California Fees May Hit Renewable Power Generation

By William Kelly

SACRAMENTO, California, February 12, 2003 (ENS) - Billions of dollars of proposed fees pending before the California Public Utility Commission threaten to cloud the future of California's burgeoning renewable energy industry and work at cross purposes with state programs to promote clean, efficient technologies to meet the state's growing demand for electricity, say energy industry executives.

In the coming weeks, the commission is expected to vote on a proposed decision which would impose "exit fees" on thousands of California business and home owners who have installed their own electric generation equipment. The fees are aimed at recovering costs incurred in the wake of the state's electric industry deregulation mess.

Concerned about the potential impacts of the proposed fees on renewable and clean generation equipment, at least one commissioner is preparing an alternative to offer an exemption to "ultra clean resources."

Wind turbine generators operate on the same ranch as a classic water pumping windmill in Altamont Pass, California. (Photo by Warren Gretz courtesy NREL)

The charges also would apply to those who buy such systems in the future until billions of dollars of debts stemming from the state's electricity crisis are paid off.

Californians are installing the equipment in a strategy known as "distributed generation," under which power is produced where it is used instead of at remote, centralized power plants. The California Energy Commission and California Air Resources Board see distributed generation as a key element of providing adequate power for the future through renewable and other clean energy sources, such as solar, that will not degrade air quality.

More than 2,000 megawatts of distributed generation capacity exists in the state, according to the California Energy Commission, enough to power some two million homes. Of that, less than 100 megawatts is produced by solar energy systems. The state's total electricity generation capacity is some 50,000 megawatts, according to an Energy Commission estimate.

While all state residents are shouldering the costs of the electricity industry debacle, many of those who have invested in distributed generation equipment argue that they are providing a benefit to Californians by minimizing the environmental impact of producing power and helping to safeguard against future blackouts and brownouts by increasing the state's electricity supply. Like other residents and businesses, they will continue to pay bail out costs for the state's electricity system for each kilowatt they draw from the grid, but now also would have to pay on power they generate themselves.

This solar system provides electricity to the Bureau of Indian Affairs Sherman Indian School Campus in Riverside, California. (Photo by Timothy Kehrli courtesy NREL)

"California's the engine for the solar market," he said. Because the state is the major market for solar system makers, the fees are likely to negatively affect the industry on a national basis, he said.

Other distributed generation technologies would be affected too.

"It will cut into the number of customers," said Kevin Duggan, director of government affairs for Capstone Turbines, a Chatsworth based company that sells high efficiency natural gas turbines sized to generate electricity for buildings. The firm also sells the turbines to operators of sewage treatment plants and landfills to generate electricity by burning the methane they produce that otherwise would be burned off in flares with no productive benefit.

"It does have a pretty negative impact," said Steven Torres, western regional vice president for Fuel Cell Energy, which has been marketing fuel cells for producing electricity for everything from apartment buildings to hotels and industries. He said that the fees have the potential to increase the life cycle cost of electricity produced by fuel cells, which are virtually pollution free, by 10 percent to 15 percent.

The fees would help pay the cost of:

• State purchases of electricity during the height of the California power crisis in 2001
• The bailout of the state's private electric utilities
• The cost of "uneconomic" power production facilities still carried on the books of those privately held electric utilities
• Any power for which the state has contracted in the future that becomes unneeded should use of distributed generation exceed the state's forecast

The full amount of the fees is not yet known, though estimates range from about 2.6 cents a kilowatt hour in Southern California Edison's territory to possibly more in other utility territories.

They are likely to add "billions of dollars" to the cost of electricity produced by distributed generation equipment in the coming years, according to Carl Wood, a member of the Public Utilities Commission.

Joe Vanden Berg (left) and Ray Levinson with a solar array installed at the Marina Del Rey USPS Postal Station in Los Angeles. (Photo by George Marsh courtesy NREL)

"An exemption is effectively a subsidy," maintains Wood. "One group of consumers is subsidizing another group of consumers."

A consumer group that usually is at odds with the electric utility industry, sides with the companies in this instance. "It's a zero sum game," said Matt Freedman, an attorney for the Utility Reform Network.

He said that California has "aggressive" renewable energy programs, including state subsidies and a requirement for utilities that over the next ten years 20 percent of the electricity they supply to California customers is generated with renewable energy. He suggested that estimates of the impact of the exit fees by the renewable and distributed generation industry are inflated.

"We want to provide an incentive for technology that's positive, but at once you open the door everyone tries to get an exemption." He suggested the state could soften the blow of the exit fees on environmentally beneficial distributed generation technologies, such as solar, by providing further incentives.

Solar system at SunLine Transit Agency in Thousand Palms, California (Photo by Richard Parish courtesy NREL)

Doubts about the future of subsidies for fledgling technologies, coupled with exit fee costs not yet fully known, have clouded the outlook for environmentally clean distributed generation and renewable energy. "The worst enemy of our industry is the uncertainty this proceeding has created," said Torres, of Fuel Cell Energy. "We felt there should be different treatment for technologies that can help clean our air."

Despite his concern about cross-subsidization in the state's electricity market, Wood said he agrees that clean air generation technologies should be exempt from the exit fees. Based on discussions with the California Air Resources Board, Wood is preparing an alternative plan for the fees that would exempt ultra clean resources, including solar energy systems. "I very strongly support having an exemption for solar," he said.

The exemption also may extend to fuel cells and other technologies that can meet the air board's 2007 standards for distributed generation systems, which set low limits on emissions of smog forming pollutants.

Wood said that the alternative proposal - which may be offered by another commissioner - likely would be available to the public in about two weeks. He expressed guarded optimism that the alternative would draw support from his fellow commissioners.

{Published in cooperation with California Environment Report, a publication of Southland Reports, online at: www.southlandreports.com}