California’s increasing use of renewable power will come at a price, pushing up electricity bills across the state.
And while it’s impossible to tell how big the cost to consumers will be, some experts fear the total cost of renewable energy in California will be in the billions of dollars.
In the next three years, many long-planned solar plants and wind farms will come online, bringing California closer to its goal of getting one-third of the state’s electricity from renewable sources by 2020. As soon as they start delivering power to utility companies, the utilities’ customers will start paying for that electricity.
But the public doesn’t get to see the prices the utilities are paying. And without that information, assessing the impact on consumers is difficult at best.
Few doubt that higher bills are on their way.
“You’re going to see significant price increases over time from renewables,” said Aaron Johnson, director of renewable energy policy at Pacific Gas and Electric Co. “As you add it to the system, it is going to result in higher costs for consumers.”
California energy regulators, who approve contracts between utilities and renewable power developers, keep the prices confidential for the first three years after each solar plant, geothermal plant or wind farm starts operations. The information blackout was supposed to protect the public by keeping power plant operators from seeing each others’ prices and raising their own to match – a major worry back when the state had only a handful of renewable power projects selling electricity to the utilities.
But it also leaves the public in the dark, unable to know how much they’re likely to pay until the higher bills arrive.
The disclosure requirements will change somewhat next year, thanks to a law signed by Gov. Jerry Brown in October.
The law, written by state Sen. Alex Padilla, D-Pacoima (Los Angeles County), requires the California Public Utilities Commission to give the Legislature an annual report on the price of renewable power contracts signed during the previous year. It will not quote prices from individual contracts, instead aggregating the information based on the type of technology involved.
The first report, due no later than February 2012, will cover the hundreds of contracts signed by the utilities since 2003, when the state started forcing utilities to use more renewable power.
Padilla, who chairs the Senate Energy Committee, said he isn’t trying to give utility customers sticker shock or undercut public support for renewable power. He simply wants Californians to know what they’re paying.
“It’s tough to gauge progress or success without information,” Padilla said. “My goal is for people to better understand what we’re doing. It may shock some people. It may not.”
Developing a market
A handful of wind farms and large solar plants have operated in California for decades. But the state’s renewable power market began to develop in earnest in response to a 2002 state law requiring utilities to get 20 percent of their electricity from renewable sources by 2017.
A 2006 law shortened that timeline, forcing the utilities to reach 20 percent by the end of 2010. And this year, Brown signed a law requiring 33 percent renewable power by the end of 2020.
The mandates led to a rush of development as companies proposed new geothermal, solar and wind facilities. But the 2010 deadline created a seller’s market. Prices increased, market observers say, as the utilities scrambled to buy enough renewable power to meet the state’s goal.
“If you signed a contract, you were pretty glad you signed the contract, because a year or two later, the price would be higher,” Johnson said.
That dynamic began to change last year.
The number of renewable projects proposed across the state continued to grow, creating more competition. Larger, more-established power plant developers waded into the market, sensing an opportunity. The price of solar cells plunged, dropping an estimated 59 percent this year alone.
The whole time, prices remained hidden from the public. All power plants, renewable or otherwise, take years to design and build. As a result, some of the wind and solar facilities whose owners signed contracts with utilities during the price run-up have started operations, but many haven’t. So their prices are still confidential.
The consumer advocacy office of the utilities commission, however, has access to the data. The office, called the Division of Ratepayer Advocates, issued a report this year that analyzed all the contracts signed to date and found that they cost, on average, about 15 percent more than electricity from a power plant burning natural gas. That figure includes the cost of building, fueling and operating the renewable energy plant.
As a result, the utilities have committed to pay about $6 billion more for power than they would have over the life of the contracts, according to the report. Most of those added costs have not yet been included in Californians’ utility bills, because the renewable power projects are still under development.
“Unless those projects fail to come online, there’s nothing the ratepayers can do,” said Joe Como, the division’s acting director. “Those, we’re basically locked into.”
But the exact impact will be difficult to predict. Some of the higher-priced projects have fallen apart, despite having signed contracts. Johnson estimated the overall failure rate at 50 percent, although it was higher in the first few years of the renewable portfolio standard. “A lot of those projects aren’t happening – they’re imploding for various reasons,” said Matt Freedmam, staff attorney for The Utility Reform Network, a watchdog group. “So the total impact (on electricity rates) is going to be less than what we projected.”
Prices worry officials
Still, some state officials worry about renewable prices. The utilities commission staff recently urged the commission to reject a power purchase agreement that PG&E had reached with Spanish company Abengoa SA for a proposed solar-thermal plant in the Mojave Desert, arguing that the price was too high. The commission approved the agreement anyway, saying the plant, which had won a $1.2 billion federal loan guarantee, is almost certain to get built and is therefore less speculative than some other projects offering cheaper power prices.
Commissioner Mike Florio, however, voted against the agreement. He said the possibility of steep electricity rate hikes triggered by renewable contracts keeps him awake at night.
“It just worries me that if we sign too many of these contracts, it’s going to make the program look bad just when it’s being successful,” Florio said.
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