A Debate Over Large or Small Projects Rages

– Sustainable Industries magazine

An ongoing debate exists among those with the power to decide matters about how to reduce greenhouse gases in order to reduce or eliminate global climate change.

As utilities struggle to meet their new renewable portfolio standard (RPS) goals--and indeed many appear set to fail--a particular debate will certainly rise in prominence: Whether electric power utilities should prefer demand-side management and conservation (so-called "negawatts") with the accompaniment of local, small renewable power, or whether the best route lies in constructing utility-scale generation projects in a wide area involving several states. Even in the face of "loading orders" preferring conservation, the debate over reliability and other issues continues in this area. This conflict seems to have emerged due to the lack of a cohesive regional or national energy policy, and it has revealed critical issues that could have substantial repercussions for the overall debate on the best policies necessary to avert climate change disaster.

Local, state and federal governments have struggled with the establishment of general policies to reduce greenhouse gases. California passed AB 32, the Climate Change Solutions Act, providing a basic policy framework for statewide reductions in greenhouse gases, and the Obama administration has made a continuous drumbeat of its call for a new national economy based on "green" technology and clean energy.

Despite the noise, it is clear that any effort to address reductions in greenhouse gases must at least in part focus on the electric power industry, which in California was the first industry addressed under AB 32. A key component of this debate involves the implementation of renewable portfolio standards (RPS), which dictate whether and how much generation a power utility must buy from renewable sources and by what target year. These standards continue to evolve, with many states having set individual RPS levels and Congress debating the matter. These regulations include efforts—and in some cases mandates—to reduce the carbon footprint of "non-renewable" resources.

California offers an illustrative working example of the competing interests involved and the potential merits of each alternative. California has a huge and expansive market for electric energy--from agricultural uses to massive computer server bank loads. California has also historically used conservation and local generation to avoid large-scale new generation, thereby avoiding some increases in generation related greenhouse gas emissions. The state reduced consumption by 47 percent in new homes between 1978 and 2005. Even more impressive, the state-wide load has remained flat since 1975 despite a large growth in population and power consumption, while a comparable nationwide growth of 50 percent occurred in that same period. Indeed, the California Public Utilities Commission just ordered an additional $3.1 billion for energy efficiency efforts on top of an already robust program.

Juxtaposed to these conservation efforts, utility-scale generation projects offer an attractive option to jump start compliance with RPS obligations. These projects, however, face the same obstacles that have traditionally confronted any large scale project. While there is talk of streamlining permitting through non-binding cooperative efforts, such efforts are not readily apparent in practice. From a financing perspective, large utility projects require capital investments and are land intensive, which creates problems for wary investors. Unlike grants, tax incentives, an initially proposed "solution," do not offer a viable alternative because any credit assumes that the funds to build are present and the project has actually started construction. Other obstacles include transmission constraints, the time and cost to study interconnection, and the lack of water for solar thermal uses (80 gallons per megawatt hour versus one gallon for solar PV). However, utility-scale plants can produce tremendous results when installed and are within the comfort-zone of utilities to such an extent that utilities themselves have pursued such generation as part of their utility generated power portfolio.

The trick utilities face in this situation requires them to manage both their current generation contracts and new large-scale renewable power agreements with local conservation and generation efforts. The potential "over-generation" issue has led to "departing load" charges for those who seek to self-power. That is, when the utility has too much power because a customer adds solar panels, or the new large-scale project has made the power from a traditional fossil fuel contract excess, the utility wants the customer to pay for the transition or stranded costs. Thus, the individual who spends his own funds to reduce consumption may also be asked to pay the costs for others in a variety of ways. This scenario risks alienating the public support for large-scale government programs targeted to address climate change. The most likely result will be a backlash in public opinion against the electric utilities, which are the very organizations that governments have tasked with implementing the necessary solutions to reduce greenhouse gas emissions.

David L. Huard is Co-Chair of the Energy, Environment and Natural Resources practice group at law firm Manatt, practicing in the Los Angeles and San Francisco offices.

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