What Is Really Causing Renewable Project Failures in California?
It is clear that the development of renewable and clean energy projects in California and the reduction of greenhouse gas emissions has been successful, but has also been impeded by a variety of causes. With the required percentage of renewable resources being increased to 33% in the future, a survey of the landscape identifies many potential sources that can delay or even defeat such State and regional goals and suggests some modest steps to remove the problems.
1. CEQA Implementation:
After lack of funding, the most popular choice to blame for renewable and clean energy project failure is the California Environmental Quality Act (CEQA). While CEQA certainly plays a major part, the truth is much broader and more complex than CEQA reform. California is rightfully proud of its Global Warming Solutions Act of 2006 (called AB 32 by nearly everyone) which generally mandates the development of renewable energy. But why do agencies with the National Environmental Policy Act (NEPA) as their guide regularly approve projects that seem to falter under CEQA review?
CEQA vs. NEPA: The answer is not complex. CEQA and NEPA are not equally onerous. An Environmental Impact Statement (EIS) under NEPA is a disclosure document, and once it is completed, the agency is free to approve the project anyway. Conversely, a CEQA Environmental Impact Report (EIR) specifically requires all significant impacts to be feasibly mitigated or affirmatively over-ridden, and there are evidentiary standards just to make the findings. It is simply easier to find deficiencies under CEQA than NEPA.
If California is serious about local renewable and clean energy generation, it needs to enact specific and defensible CEQA exemptions for alternative energy projects. However, California agencies do not favor mitigation and avoid addressing unmitigatable impacts due principally to the political pressure that small groups exert in the overall decision-making process.
Political Power of Environmental Movement: The environmental movement in California is more organized, strategic, well-funded and powerful than anywhere else in the country, even more than at the Federal level. California also has a long history of successful litigation against government approvals, which intimidates decision makers and discourages any project proponent. The systemic unwillingness of the California government to make an unpopular decision is exacerbated by the axiom that it is easier to destroy than it is to create.
2. Project Rate Expectations and Requirements:
Some project failures are due, in part, to the misguided theory that new energy sources can be provided immediately at costs that compare with traditional sources of power. Indeed, as has been seen with prices for solar PV projects, only after more than a decade of subsidized development have prices fallen to competitive levels. The ability of the market to absorb increased generation costs from new technologies is also substantially reduced by the increases in rates for needed infrastructure upgrades and safety efforts. In the end, ratepayers can only bear so many costs and the costs of infrastructure are a necessary investment before most new generation of any sort can be added.
3. Parochial State Interests:
To meet the challenges of implementing RPS requirements, regional solutions and cooperation are necessary. However, certain parochial interests often conflict with such regional efforts. Out-of-state projects, or export projects to other states, are often treated differently. Thus, even if the project can be otherwise rate competitive, local interests can cause a cost differential or physical impediment that can be problematic. Federal Courts further balkanized energy infrastructure planning in overturning the Federal Energy Regulatory Commission’s backstop authority for regional transmission siting.
4. Limited Clean Energy Definition:
California wants to remain “pure” in its greenhouse gas reduction efforts by ignoring “clean” energy in favor of “renewables.” This concentration on renewables ignores the important role that other clean generation resources can play in achieving greenhouse gas reductions. Next generation waste-to-energy and carbon-based fuels with carbon capture and sequestration should be seriously considered. Also, nuclear power has advanced in many ways but is outlawed in California (until a solution is found for storage or recycling of spent fuel) and the situation in Japan will surely set that industry back.
5. Grid Integration Process Hurdles:
If a generation project wishes to be connected to the California grid, it needs to go through a draconian California Independent System Operator (CAISO) process that requires sponsors to commit large sums for studies and to reserve a space in the interconnection study process queue. Several projects have been halted or abandoned due to the huge cost of the process and the risk of losing the deposit if the project is delayed. Others face new challenges through added transmission access charges such as those that are being assessed in the Pacific Northwest.
6. Utility Contracting and Planning:
A final limiting element is the constantly evolving utility procurement process and the analysis that is needed to meet utility portfolio needs. A power purchase agreement with a utility is a prerequisite for obtaining project financing and the key step in the project development process. The negotiation of PPAs is an ever-evolving process due to changes in regulations, rules, and utility policy and business needs. As a result, project developers, even those with highly viable and cost-competitive projects, are often left empty handed after months of work.
The message to any developer is that projects can and are being built in California. However, the key to success is the recognition of the potential pitfalls of the process at the beginning of the project by early association with regional and experienced counsel and advisors knowledgeable about energy project development.
The message to the region is that while California and the West want it all, in short, the region may only stagger along with the hope of meeting increasing renewable portfolio goals unless unnecessary and contradictory impediments are removed. California needs to (1) streamline and simplify the project review process, (2) enact limited CEQA exemptions for clean and renewable power projects, (3) accept a price premium for new technology, (4) expand what qualifies as “clean” energy for total generation portfolios, and (5) not impede the developing renewable resources in surrounding states.
David Huard is Chair of the Energy, Environment & Natural Resources practice at Manatt, Phelps & Phillips, practicing in the Los Angeles and San Francisco offices. He is also the partner responsible for the firm’s Climate Change Solutions group and the Solar and Renewables Project Development team. Mr. Huard can be reached at firstname.lastname@example.org or (415) 291-7430.
This column is the fourth in a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice. Earlier columns discussed Promoting Recycled Water, Environmental Liabilities in Bankruptcy Reorganizations, and California Renewable Policy.
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