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Merced Irrigation District questions state’s green energy costs, requirements

Worries that the state’s evolving renewable energy requirements will translate into unbearable rate increases for consumers have been eased somewhat by recent government studies.

The cost of buying renewable energy decreased 30 percent from 2009 to 2011, according to the most recent quarterly report issued by the California Public Utilities Commission.

“The good news is that renewables are at the cheapest price point they’ve been in a number of years,” said Yuliya Shmidt, lead analyst on renewables for California’s Division of Ratepayer Advocates, a branch of the CPUC. “Most of these contracts are long-term. So now is a good time to buy, if, in the future, you think renewable energy won’t even get even cheaper.”

On reason prices have gone down is a market saturated with energy providers. Last year, private companies hoping to build and provide renewable energy projects for investor-owned utilities offered more than three times what the state needs to meet its long-term goals.

“Certainly renewables haven’t achieved grid parity,” Shmidt said. “But they’re headed in that direction. Maybe not in the short-term, but in the long-term, definitely. Certain renewables, particularly solar, are showing a lot of promise that way.”

But renewable energy is still in many cases as much as twice as expensive as conventional power, in part the result of initial cost outlays for infrastructure.

With government mandates looming, local utility officials have to decide how soon they want to sign contracts with renewable energy providers. Typically, contracts are binding for 15 to 20 years.

Under bipartisan legislation passed last year, an average of 20 percent of energy provided by a power utility from 2011 to 2014 has to come from renewable sources. By 2020, that number increases to 33 percent.

The averaging means that if utilities don’t start providing renewable energy before 2014, they’ll be hit with a significantly higher requirement at the 2014 benchmark.

Double-digit rise

The Merced Irrigation District, which provides electricity for county residents and businesses, estimated the cost of compliance over the next three years at about $6 million, which officials have said will mean double-digit percentage rate increases for customers.

“The bottom line is rates are going up,” said Mike Sweigard, general manager for the MID. “The closer to 2020, the higher the rates are going to be.”

The MID buys wind power from a company called Iberdrola in Solana, and hydropower from a federal energy project called Western Area Power Administration.

The MID is trying to stay “ahead of the curve,” said Sweigard, who expressed frustration that more of the utility’s hydropower doesn’t count as renewable.

Although the MID gets credited with creating renewable energy from its small hydropower dam on Lake McSwain, its hydro project on Lake McClure doesn’t qualify because, under California law, it exceeds a size cap for renewable hydropower.

The MID gets about 10 percent of its energy from renewable sources. To come into compliance, the utility has to increase that to about 25 percent by the end of 2013. But getting there doesn’t mean just buying more renewable energy.

Infrastructure costs

“There are additional costs not typically considered when it comes to this type of energy,” said Mike Jensen, spokesman for the irrigation district. “There is currently inadequate infrastructure. Wind and solar energy must be scheduled and there must be a balancing electrical base, like hydro or natural gas, when the wind and solar go offline, a daily occurrence.”

Building the transmission lines that connect power providers are often amortized into the cost of the energy the utility pays for. And utilities often have to pay for upgrades to their grid in order to accommodate power coming from outside sources.

But those are one-time costs. Once that infrastructure is in place, utilities in the state will have a substantial advantage when it comes to providing clean energy.

After a long-term contract ends and the initial project is built, the generator can either try to renegotiate a contract with a utility or sell into the short-term market, said Peter Hill, senior scientist with the Natural Resources Defense Council. “So by 2020 or so, there should be a lot of renewable generators with low capital costs and zero fuel costs trying to sell their electricity into the market. That should help keep prices low and relatively stable.”

California consumers will bear the cost of building the state’s cleaner, more environmentally friendly energy grid. Of course, what and how permanent those costs will be has yet to be seen.