.

We’ve spent a year on this docket, and will spend a lot of time going over the details of the proposed program to guide our suggestions for further development.  I guarantee that a lot of people will also have opinions on modifications.  But initial impressions are that there is a lot to like.  The program ensures that renewable energy projects will be built quickly and at the lowest cost to ratepayers.  And it throws the doors wide open on an entirely new renewable energy market in the state: mid-sized solar projects that generate clean electricity for all Californians. Coupled with the highly successful California Solar Initiative program for customer-owned solar, the gigawatt of utility-owned/IPP distributed generation program, and existing channels for large utility-scale projects, California will be able to lay claim to one of the most comprehensive and dynamic solar markets in the world.