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:
» Read the rest of this entry «

What does solar cost?  Pricing on utility contracts is often opaque–and there are some good reasons for this (e.g. to promote competition).  An exception to this is in Nevada, where there are legal requirements to reveal contracts.  Our friends at Evolution Markets recently sent out an email that culled some publicly available data. » Read the rest of this entry «

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.

More wholesale distributed generation: on April 22, the California Public Utilities Commission finally approved PG+E’s 500 MW solar program application.

The ruling can be found here (pdf).

Briefly, the utility gets to own 250 MW of PV generation over the next 4 years (they may use a combination of solicitations for turnkey projects, or contract for materials and services), and has to buy the equivalent amount from independent solar developers.  This is very similar to the SCE program, except that this program targets systems 1-20 MW in size, and is expected to be mostly groundmount instead of rooftops.  Think solar farms sited near substations.

The IPP portion will  be competitively bid.

There’s a bit more regulatory work before this hits the street.  There will be some advice letters, draft resolutions, resolutions, and plenty of opportunity for parties to comment to guide the implementation details.

In any event, this program joins the 500 MW SCE DG PV program (the first RFO just closed, and by all accounts, there was *robust* activity, the SCE standard offer program (140 MW this year), the SMUD 100 MW FIT, the upcoming SB 32 FIT expansion,  increasing amounts of mid-sized PV projects coming in under the standard RPS solicitations, and, hopefully, the final resolution of the 1 GW market-based FIT that parties have been working on for about 2 years now.

We are seeing incredible activity in the wholesale distributed generation market segment in other states, as well.  Arizona utilities are going gangbusters.  And even in New York: the New York Power Authority was blown away by the response to their RFP for 100 MW of solar.  There’s a huge appetite to sell: all that’s needed is a market to sell into…

Southern California Edison  recently filed an advice letter asking CPUC approval for the results of its 2009 renewable standard contract.  The results are impressive.

The voluntary standard offer (not classic FIT per se, as it is not necessarily ‘must take’, but a fixed price standard offer nonetheless) is priced at the market-price referent (MPR—it’s the 20 year LCOE of a combined cycle gas turbine), available to all renewables, up to 20 MW.

http://www.sce.com/EnergyProcurement/renewables/renewables-standard-contracts.htm

In 2009, about 200 MW was contracted (and paid development security, so we can be assured they are real projects).  140 MW was PV.  Here’s the advice letter (pdf) with the contract details.

Here’s the 2008 MPR price:

http://www.sce.com/NR/rdonlyres/0AF78E1C-74A7-4EE9-89A3-48C1B65FD155/0/090123_Market_Price_Referents.pdf

Note that pricing also uses a time-of-delivery adder (TOD).  In SCE territory, if you model the TOD factor on expected PV performance, you get a levelized boost of about 1.35.  So, take the applicable MPR, and multiply accordingly—it comes out to 15 -16 cents kWh.

Note that natural gas prices went down and the MPR went down about 20% this year.  Not sure if this program would work this year at the lower price point.

Several points to make:

• This is a lot of solar at a low price point.  Solar is getting cheap, and competes very well in CA.
• The clearing price of wholesale solar in CA is lower than retail rates. So, if you have load to serve, you are better off serving load then selling to utilities.  This is why it is so critical to preserve a behind-the-meter market as well.
• Standard contract terms-and-conditions are important.  A good one can level the playing field, reduce transaction costs, and is the key element in securing financing
• Winning PV contracts are 20 MW in size.  To date, program hasn’t been successful with smaller size systems, or with the 2009 MPR.  Also, SCE has the most solar-friendly TOD of all the IOUs in CA.

About a year ago, Pacific Gas and Electric asked regulators to approve a 500 MW distributed generation photovoltaic program.  In their proposal, the utility would build 250 MW of solar installations over the next 5 years, with each individual project sized between 1-20 MW.  In addition, the utility proposed to buy a further 250 MW from independent power producers, in the form of a standard offer contract–to be priced at the utility’s cost of development.  PG&E estimated that their costs in the first year to be $295/MWh, levelized over 20 years, with time-of-delivery factors included.

On Tuesday, the CPUC released two proposed decisions in the matter, one from the Administrative Law Judge (here), and the other from CPUC President Peevey (here), the assigned commissioner in the matter.  Both proposed decisions would approve the program, with modifications.  One of the most important change is to essentially turn the PG&E pricing process on its head.  Instead of receiving a fixed-price standard contract offer, power producers wishing to sell solar electricity to the utility must compete for contracts.  And the utility doesn’t get a blank check to build projects either—it is only allowed guaranteed rate recovery up to the average cost of IPP projects.  The proposed decisions argue that this is the best way of ensuring that projects get built at the best price to ratepayers.

The two proposed decisions differ on one significant point.  ALJ Ebke’s proposed decision would limit allowable projects to between 3 and 20 MW.  Her rationale is that SB 32, passed by the legislature last year, establishes a fixed-price standard-offer feed-in tariff for renewable projects 3 MW and under, and gaming on price would result if similar sized projects were allowed to forum-shop.  Unfortunately, SB 32 is not immediately available—it requires the CPUC to conduct a ratesetting process that we expect will be long and contentious, and which may or may not end up at a price sufficient to deploy renewables.  It is our belief that projects under 3 MW are somewhat of a sweet spot for solar development: large enough to achieve sufficient economies of scale to reach competitive price-points, but small enough to have a significant advantage in siting and permitting.  President Peevey’s alternate proposed decision allows projects from 1-20 MW to participate, hinting that the decision may be revisited when SB 32 is implemented.

Next step: parties have opportunity to comment, then it goes before the Commission for a vote.  With many of the details on the mechanics of implementation already negotiated or resolved through the process of considering a similar proposal by Southern California Edison earlier, once approved the program could be implemented relatively quickly.

In sum, we are looking at least 1 GW of utility-sponsored PV programs hitting the ground (and roofs) in the next 5 years.  Still to be determined is LADWP’s program—the utility announced plans for a 1.2 GW program, but details remain murky.  But make no mistake–wholesale distributed generation is the hottest thing moving in solar these days.