The first round of procurement under California’s community solar program is nearly complete, and the early results suggest that no power purchase agreements (“PPAs”) will be awarded.
Background on the RFO
California’s community solar program is formally known as the Enhanced Community Renewables (“ECR”) program. The ECR program is part of the larger Green Tariff Shared Renewables (“GTSR”) program in California. Together, these programs require the California investor-owned utilities (“IOUs”) to procure 600 megawatts (“MW”) of new renewable energy.
Under the GTSR component of the program, the IOUs procure new renewable energy and retail customers sign up for a new “green tariff” that allows them to pay a premium to obtain higher levels of clean energy. Under the ECR component, customers can enter into agreements directly with third party project developers to purchase new clean energy generated by a project located in their community. ECR projects are limited to sizes between 500 kW and 20 MW.
On August 31, 2016, the IOUs announced the first round of requests for offer (“RFOs”) under the ECR component of the program, seeking to acquire a total of 170 MW of power from community renewables projects. Specifically, Pacific Gas and Electric Company (“PG&E”) and Southern California Edison (“SCE”) each sought 75 MW and San Diego Gas and Electric Company (“SDG&E”) sought 20 MW. The winning bids were scheduled to be announced between mid-March and early April 2017.
Low Developer Turnout
However, on March 10, 2017, SDG&E announced that only two developers submitted bids in its RFO process and neither of these bidders was able to meet all program eligibility rules. The March 24, 2017 edition of California Energy Markets is reporting similar results from PG&E and SCE. As a result, no PPAs have been awarded in the first RFO under the community solar program.
Results Point to Structural Issues with the Community Solar Program
What was driving such low participation levels in the RFO process? Developers are saying that PPA prices under the community solar program are too low to enable these projects to be built. Under program rules, developers receive a PPA containing the wholesale energy price available in California’s renewable auction mechanism. These PPA payments are assigned to the community solar customers who subscribe to the project, with each customer receiving a monthly bill credit equal to the value of their share of the project’s monthly energy production. Currently, that value is around 6.8 cents per kilowatt-hour (“kWh”). These customers, in turn, sign subscription agreements with the project developers, under which the customers agree to pay the developer for their share of the project’s energy production.
As a result, for customers to save money, they need to be paying less than 6.8 cents per kWh to the project developer. Unfortunately, developers are saying this is just too low to cover their project costs, especially in light of the unique costs needed to acquire hundreds (if not thousands) of retail solar customers and manage those customers for the duration of the 10- to 20-year lifetime of the project.
In addition to pricing pressures, the program places some notable pre-qualification and ongoing compliance obligations on developers. In particular, developers need to submit their customer outreach and marketing materials to the applicable IOU for pre-approval. Developers cannot go out and market their projects to customers until these materials are approved. The problem is that developers are required to make a showing of customer interest in their project within 60 days of their project being granted a PPA. These must take the form of “expressions of interest” covering at least 51% of the project capacity, or actual customer commitments covering at least 30%. The additional step of getting pre-approval in advance of marketing the project has caused some developers to miss the 60-day deadline for submitting these customer participation deliverables.
For developers looking to participate in California’s community solar program, it is probably unlikely that any major program revisions will be made in 2017. It will probably take at least one more RFO showing low participation levels before the stakeholders reach a consensus around the need for program reforms. The IOUs are required to hold two RFOs per year, with the next round just getting underway now. The results will be announced this summer.