"Think of it as the eBay approach to ramping up production of carbon-free electricity."
says veteran environmental journalist Todd Woody in his take on the new California solar pilot program.
The California Public Utilities Commission (CPUC) last week approved the "Reverse Auction Mechanism" (RAM) pilot program to achieve at least 1,000 megawatts in new solar capacity (or an equivalent ability to power over 750,000 homes) by establishing a competitive-based solar incentive development program for projects that are at least 1.5 MW but less than 20 MW in total capacity.
How will it work? Our friends over at the Vote Solar Initiative describe the program working as such:
California’s three largest utilities will hold biannual competitive auctions into which renewable developers can bid. Utilities must award contracts starting with the lowest cost viable project and moving up in price until the MW requirement is reached for that round. The program will use standard terms and conditions to lower transactional costs and provide the contractual transparency needed for effective financing. To ensure project viability and realistic pricing, the program requires development security and relatively short project development. Utilities must file implementation plans in the next 60 days, and the program is expected to be operational this spring. Dig into the full program yourself here on the CPUC website.
We care about the success of this program because:
- We get a lot of new solar generation with minimized impact on the broader landscape. In the year-long CPUC deliberations on devising the RAM policy, the Commission carefully considered how, over the long-term, it will value well-sited distributed solar energy as an offset for costly long-term transmission and variable generation integration. Along with a continued and sustained investment in energy efficiency, optimally-sited and integrated clean distributed generation can defer the need for new transmission lines, costly grid upgrades, and large central station-type electric generation plants (renewable or otherwise). That's something that both clean energy and land and wildlife habitat advocates can agree on.
- It strength-conditions U.S.-based solar industry players to compete on price and quality of delivered product. The U.S. is facing fierce global competition in clean energy product manufacturing, delivery and construction. The inherent nature of a competitive-based mechanism to reveal the market price (i.e. the ‘reverse auction’) will drive more responsive and nimble solar business development here in the U.S.
- Utilities will play nicely with small and mid-size renewable (and variable) energy producers. Reforming the investor-owned electric utility to go from a natural monopoly to more competitve business model began as far back as the late 1970’s, when the Public Utilities Regulatory Policy Act (PURPA) signaled to state utility commissions to open up electric utility procurement to allow bidding by independent power producers into the electric utility-owned grid. Since that time, small power producers have continued to struggle to enter the power production marketplace due to high transaction ('parasitic') costs conducting business with utilities and utility regulators. While this policy is by no means a panacea, it does clear a number of large hurdles for small and mid-size power producers to enter into fair and reasonable power purchase agreements with the respective electric utility whose grid they’ll be tying their project into. Adam Browning of the Vote Solar Intitiative says this about the new contractual interface the RAM program offers between utilities and small and mid-sized solar power producers:
“Standardized contract terms and conditions level the playing field and reduce parasitic transaction costs associated with project development. Multiple annual solicitations provide more continual access to selling opportunities. And strong project viability criteria, including development security, reduce the problems associated with underbidding and speculative developers holding contracts but failing to deliver. The program builds upon best practices to create a fluid, functional competitive renewable energy market.”
The next critical step in implementing the program will be the draft procurement plans that each of the three CA investor-owned utilities will have to submit within 60 days to the CPUC. We'll keep an eye out for these draft utility procurement plans and will make sure they offer fair and reasonable terms for potential solar producers, while maintaining appropriate checks and balances to get more clean energy in the system with the greatest benefit for all CA electricity consumers.