California proposal could jumpstart U.S. solar market

SAN JOSE, Calif. - Will solar finally take off in California--and the U.S.?

In one effort to jumpstart the market, the California Public Utilities Commission (CPUC) has issued a proposed decision to launch a new renewable incentive program in the state.

This feed-in tariff (FiT) program will require investor-owned California utilities to purchase electricity from renewable energy systems between 1 and 20 MW in size. The so-called Renewable Auction Mechanism (RAM) feed-in tariff model addresses many of the challenges facing wholesale renewable energy policy in California and the U.S.

This proposed program stimulates activity by establishing a market for smaller to mid-size (up to 20 MW) renewable projects that can be incorporated into existing utility distribution infrastructure.

Last month, the Federal Energy Regulatory Commission (FERC) ruled that states do not have the authority to establish wholesale electricity rates that exceed utility “avoided costs.” The CPUC program overcomes this jurisdictional challenge.

''This is a positive move for solar and paves the way for increased solar penetration not only in California, but also in the U.S.,'' said said Mark Bachman, an analyst with Auriga USA, in a report.

The CPUC proposal establishes a 1-gigawatt (GW) pilot program for power from eligible mid-sized renewable energy systems. The program requires California’s three largest investor owned utilities to 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. Development security and relatively short project development timelines ensure project viability. The Commission can act to finalize and adopt the program in as soon as thirty days.

''The subsidy will work as a FiT, but the rates will set by an open bidding process (auction) rather than being administered by the CPUC. This is a key attribute of the program because the FiT rate will use market-rate pricing that is set by a competitive bidding process and carries the ideas that project developers can garner fair returns while ratepayers are not overly burdened by excess subsidies,'' Bachman said.

''The program is scoped at 1000MW over two years; we figure 500MW in both 2011 and 2012. Solar projects are limited to 20MW or less and the electricity will be delivered to one of California's three primary investor owned utilities (IOUs) through standardized must-take contracts. Auctions will take place roughly every 180 days, and each auction will allocate 250MW to each of the three IOUs,'' he said.
 
It in turn could jumpstart solar. ''The actions by our legislators at the federal level have done little to spur renewable energy adoption , so we look to the states in order to drive the market,'' he added.

''U.S. demand has largely been driven through Renewable Portfolio Standards (RPS) where 29 states now have plans in place, while some have dabbled with their own forms of subsidy programs. Some states use additional tax incentives while others have used pilot programs to test the adoption of Feed-in-Tariffs (FiT),'' he said. ''California has been the clear leader in adopting solar energy into its portfolio of renewable energy solutions and is now positioned for further penetration with the new subsidy program. The long-term hope is that the program is successful and that other states will adopt similar mechanisms, which could result in a massive expansion of solar installations in the U.S.''