Despite the phenomenal success of California's Renewable Portfolio Standard in creating a market for utility-scale solar, many in the industry are forecasting the end of the transmission line for large central stations stranded out in the desert.
Costs of transmission upgrades, estimated to be around $80bn over 20 years and permitting delays – not to mention endangered tortoises – have all conspired to create more complexity than anyone had anticipated in implementing the state's 33% renewables target by 2020.
Policymakers, regulators, utilities, industry players and solar advocates are beginning to break new ground on a third-way approach that reassures utilities fearful of losing revenue to residential-scale solar while keeping developer order books filled with the promise of room for growth from 1GW to 12GW of distributed generation by 2020 thanks to Governor Jerry Brown.
Wholesale Distributed Generation, i.e. front-of-meter utility-owned solar projects up to 10MW, could be the bridge between net-metered retail DG (which utilities hate) and central stations (which they both love and hate).
Ben Higgins, director of government affairs at solar company Mainstream Energy, said: “The WDG paradigm has flipped that large-scale paradigm on its head. Policymakers and utilities were aiming for very large systems – 20MW and in many cases in excess of 100MW. But the complexity, the cost and the risk and the timeline associated with that has essentially relegated that system size to the dustbin of history.
“Unless you are truly in the upmost-tier of very-large project development, and are doing absolutely everything right, your opportunity is very, very narrow in what is an absolutely overheated large-project market.”
Governor Jerry Brown is quick to point out that 33% RPS is a “floor”, not a ceiling, and the losers bidding into the RPS could soon start looking elsewhere to place their bids, such as Brown's 12GW distributed generation (DG) target.
Higgins said there is a clear trend towards smaller projects. “Lots of projects in the pipeline will get built, but the trend in the market and in the policy realm is undeniably shifting away from those large central station systems to utility-scale systems of a much smaller size.
“Policymakers and the industry have learned this lesson in a pretty difficult way. I don't think that anyone could have projected even a few short years ago the massive difficulty that many of these larger projects would have had, particularly with respect to local land use and environmental issues.”
California's Reverse Auction Mechanism, which allows developers to bid for quick-install projects of 1MW to 20MW up to a total of 1GW, was one policy response to this trend that had been very effective in stimulating a smaller-scale market, he said.
Last month, PG&E asked the CPUC to raise the allocation of solar from 35MW to 85MW and requested extra time for developers to commission projects.
Southern California Edison is also moving capacity from their Solar Photovoltaic Program (SPVP) into RAM. “Another indicator that RAM will become an increasing-prominent driver of wholesale DG,” he said.
Earlier legislation, such as SB32 signed in 2009, had failed to have the desired effect to create a market based on feed-in tariffs for small-scale projects, he said.
“In 2009, the solar industry was successful in passing legislation SB32 for a 750MW state-wide feed in program for 1–3MW systems. Here we are in March 2012; we don't even have the proposed decision from the CPUC yet on this. Not a single kilowatt has been subscribed, not a single kilowatt has been built not a single kilowatt hour has been fed into the grid three years later.”
But progress in launching programmes to meet the 750MW goal is anticipated by the middle of the year, says Craig Lewis, executive director of the Clean Coalition which advocates for “clean programmes”, similar to European-style feed in tariffs.
California's utilities are notoriously resistant to European-style FiTs partly because they would have to accept mandated prices, rather than letting developers and utilities (i.e., the market) work it out between themselves.
“The way business is done right now it works really well for the utilities,” said Lewis. “I don't blame them for liking the way things currently are. But as a ratepayer and an executive director that is looking out for the public good, I've got a big problem with the way things are done now.
“Residential solar feed-in tariffs are a double whammy for the utility because they don't get returns from the investments in transmission and the consumer has a reduced need for central station energy.”
Decoupling revenue from retail sales to ratepayers in California forced utilities to rely on capital expenditures for profit, he said. And despite the large bill for transmission upgrades – $80bn over 20 years – the CPUC would allow utilities to pass these costs on to the ratepayer which would bring a 10% to 11% return over 20 years.
Policymakers had failed to anticipate $80bn in additional costs, largely to meet the state's RPS goal, he said.
“It's a policy mess. California and national energy policymakers are stuck in paradigms. That paradigm has been cultivated for large central stations and retail DG. US policymakers have been stuck in those two paradigms because that's just the way we've done business for the last 100 years.
“The folks that are propagating that habit are well-funded utilities who like it this way. But the majority of deployment around the world is in WDG. It's is very sensible for Californian ratepayers, too, because it's the most cost-effective way to produce renewable energy because you avoid these massive transmission costs.”
But WDG could be a more attractive proposition for utilities because they would own the project themselves and fresh approaches appear to be wearing away their resistance.
AB 2340, a bill to allow ratepayers to share in distribution grid investments to support clean local energy, was recently introduced to the state legislative assembly, said Ted Ko, associate executive Director at the Clean Coalition.
“Currently, independent energy developers pay all the costs of upgrading the grid to plug in their projects, which ends up delaying clean energy development and ultimately making clean energy more expensive. These new rules will help cut down the waste and bureaucracy in the system to accelerate cost-effective development,” he said.
“We are in early dialogue with the three big IOUs with the expectation that we can jointly refine the legislation to be beneficial to all stakeholders.”
But European-style FiT models do not fit in the US energy industry – either structurally or culturally – and few anticipate widespread adoption any time soon.
“We spend a lot of time in this industry talking about the German feed in tariff and the success that they've had there,” said Higgins. “It's always the subject of every presentation at every conference. We do ourselves a disservice by focusing in the US so significantly on that model and the success that they've had [in Germany].
“We can talk about resistance in the US to FiTs all day long – constitutional, factional, political. But why FiTs have not been widely adopted comes down to one very simple reason: utilities are extremely wary of becoming ever more sophisticated with respect to price setting. From a utilities perspective there is a very simple mechanism by which to determine prices and that is a competitive bid for competitive auction mechanisms.
“The competitive method of price determination will remain the most dominant one used in this country for some time to come. That's not to say that FiTs won't be implemented in some form or fashion here and there.
“That's how challenging it is for the policy makers and utilities to see these fixed-price FiT programmes actually come to life. From a practical standpoint I would not place all my money on that horse.”