California to Write New Chapter in Energy Policy

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"The Golden State is well placed to expand its role as America's energy frontier."

CA Governor Jerry BrownWith gridlock likely in the 112th Congress and the Administration's mandate accordingly tempered, those interested in America's energy policy and 21st century competitiveness should look west. As newly elected California Governor Jerry Brown's ambitious state budget undergoes the scrutiny of multiple media cycles, other elements of the senior statesman's agenda may easily go unnoticed including what impact Governor Brown part deux may have in renewing an American innovation economy.

California's GDP weighs in as the eighth largest in the world, and the state accounted for 60% of all North American venture capital investment in the clean tech sector in 2009. After making headlines with its seminal 2006 climate legislation (AB 32), adopting the first Low Carbon Fuel Standard, and establishing the second most aggressive state Renewable Portfolio Standard (RPS), what's next for California?

In Mr. Brown's campaign literature, one of the objectives that dominates his energy and environmental platform is a rapid and expanded deployment of localized electricity generation. To be precise, he calls on California to produce 20,000 new megawatts (MW) of renewable electricity by 2020, of which 12,000 megawatts would consist of "onsite or small energy systems located close to where energy is consumed that can be constructed quickly (without new transmission lines) and typically without any environmental impact." To fulfill this goal, he envisions solar systems up to 2 megawatts being installed on the roofs of parking lot structures, schools, warehouses, industrial parks, and other attractive sites while larger solar projects up to 20 megawatts in size would be accommodated on large public and private lands. Candidate Brown even proposed the nation's first "Solar Highway" by placing PV panels alongside swaths of state roads.

To facilitate this deployment, he has singled out a new feed-in tariff mechanism and ensured that having the legislature or the California Public Utilities Commission (CPUC) authorize such renewable power payments would be an administration priority. All-too-keenly acquainted with the "Governor Moonbeam" moniker that has shadowed him throughout his political career, Mr. Brown went to great lengths during the campaign to emphasize that any feed-in-tariff system will not be a quixotic quest at the expense of consumers and has stated explicitly that "holding down rates must be part of the design." Brown's clearly articulated goals can also be seen against the backdrop the UK's young feed-in tariff and its early impacts on energy markets across the pond.

The UK tariff, designed by former Secretary for Energy and Climate (and current Labour Party leader) Ed Miliband, was initially praised for its straightforward goals and a number of innovative design features. The program covers projects up to a size of 20 megawatts and while it pays a solar PV project operator a fixed rate for all power generation, it offers a "bonus" of 0.05/kWh ($0.08/kWh) for all power delivered to the grid above and beyond that operator's domestic consumption. The feature is laudable, encouraging homeowners to engage in energy efficiency and consumption reduction alongside the installation of new renewable energy infrastructure. The UK design also creates a bevy of distinct tariff levels, including a separate, higher rate for PV solar installed on new homes as opposed to existing retrofits.

At the same time, the program itself has taken its share of heat. David Timms with UK Friends of the Earth has warned that the phase-out of solar PV subsidies is perhaps too aggressive at 7%/year and that because the bonus payment fluctuates opaquely in loose correspondence to market rates, it will be too heavily discounted by banks, thus hindering private sector financing. Meanwhile, new UK Energy Secretary Chris Huhne has promised a review of the program, concerned that its structure has allowed industrial-scale solar farms to crowd out smaller renewable projects.

Luckily for Governor Brown, much of the heavy lifting on a California feed-in tariff was already underway in the final months of the gubernatorial campaign. Last August the CPUC released an outline of a 1 GW feed-in-tariff pilot program for mid-sized renewable power projects. Instead of guaranteed tariff rates, the program mandates that California's three largest investor-owned utilities participate in biannual auctions where renewable developers "bid" a certain price for their electricity. The utilities must enter into contracts starting with the lowest cost project and move upwards until the megawatt requirement is reached for that auction.

This method, the "Renewable Auction Mechanism" (RAM), benefits by using standard terms and conditions, giving developers contractual consistency that allows them to quickly turn around and secure financing for the projects. Perhaps most importantly, the auction is expected to drive down costs for ratepayers while still growing the market for the domestic clean-tech industry. The California program will thus be more politically resilient than its cross-Atlantic antecedent, which risks alienating the public if the tariffs are set too high and inflated electricity rates result.

Of course, the hard work is far from finished and Governor Brown's administration could show serious leadership by preemptively tackling some of the challenges that the proliferation of localized renewable electricity presents. Many of these challenges might be best addressed in America's smart grid future,

whose promise has been well documented by my colleague Duncan Gromko. In the keynote speech at the 2009 GridWeek Conference, Energy Secretary Steven Chu noted that once intermittent wind and solar power reaches about 20% of a local grid's capacity, serious hurdles arise. He pointed to the example of Washington's Bonneville Power Administration, whose heavy reliance on wind energy means that grid voltage can rise or sag along with the variability of weather conditions. This may mean nothing to an average residential consumer, but voltage consistency is a crucial, multi-million dollar issue for many server farms and high-tech industries.

Governor Brown on Monday declared that his state budget would "return the power to localities," and it appears that this trope will reverberate in California's new feed-in-tariff plan, as well. The Golden State, having served as an usher of social and economic change so often in our nation's history, now finds itself well placed to expand its role as America's energy frontier.

California Poised to Write New Chapter in Energy Policy

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