California TREC toward RPS Finish Line

California’s investor owned utilities are on the hook to meet the state’s 20% RPS goal by the end of this year.

Guess what?  They are not going to make it.

That’s no surprise as we have known that for some time.  Best estimates by the state agencies most responsible for achieving California’s ambitious renewable energy and emissions reduction goals, the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) estimate it will take until 2014 to satisfy the 20% RPS goal.  So obviously, those responsible want to speed things up.

This is not to suggest that California’s utilities have been sitting on their assets, they have worked hard—very hard to procure just about every responsible wind and solar project available to meet these targets.  By the end of 2009, about 7 GW of CPUC approved renewable energy projects is under development in the state, and another 4.8 GW is proposed and waiting for CPUC approval.

Obviously, the emphasis was to develop RPS-eligible projects of substantial size to meet the targets, but now the CPUC has issued a revised proposed decision to speed up RPS projects by certifying projects of smaller size and even allow homeowners to participate in the renewable energy procurement program.

In a December 23, 2009 action, the CPUC published a revised proposed decision [1] that opened the RPS competition to small scale projects and even homeowners with solar roof tops to participate in the program to supply compliant renewable energy to utilities to meet their RPS targets.  The decision authorizes tradable renewable energy credits (TRECs) and unbundled REC contracts for California’s RPS program and permits out-of-state projects to compete in the California RPS.

The proposed decision was released for public comment and will not be final until approved by the full CPUC at the end of the comment period.  The proposal permits California’s utilities meet up to 40 percent of their RPS target each year with TRECs. Under the original program utilities could buy renewable energy credits (REC) each worth one megawatt of renewable power supply. No one is pretending this will suddenly bring the utilities up to the 20% RPS goal, but it opens the door to more participants in the program.

Send in the Clowns!

While opening the market to many more projects of small size sounds good, what is less clear is whether these small players will produce results that are worth the additional administrative cost to keep track of them.  Certainly California’s aspiration for a million solar roofs suggests the need for a customer-focused program to marshal that distributed generation resource to reduce demand on the utility grid.  And providing revenue from net-metering also helps reduce the overall cost of customer-financed generation.

Under California’s current rules distributed generation systems are not eligible for RPS credit, but projects less than 3 MW can take advantage of California’s standard offer feed-in tariff.  This proposal seeks to close these gaps in participation and marshal as much renewable energy potential toward achieving the RPS goals as possible by giving many more players the opportunity to perform.

The Long Slog to 33% Renewable Energy by 2020

Remember, while California struggles to reach the 20% by 2010 RPS target, the real goal is the 33% by 2020 and that feels like a very steep hill to climb.  This decision is tough to argue against because there is a growing number of small scale projects that can contribute toward achieving the RPS goals, and indeed it may encourage more homeowners and small business to install solar roofs and wind turbines to help mitigate their costs.

Customer Aggregators Rejoice!

But—the big winners in this change in rules may be the growing ranks of customer aggregators who see this as a license to scale their business.  Growing firms like EnerNoc have been assembling a sizable portfolio of  industrial, commercial and, perhaps, now residential customers to take advantage of the net metering and TREC revenue streams while also participating in energy efficiency, demand response and customer-owned generation options to reduce or control their overall energy cost.

The scalable growth of this customer aggregation segment is the nightmare scenario for the traditional investor owned utilities that fear losing control over the gateway to customers and may be stuck paying for small incremental supply at high administrative costs because doing so is “administratively convenient” for the CPUC and politically correct in “doing something” to achieve the 33% RPS target when doing so may not be economic and may not even be reasonable or in the public interest if the policy consequence is driving utility rates to unaffordable levels.