4. Need for the Program
4.1. Discussion
California has long recognized the importance and environmental benefits of renewable energy and has taken a leadership role in implementing programs to promote the development of renewables in the state. In 2002, the RPS was established under SB 1078 with the goal of increasing the share of the electricity generated from renewable sources to 20% of retail sales by 2017. The deadline for achieving this goal was subsequently accelerated in 2006 to 20% of retail sales by 2010, pursuant to SB 107. As currently implemented, the RPS requires electric corporations to increase procurement from eligible renewable energy resources by at least 1% of their retail sales annually, until they reach the 20% by 2010. The state has also made substantial efforts to promote the deployment of solar generating facilities more specifically, recognizing some of the relative advantages solar offers as a renewable resource, in particular that solar output largely coincides with peak demand. The California Solar Initiative (CSI) was introduced in 2006 to spur the development of distributed solar generation in California. In 2009, in D.09-06-049, the Commission also approved a solar PV Program (SPVP) for Southern California Edison Company (SCE), which authorized SCE to deploy up to 500 MWs of distributed systems through both PPAs and UOG installations on rooftops in its service territory. It is also state policy that the highest priority be given to those renewable resources that can be developed most quickly.21
This decision, which adopts, with modifications, PG&E's proposed solar PV Program, represents another significant step in advancing the development of renewable generation in California. By adopting the PV Program as modified here, the Commission reinforces the importance of renewable distributed wholesale generation as an attractive resource option in the utilities' renewable generation portfolios. Also, this decision emphasizes that procurement mechanisms and strategies other than the RPS solicitations can help facilitate the expeditious installation and operation of additional renewable facilities in California and bring benefits to ratepayers.
Below we discuss why it is prudent to adopt the proposed PV Program subject to certain modifications. We address parties' concerns and find that the PV Program does not interfere or conflict with the RPS program or other renewable energy programs. In addition, we find that the PV Program is in the interest of ratepayers and the adopted prices are just and reasonable.
First, with respect to the RPS compliance, there is significant disagreement among parties about whether the PV Program is needed for PG&E to meet its 2010 RPS compliance obligation. We agree that on a contractual basis, PG&E has signed enough renewable contracts to meet its 2010 RPS compliance obligation, but do not believe that this fact alone indicates that adopting other programs targeting development of additional renewable projects are unnecessary or, as DRA puts it, "discretionary."
It is clear that development of renewable generation to meet the RPS goals for 2010 and beyond is a priority for this state and this Commission. While the record indicates that PG&E has contracted for enough renewable power to meet its RPS target for 2010, even with the RPS' flexible compliance rules, there is a possibility that PG&E may not meet its RPS targets because of various factors that can impede timely development of these facilities. Financing challenges, permitting delays, and transmission access represent risks that have been widely recognized as factors that can compromise the timeliness of renewable deployment, particularly given the scale of the facilities that PG&E has relied on thus far. Many renewable resources require substantial construction activities or the deployment of new transmission infrastructure to access the renewable resource.22 Because such additions can have significant environmental impacts, the permitting process and associated uncertainties have the potential to result in significant delays given the type of review to which these projects are subject. Small and mid-size PV projects, like those proposed by PG&E in its application, however, can potentially avoid these risks and be deployed more quickly and with greater certainty insofar as these facilities can be located close to load without the need for transmission additions, and may face fewer environmental barriers and public opposition than larger scale projects. It is worth noting that environmental and public opposition to large scale projects, which can occupy several square miles of land, are not theoretical concerns in California. In 2009, in response to significant commercial interest in developing large scale renewable projects in the Mojave Desert and their potential impact on the desert environment, Senator Dianne Feinstein introduced a bill to establish the Mojave Trails National Monument. If created, the monument would prevent the deployment of large scale solar and other renewable energy facilities on lands within the monument's boundaries.23 Some of PG&E's proposed solar projects with Brightsource, specifically those located in Broadwell Dry Lake, are among the projects that would be impacted by this proposed designation.24 Distributed small scale solar PV facilities appear far less likely to elicit this kind of public opposition as they simply do not occupy vast stretches of land. In light of these factors, coupled with the modular nature of solar PV, it is reasonable to conclude that development of smaller projects can be accomplished more quickly and with less risk than larger facilities. Thus, developing these resources can be an efficient and relatively certain way of bringing additional renewable resources on line.
In its testimony, DRA offers a SWOT (strengths, weaknesses, opportunities and threats) technique to determine the reasonableness of the PV Program. We disagree with DRA's analysis because it does not take into account a number of these benefits. DRA also argues that because currently there is no mechanism to quantify the value of solar displacing fossil fuel or shaving off peak demand in electric rates, ratepayers will not receive any of those benefits. Although the above benefits are not yet quantifiable, they are among the known and unique benefits of PV technology and should not be overlooked. Thus, over the long run, adopting a program that will facilitate development of small and mid-size PV projects and help deliver renewable power to California can benefit ratepayers and help advance the state's policy goals.
Another factor that weighs in favor of adopting the PV Program is our interest in renewable UOG. We have previously addressed the benefits of renewable resources and have emphasized our support for renewable UOG. In D.08-02-008, the Commission stated, "First, there may be a unique and important role for utility-owned RPS generation. UOG from renewable energy resources, for example, can put downward pressure on what are otherwise increasing renewable energy prices." Furthermore, given the current economic environment, it is clear that the utilities, like PG&E, can bring additional financial resources to bear on a market that has faced an increasingly challenging financial climate. Despite our encouragement for California utilities to pursue renewable generation, very few UOG projects have come forward.
