The California Public Utility Commission today approved an important new policy for California solar PV, the Renewable Auction Mechanism (RAM). As you may remember, RAM was originally proposed by the CPUC staff back in August of 2009 (I blogged about it and why I thought it was a much preferable alteranative to a Feed-in Tariff here). Recurrent Energy has been very involved as an advocate of RAM and we're thrilled to see it finally pass.
The decision that was appproved today has seen a lot of changes since it was first proposed. However at its core, the program preserves the key features that I think are important for the state as it evolves towards a competitive renewable power market. It essentially directs the 3 large investor-owned utilities (SCE, PG&E, SDG&E) to procure 1 GW of distributed scale projects over the next 2 years through a competitive auction process.
The RAM's focus on distribute-scale projects (2MW-20MW each) is important because these projects are less risky and can be delivered in a much shorter time frame than large projects. Recurrent Energy was an early leader and proponent of this type of distributed-scale project.
Unlike the 'mega PV' projects that typically require thousands of acres of pristine wilderness and new transmission lines, distributed-scale projects can be fit onto smaller parcels of less sensitive land and can be connected to the existing utility grid. That means they're less risky--in other words they're more likely to get permitted and interconnected--and they can be delivered sooner.
Those benefits are (or should be) important to utilities and regulators who are under increasing pressure to meet RPS targets. Adding distributed-scale resources to the RPS portfolio reduces the overall risk of hitting regulatory goals (in the same way that a diversified financial portfolio can deliver a more consistent return).
Another very important feature of RAM was the clear policy preference for using auctions to set prices rather than using a 'European-style' Feed-in Tariff (FIT) where prices are set by regulators. As I've said repeatedly, FITs come with all the market distortions associated with government price-setting. In a world where PV prices are rapidly declining, a government set price cannot respond fast enough to ensure that utilities and ratepayers are getting the best deal for solar power. An auction (with the right rules) will ensure that California gets the absolute best price for this type of resource while encouraging a tremendous groundswell of new project development activity.
The other important feature is the RAM's emphasis on strict viability standards and short delivery time lines. As I mentioned above, for an auction to work, it has to have the right 'rules' to ensure it isn't gamed or manipulated. One risk of auctions is that participants may bid very low prices in order to win a position in the queue, effectively getting a 'free option' on delivering a project if equipment prices decline rapidly. If prices don't come down, they just walk away at no cost.
This type of behavior would be detrimental to confidence in the RPS and creates huge uncertainties for regulators and utlity planners. To address this, RAM requires project developers to show proof of interconnection filings, site lease, and other project milestones, plus it requires developers to have 'skin in the game' in the form of non-refundable developer deposits that have to be provided upon award. I believe these will be instrumental in encouraging responsible bid behavior.
RAM is an important new step in California's solar future, building on many of the innovative policies that have made California a leading state in the development of successful renewable energy policies. Governor-elect Brown has urged us to think even bigger, promoting a vision that includes 20 GW of new renewables with 12 GW of that 'distributed scale' just like those envisioned by a policy like RAM. We're just getting started!
California has a history with price-setting with rent controls, I'm sure people will draw parallels to that here and try to pretend they're the same.
Posted by: Anon | 23 February 2011 at 01:58 PM