California Market for Large-Scale Renewable Projects Gains New Momentum from the Passage of California Assembly Bill 327

California Market for Large-Scale Renewable Projects Gains New Momentum from the Passage of California Assembly Bill 327

In a 33-5 vote on September 10, the California State Assembly passed an assembly bill that could help to rekindle the large-scale renewable energy project market in California. The bill, AB 327 [enhanced version available to subscribers], is the first major rewriting of utility ratemaking policy since California’s 2000-2001 energy crisis. Among other provisions, it allows for an increase in the state’s renewable portfolio standards (RPS) beyond the current requirement that utilities draw 33 percent of their power from renewable sources by 2020. The bill is a rare example of one garnering combined support from utilities, the solar industry, and ratepayer advocates. In its final stage, AB 327 has been sent to Governor Jerry Brown to be signed into law. Governor Brown signed the bill on October 7.

The new regulation comes at a time when many experts are seeing the potential for the large-scale renewable energy project market in California to reach a standstill. Having long stood as the benchmark for other state renewable energy programs, California currently has the most installed solar capacity in the United States, possessing an estimated three times more than any other state, according to the Solar Energy Industries Association. Much of this growth in the renewable energy project market has been attributable to California’s demanding RPS program. However, despite having one of the most demanding RPS programs in the United States, many utilities in California have already met, or are coming close to meeting, the 33 percent standard. This has caused many experts to fear that, without regulatory change, the once-booming market for renewable projects could be facing a downturn. While projects already under contract are currently being built, many predict the current market will not support future large-scale projects.

This is why the solar industry and the large-scale renewable project market have turned a hopeful eye to AB 327. Among its various provisions, AB 327 dictates that the RPS requirement that utilities draw 33 percent of their power from renewable energy sources by 2020 is meant to be a floor, not a ceiling. It is the industry’s hope that specifying 33 percent as the minimum rather than the maximum standard will re-open the California renewable project market and save large-scale project developers from being shut out. Many within the industry believe that increasing the RPS is the best way to continue to encourage the utilities’ use of solar energy.

While AB 327 could help to reinvigorate the renewable project market in California, it stops short of making RPS increases a matter of law through its legislation. Rather, the bill grants the California Public Utility Commission (CPUC) the power to make any increases to the RPS standards. In other words, the bill itself does not increase the RPS but instead explicitly allows the CPUC to do so without legislation. While this has led some industry players to question lawmakers’ commitment to encouraging more renewable projects, others point out that allowing the CPUC to make the increases may be more politically expedient and could have faster results than going through the legislature.

It is not yet clear how the CPUC will approach this new grant of authority. This is especially true given that the CPUC has a docket of pre-existing renewable energy policy issues that it is likely to tackle before it takes on setting new RPS levels. These policy issues include the development of energy storage and distributed electricity generation. Additionally, there are other provisions within AB 327 that could potentially take the focus of the CPUC efforts. These include the revision of residential electricity rate structures and the alteration of the net metering program, components of the bill that have received a great deal of attention. Also, the costs of renewable energy generation, such as integration costs and grid costs, are likely to be factors in the CPUC’s decision to raise the RPS above 33 percent. These costs are currently unknown at these high percentages, but studies predict that under various 33 percent scenarios, rates could increase for consumers between $0.006 and $0.011 per kilowatt hour as compared to the current 20% RPS market.

Regardless of the various uncertainties surrounding the implementation of the bill’s permission to increase RPS levels, AB 327 may provide the opportunity for the large-scale renewable project market to regain momentum in California.

Read more at Renewable Energy Insights by Troutman Sanders LLP.

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