RPS Flexibility and Cost Containment
Posted September 18, 2009
The 33% Renewable Portfolio Standard (RPS) recently passed by the California Legislature represents a commitment to an almost 3-fold increase in the amount of renewable generation for California consumers in 2020 compared to current levels. If enacted, this legislation would reaffirm California's leadership in energy policy and set the standard for action by the federal government.
The key issue addressed in this legislation was finding a balance between flexibility and encouraging in-state development. Utilities, developers, and the grid operator want flexibility to help them achieve the overall goal and minimize costs. Labor, consumer groups, and environmental justice advocates want in-state construction to create jobs and economic development.
Both of these goals are important. We must create adequate flexibility to allow utilities and renewable developers to achieve these goals at a reasonable cost. But we must also work to ensure that California benefits from the jobs and economic development that this investment will create.
In the legislation, this balance is achieved by requiring that at least 70% of renewable energy actually is delivered to California customers. The bills allow for the remaining 30% of renewable generation to be "undelivered electricity," which can be met through the purchase of renewable energy certificates that verify incremental renewable generation somewhere else in the western U.S. electricity grid. (Not coincidentally, the 30% REC limit is what Governor Schwarznegger asked for in his legislative request. ) Overall, these rules would allow perhaps 50% or more of renewable power to come from out-of-state facilities.
Opponents of the legislation argue that even this level of flexibility is inadequate. But claims that the bill would require too much of the new renewable generation to be built in California may not be well received by the State's citizens who want investments in renewable energy to produce good paying jobs in their communities as well as help protect the planet from global warming. Where some see protectionism, others see an effort to protect and rebuild California's economy.
The 33% RPS legislation also includes a cost containment mechanism to protect consumers from excessive costs. This provision requires that the total net cost of the program not raise rates by more than 6%. That's far less than the expected increase in rates over the next decade for non-renewable investments and less than the 7% that was estimated by PUC staff to meet the 33% goal. The cost cap will impose significant cost discipline on developers and regulators, encouraging competition and efficient implementation. If we're successful and renewable technology costs decline over the coming decade, the goal could be achieved at substantially lower cost or even at a net savings.