Since 2002, California’s utilities have committed to spend about $6 billion more on renewable power contracts than they would have paid to buy the electricity from new power plants burning natural gas, according to a state report issued Friday.
The report, from a division of the California Public Utilities Commission, examines the costs of a state law that required the utilities to get 20 percent of their power from renewable sources such as the sun and the wind by the end of 2010.
Since the law was passed, 59 percent of the contracts the utilities have signed with renewable power developers have been more expensive than the levelized price of electricity from a new natural gas plant. The levelized price takes into account the costs of building, operating and fueling the plant.
The renewable contracts that topped the levelized price of power from a gas-fired plant did so, on average, by 15 percent.
“The thrust of the message is, we need some kind of cost containment,” said Yuliya Shmidt, a regulatory analyst with the commission’s Division of Ratepayer Advocates.
The report, which Shmidt co-wrote, suggests that the utilities commission set a contract price limit for each utility that would be kept confidential and revised year by year. The report also recommended that the commission give some contracts more scrutiny than they now receive.
Renewable power technologies tend to be an expensive way to generate power, when compared with fossil fuels. But that isn’t uniformly true. For example, geothermal energy – using Earth’s heat to generate electricity – can cost 36 percent less than power from a natural gas plant, according to data from the California Energy Commission. Wind power also can beat a natural gas plant’s prices.
For years, California’s big, investor-owned utilities were frantically signing renewable power contracts, trying to meet the state’s 2010 deadline. All of them missed it, but the law gives them until 2013 to comply. Still, the race may have contributed to costs, giving solar and wind developers more bargaining power.
“Everyone knows when the deadline is, and up until recently, the utilities were scrambling to sign enough contracts,” Shmidt said.
The exact impact on Californians’ electricity bills isn’t known. The utilities have signed many contracts for power from wind farms and solar plants that have not yet been built, so the utilities’ customers are not yet paying the cost.
Of all the state’s utilities, Pacific Gas and Electric Co. had the highest percentage of contracts that cost more than natural gas-fired power: 77 percent. Company spokesman Denny Boyles said the company relied more than the other utilities on solar power contracts, and solar remains more expensive than most other renewable technologies despite recent price declines.
“We share the DRA’s concerns about costs,” he said. “We have some concerns about their plans.”
For example, if the commission set a price limit and tried to keep it confidential, renewable power developers might be able to figure it out anyway and raise their prices to meet it.
“If you set a price limit, prices naturally rise to that limit,” Boyles said.
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