RENEWABLE ENERGY COSTS STARTING TO COME DOWN

This story by David Baker appeared Feb. 4, 2012 in the San Francisco Chronicle.

The price of renewable power contracts signed by California utilities more than doubled from 2003 through 2011 but has now started to plunge, according to a long-awaited state report issued Friday.

The report is the most detailed accounting yet of the costs of California’s push to use more solar, wind and geothermal power. Until now, most of those costs have remained hidden from the public. The California Public Utilities Commission, which issued Friday’s report, has for years published quarterly updates on the number of contracts signed but has never before included the costs.

A state law passed in 2002 and expanded in 2006 required California utilities to get 20 percent of their electricity from renewable sources by the end of 2010, a goal that has since been expanded to 33 percent by 2020. The law set off a scramble among the utilities to sign contracts with companies building wind farms and solar power plants.

As a result, contract prices rose steadily as the deadline loomed, according to Friday’s report. In 2003, the utilities paid an average of 5.4 cents per kilowatt hour for renewable power contracts. By 2011, the average reached 13.3 cents per kilowatt hour.

But it is starting to tumble.

New contract bids submitted to the utilities last year were about 30 percent lower than in 2009, according to the report. Those contracts haven’t been signed yet, so they weren’t included in the 2011 average. More developers have entered the field, and the worldwide drop in solar panel prices has slashed the cost of building photovoltaic power plants.

“This shows it’s an industry that is maturing, and the prices are now coming down,” said state Sen. Alex Padilla.

Last year Padilla, D-Pacoima (Los Angeles County), authored a bill requiring the commission to issue an annual report on the costs of renewable power contracts. Until then, the contract details had remained confidential until three years after each facility began delivering electricity. California utility customers, who will ultimately pay for the increased use of renewable power, had no way to know how much was being spent.

“Sharing this additional information is a step forward,” Padilla said. “There’s a broad consensus out there that this is the direction the state of California should be going in, but there are still some naysayers.”

Renewable power remains more expensive than electricity generated by fossil fuels.

The utilities commission uses a benchmark called the “market price referent” to represent the cost of buying electricity from a new natural gas power plant. In 2011, the market price referent ranged from 7.5 cents per kilowatt hour to 12 cents per kilowatt hour, depending on the length of the contract.

Last year’s high renewable power contract prices may turn out to be a bit of a mirage. Now that prices are falling, some of the more expensive renewable power projects will probably be abandoned, analysts say. And California utility customers don’t pay for a new wind farm or solar plant until the facility is up and running.

“Remember, some of the projects you were seeing in 2010 will never get built, said Matt Freedman, staff attorney for The Utility Reform Network consumer group. “In the short term, it’s putting upward pressure on rates – that’s the truth. In the long run, it potentially provides a lot of rate stability.”

According to the report, the cost of renewable power actually delivered to the utilities last year, from wind and solar facilities, averaged between 8 and 9 cents per kilowatt hour, far lower than the contract costs for projects that had not yet been built.

Pacific Gas and Electric Co., the state’s largest utility, estimates that renewable contracts will add about 1 to 2 percent to customers’ bills each year through 2020, said spokeswoman Lynsey Paulo.