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Lower Renewable Energy Benchmark May Discourage Production

solar - ground mount2As more utilities begin offering customers the ability to purchase electricity generated from renewable sources, other utilities may benefit from a drop in the benchmark price that they must pay independent producers for renewable energy.

The California Public Utilities Commission (CPUC) has proposed a 15 percent cut in the benchmark that utilities must pay over a 20-year period, according to the Wall Street Journal.

If the proposal goes through, utilities owned by PG&E Corp., Edison International and Sempra Energy would be able to negotiate lower long-term contracts of about 9.67 cents per kilowatt-hour for solar, wind and other renewable power, starting in 2010.

By 2020, the benchmark price for 20-year contracts would be 13.6 cents per kWh, a further 13 percent drop after accounting for projected inflation.

The benchmarks are based on natural gas prices in an effort to reflect the cost of building and operating natural gas power plants. Natural gas prices have been deflated this year, which is why the commission proposed lower rates.

If accepted by the full commission, the CPUC’s proposed lower benchmarks could reduce the rate of return for companies that are adding solar and wind to their operations, thus reducing the incentive to add more.

Meanwhile, California utilities are required by 2010 to attain a fifth of their power from renewable resources, although there is a three-year grace period.

In Dallas, Texas, a utility is offering its customers the ability to purchase their electricity from renewable sources.

Texas Power‘s new offering, Texas Power Pure, is a month-to-month plan with variable rates, according to a press release.

This is not the first renewable energy option for Texas electricity consumers. Austin Energy has offered such a plan for some time.

Earlier this year, the utility proposed raising the amount of electricity that Austin must purchase from renewables, which in 2008 was 30 percent, to 35 percent.

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3 thoughts on “Lower Renewable Energy Benchmark May Discourage Production

  1. If this proposal goes through it will make investment in renewable energy not so favorable.
    The cost of building new clean power plants will not change much, how will it repay itself if you can’t sell the energy produced and show timely profits with investors ?

  2. While this cut in the MPR may reduce solar installations in the short term, it highlights several encouraging signs for renewable generation:
    1. Natural Gas prices (and associated electricity prices) are highly volatile. They can go up as sharply as they come down. A PV Solar panel, once installed, offers price certainty that is valuable and that some (companies and homeowners) will pay a premium to obtain.
    2. Absent improvements in electricity storage, renewable generation will always represent an alternative to natural gas, and vice versa. This is good news for renewables. Over time, GHG legislation and supply issues will make natural gas more expensive relative to renewables, which will become less expensive in the future (economies of scale, progress down the learning curve, technological innovations, etc.).

    While retail electricity markets are transforming, we must keep our collective vision on the long-term goals. For renewable generation to be a credible alternative to fossil-fueled generation in the long term, it must eventually compete on price and value (like cost certainty value, public relations value, and others) without subsidies. Reductions in the MPR, as long as they don’t kill the renewable industry in the short term, will make the industry stronger in the long term. As an industry, let’s redouble our innovation efforts to reduce costs throughout the renewable generation value chain (production, distribution, installation, maintenance), improve technology and efficiency, and increase marketing and education prowess. These efforts will ensure short-term survival and lead to long-term success.

  3. The cost of building new clean power plants, from wind turbines to PV Solar panels, has come down significantly recently due to the reduction in demand. Increased competition (in the form of a lower MPR) will put pressure on all parts of the value chain – manufacturers, designers, installers, etc. — to innovate if they are to survive. Manufacturers’ integration of inverters into PV Solar panels is but one example, offering not only lower hardware prices but also lower design, installation, and maintenance costs over non-integrated designs.

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