June 23, 2008
Is California’s Renewable Energy Mandate Destined for Failure?
By Alisha Fowler, Breakthrough Generation
Last week's news that California's utilities will not meet the state's law requiring that 20 percent of all electricity be produced from solar, wind and other renewable sources is further evidence that regulation alone - particularly unfunded mandates - will not carry us into a clean energy future.
In 2002 California adopted an aggressive Renewable Portfolio Standard (RPS). Governor Schwarzenegger mandated that California's investor-owned utilities (IOUs), energy service providers, and community choice aggregators source 20 percent of the power they purchase from qualified renewable sources by 2010 with a longer term goal of 33 percent by the end of the following decade.
California's plan is bold yet also achievable as it sets a series of long-term goals to accomplish its objective.
So two years away from its first lofty goal, how is California doing? Quite poorly, I'm afraid to say.
IOUs in California have failed to meet their renewables obligations in 2003, 2004, and 2005. In 2005, renewables as a portion of total sales were 12% for PG&E, 18% for Southern California Edison, and 5% for San Diego Gas and Electric (SDG&E). These IOUs are unlikely to meet the 2010 target of 20% renewables even if all pending contracts are signed, all currently short-listed bids are accepted, and all expiring contracts are re-signed. (Nemet, 2007)
All of these numbers and shortfalls point to significant problems when it comes to the implementation of California's RPS. The incentives provided to source 20 percent of electricity from renewable sources are sorely lacking, there are significant transmission barriers, and there are loopholes so large a hummer could drive through them. Unless these roadblocks are addressed, they will render California's RPS meaningless.
An Easy Way Out
The initial hope with an aggressive target like this is that there will be prompt development and adoption of new technologies so that the IOUs can meet the target at all costs. But, the details of the RPS regulations contain another option. Utilities can simply pay a penalty:
"The CPUC has set a penalty of 5 cents per kilowatt hour in the event that an investor owned utility does not meet its obligation, with an overall penalty cap of $25 million per utility annually." (CPUC, 2003)
$25 million per year is a small fee compared to pouring billions into research, development and demonstration of new technologies. Further, any new technology that would cost more than 5 cents over non-renewable sources is simply too costly to develop and the IOUs will choose to pay the fee. (Nemet, 2007) This modest penalty creates an easy opt-out strategy for utilities and severely limits the incentives for technologies that are otherwise close to being cost-competitive.
Another challenge to achieving the goal set by the RPS is the unequal distribution of renewable resources throughout the state. The cost of RPS compliance will rise sharply for utilities as the best locations for renewables - ie the sunniest and windiest spots - are snatched up. There are also shortages of appropriate wind sites to begin with. Competition for these sites coupled with a lack of transmission capacity is putting upward pressure on prices.
Infrastructure is a Major Barrier
Significant transmission constraints impede energy delivery from renewable energy resources areas to centers of energy demand - i.e. California's metropolitan areas -- and it will be very costly to construct the necessary new infrastructure. This presents a risky, and ultimately too costly, situation for electricity suppliers even as it creates attractive opportunities for renewable energy developers and their suppliers. When confronted with enormous cost barriers such as these, it is only natural that the IOUs will opt to pay a modest fee rather than pay to build the transmissions lines needed to access new renewable energy resources - costs that electricity consumers will ultimately have to pay...
Building the transmission infrastructure necessary to deliver renewables will be very costly, and it seems unlikely Californians will absorb even higher energy prices than they have today. Already, California's resolve in pursuing renewable energy policies has been shaken. In fact, Californians' position on drilling has shifted and 51 percent of Californians support drilling for the first time since oil prices spiked thirty years ago.
Loophole + Insufficient Infrastructure = Failure
The lack of government investment coupled with a huge loophole signals failure for California's RPS. The private sector will not, and cannot, do the heavy lifting necessary to make renewable energy sources viable alternatives to fossil fuels.
Rather than provide utilities with an easy way out, California's government should adequately fund the implementation of the RPS in the first place and help bring new technologies to market. And the federal government should support all states' efforts to develop and utilize renewables through extension of the Production Tax Credits (PTC). If the PTC is not renewed this year, renewables will become 2 cents per kWh more expensive overnight!
The bottom line is this: unfunded mandates will not succeed without government support, no matter how good they sound.