New FIT Program Could Blow California’s Solar Market Wide Open

On Aug. 24, the California Public Utilities Commission (CPUC) released a proposal that would establish a 1 GW pilot program requiring Pacific Gas and Electric Co., Southern California Edison and San Diego Gas & Electric Co. to procure electricity from renewable energy systems up to 20 MW in size. Industry observers say the plan could unleash a frenzy of solar power development in California.

‘We have a hard mandate for a gigawatt pilot,’ Adam Browning, executive director of the Vote Solar Initiative, tells Solar Industry. ‘This will be intensely competitive, with developers clamoring to get these deals done.’

The proposal, submitted by Administrative Law Judge Burton Mattson, would be backed by a feed-in tariff (FIT) based on market prices. These prices would be negotiated during biannual auctions – a procurement method the CPUC has dubbed the Renewable Auction Mechanism (RAM).

California's current FIT applies to projects up to 1.5 MW in size, and the procurement target is capped at 500 MW. Also, the standard contracts under the existing FIT program are priced against a market-price referent (MPR), which is determined by the cost of energy produced at combined-cycle natural-gas plants. California S.B.32, signed into law last October, would expand the FIT program to a 750 MW cap and a project size up to 3 MW, but the CPUC has not implemented it.

Although all renewable energy generation assets would be eligible for the new program, it seems likely that solar would be the key beneficiary. By increasing the eligible system size to 20 MW, the CPUC has hit a sweet spot for large-scale photovoltaic (PV) plants.

PV system costs have dropped precipitously over the past year, making the development of big installations economically viable for all stakeholders. And with those lower system costs have come lower solar energy prices – so low, in fact, that the lofty goal of reaching grid parity is in sight in California.

‘This is a sea change in the solar industry,’ Browning says.

He notes that the wholesale clearing price of solar is currently below retail rates, enticing utilities to scoop up solar power not only to help meet the state's renewable portfolio standard (RPS) mandate, but to simply procure energy at competitive prices.

The RAM appears to be a useful mechanism for doing that. Experience with the existing FIT suggests that utilities would resist the fixed-price contracts that would accompany the implementation of S.B.32. The RAM provides an option to avoid that unpleasantness. In essence, the CPUC has determined that renewable energy should be priced on its own merits – not against the price of fossil-fuel generation.

‘The key thing is they have shown their hand, as far as what they think the value of solar is above the MPR table,’ comments Dr. John Barnes, founder and principal partner of Solar Power Development Partners, based in Saratoga, Calif.

The CPUC has also expressed its desire to expedite RPS fulfillment, which is much easier to accomplish with midsized projects that can come online in a fraction of the time it takes a massive concentrating solar power (CSP) plant to be commissioned. While the output of a CSP facility can register in the hundreds of megawatts, large PV plants – while certainly complicated and expensive – are more nimble, the commission has reasoned.

The new proposal also helps stakeholders skirt thorny issues related to transmission. In most cases, the transmission infrastructure needed to move power from remote CSP plants to demand centers is not available. Building new high-voltage lines requires not only huge capital investments, but also Federal Energy Regulatory Commission involvement, which presents challenges related to jurisdiction and project timelines.

Midsized PV projects can integrate with the grid via existing electric-distribution networks. To one degree or another, all of the investor-owned utilities that would participate in the new program are currently engaged in upgrading distribution equipment. In turn, it is presumed that these systems will be able to handle the integration of distributed solar resources.

‘The real way to get solar installed in California is through distributed generation,’ Barnes says. ‘It allows you to connect these systems and get them done in a reasonable time frame without transmission upgrades.’

For its part, the CPUC has fortified the proposal with language that seeks to cut away the fat and ensure that only projects that are shovel-ready enter the RAM pipeline. For instance, the proposal recommends a RAM deposit of $20/kW for selected projects. Developments that are selected for the program would have 18 months from the date of contract execution to begin commercial operation – if not, the project deposit would be lost.

Although the proposal is not a final rule, Browning is confident that the major provisions of the plan will sail through the comment period and be adopted by the CPUC. In fact, he says the commission could vote on the proposal within a few weeks, potentially leading to ‘tremendous growth’ in California's solar market.

‘It's a very positive step toward higher levels of distributed solar generation,’ Barnes adds.

(Please address all comments regarding this article to Jessica Lillian, at jlillian@solarindustrymag.com.)

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