Although small and mid-size PV projects offer a number of benefits, several concerns have been raised that need to be addressed. Central among these is the issue of price and the manner in which the higher prices offered under the proposed PV Program may conflict with the RPS program, to the detriment of ratepayers. For example, DRA is concerned that if prices offered in PG&E's PV Program are higher than the prices for projects in the RPS, developers will bypass the RPS solicitation or bilateral negotiations in favor of PG&E's PV Program.
We do not believe the PV Program, as modified herein, would conflict with the existing RPS program, because the PV Program targets only a subset of projects that in our view cannot, as a practical matter, effectively compete in an RPS solicitation owing to their relatively higher cost when compared to large scale projects. However, given the relatively greater viability these projects offer, rather than conflicting with the RPS, we believe the PV Program will be complementary. DRA and others argue that the PV Program would allow more expensive projects to move forward in lieu of lower cost facilities that would otherwise be selected if we continued to rely exclusively on the RPS program for all renewable procurement. This concern, while true to a point, does not undermine the policy rationale for moving forward with this program. As explained above, these projects, while potentially more expensive than the larger scale projects that tend to dominate the RPS solicitations, offer a number of specific benefits that we believe are not accounted for in the RPS program and, in particular, are not offered by projects of a larger scale, namely the relative ease and certainty of deployment these facilities offer. In light of these benefits, we believe the premium ratepayers may pay for these particular resources are justified, provided the price paid is the result of a competitive process and appropriate incentives are in place to maximize system performance. The choice implied by DRA, between building cheaper, large-scale projects on one hand, and more expensive, smaller-scale projects, like those proposed here, on the other, is a false one as it presupposes that the larger scale facilities DRA and other assume would be built in lieu of the solar projects pursued here, would actually come online in a timely manner. Our experience with the RPS thus far suggests that many of these larger projects face substantial risk to timely development.
Potential overlaps with the RPS program are also limited by the narrow focus and eligibility criteria of the PV Program adopted here. Only solar PV projects that are located in PG&E's service territory and can achieve commercial operation within 18 months of signing a contract will be eligible to participate. In contrast, the RPS does not limit projects to a specific location, nor does it require an 18 months online date. RPS projects may be located outside of PG&E's service territory and may have a different online date depending on the negotiated contract. Accordingly, the majority of the projects that are eligible to participate in the RPS would not be eligible to participate in the PV Program. Thus, such projects would continue to be properly considered in the RPS process and would not be able to "forum shop" as DRA supposes. Again, in our view, adopting the PV Program would not hamper the RPS. On the contrary, it would facilitate the expeditious installation and operation of PV facilities that can help PG&E meet its RPS goals.
DRA's other concern, that developers with large projects will have an incentive to divide their projects into 20 MW parcels to take advantage of the PV Program prices, while a reasonable argument in the context of the pricing structure PG&E proposed in its application, is rendered largely irrelevant under the pricing methodology adopted in this decision. Presumably, a developer could fragment large projects into 20 MW parcels and forgo the RPS solicitation process if the fixed price offered under PG&E's PV Program were higher than those a project would receive under the RPS solicitation. However, as described in more detail below, rather than adopting PG&E's fixed price approach, PG&E will be required to hold competitive solicitations for the PPA component of the PV Program. Thus, to the extent these solicitations are competitive, developers will face the same strong incentives to bid into these solicitations at their marginal cost, just as they do currently under the solicitations conducted in the RPS program.
Overall our view is that the PV Program provides a valuable approach to facilitate expeditious development of renewable generation by independent producers and could result in the timely installation of new renewable facilities in California. As such, it will help meet PG&E's RPS goals and will provide benefits to the ratepayers. For these reasons, we feel that it is reasonable to adopt such a program.
However, given the record evidence regarding the rapidly changing market for solar PV, and the reasonable concerns expressed about cost, we do not believe it is reasonable for the Commission to establish the pricing under the PPA component of the PV Program via an administratively determined price derived from the estimated costs of developing UOG projects. Below we discuss program costs.
21 Executive Order S-21-09.
22 For example in its July 2008 RPS quarterly report, Energy Division identified transmission as a key barrier to renewable development in California. Ongoing concerns about transmission needed to access renewable resources led to the creation of the Renewable Energy Transmission Initiative (RETI). RETI seeks to identify high value renewable resource areas in California and the west and the transmission infrastructure needed to reach these areas given both economic and environmental considerations. See http://www.energy.ca.gov/reti/index.html.
23 Wallstreet Journal, "Green Battle Rages In Desert: Mojave Protection Bill Would Put Prime Solar-Power Sites Off Limits." December 23, 2009. http://online.wsj.com/article/SB126144129302900923.html.
24 Resolution E-4269, pages 9-10 http://docs.cpuc.ca.gov/word_pdf/FINAL_RESOLUTION/107761.pdf BrightSource had been pursing project development for PPAs 5, 6 and 7 in Broadwell Dry Lake, California and has applications pending for site control with the Bureau of Land Management (BLM). PG&E explained in AL 3459-E that the Broadwell Dry Lake Projects are planned for development on BLM land that is currently being considered for national monument status, which could prevent project development. Our Draft Resolution identified Broadwell Dry Lake as the Projects' location and discussed the development risks of the sites. On September 18, 2009, the Los Angeles Times reported a statement from BrightSource that they, "... have ceased all activity at the Broadwell site..." Accordingly, we revised our Final Resolution on AL 3459-E to remove PPAs' 5, 6 and 7 site designation of Broadwell Dry Lake, California. The PPAs allow BrightSource to develop the Projects at other sites, provided certain delivery terms and conditions are met. (See Section "Energy from out-of-state Projects complies with Public Resources Code 25741" and Confidential Appendix B.)
