New California Law Creates Enhanced Opportunities for Renewable Energy Market

by K&L Gates LLP
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On September 28, 2013, California Governor Jerry Brown signed into law Senate Bill 43 (“SB 43”), creating California’s first Green Tariff Shared Renewables Program. This revolutionary program creates a pathway for renewable energy project developers and customers to connect in a new way—virtually, rather than through a direct, metered connection. Customers of the state’s large utilities will be able to sign up for utility service and receive a credit for the electricity actually produced by a renewable generator located miles away, much as if the generator were located on the same site as the customer. For customers with a strong interest in renewable energy, there is now the ability to access such energy even though the customers cannot install generation on site. For developers and project operators, there is now another 600 MW of the energy market up for grabs.

Opportunities for Developers
SB 43 sets aside 600 MW of the California energy market specifically for the Green Tariff Shared Renewables Program. This is in addition to California’s already aggressive Renewable Portfolio Standard. This capacity is allocated among the large utilities based on their current share of the retail market, with 100 MW set aside for projects developed in disadvantaged areas disproportionately affected by pollution, environmental degradation and socio-economic vulnerability, another 100 MW set aside for residential customers, and 20 MW set aside for the city of Davis.

The large utilities are required to purchase electricity from qualifying renewable generators with a rated capacity not exceeding 20 MW (or 1 MW in the case of projects participating in the 100 MW set aside for disadvantaged areas). SB 43 requires that this procurement occur in accordance with procurement tools approved by the California Public Utilities Commission (“CPUC”). Under the existing rules, that would result in participating generators relying on the CPUC’s new renewable market adjusting tariff (or ReMAT) for projects 3 MW and smaller and the Reverse Auction Mechanism (or RAM) for other projects. Both programs offer standard contracts, but the pricing mechanism is different under the two programs. Under the RAM, prices are included in the bid, while under ReMAT, prices are based on adjustments to the most recent RAM pricing and are set when a generator elects to lock in the price. Participation in ReMAT occurs on a first-come, first served basis, whereas RAM contracts are awarded on a least-cost basis. The CPUC will not be setting the rules for the new program until mid-2014. Based on the CPUC’s history, it is reasonable to expect a variant of these mechanisms will be used to award capacity and set prices.

Options for Customers
Customers will have the ability to opt-in to the Green Tariff Shared Renewables Program and receive some of the benefits of net metering without installing physical equipment. The retail rate paid by the customer under the new tariff will include all of the costs associated with the program, including energy purchases and program administration, to avoid cost-shifting among participating and nonparticipating customers. Customer bills will be credited with the retail generation cost applicable to the customer’s rate class plus an adjustment based on the difference between the time-of-delivery profile of the resource and the time-of-delivery profile of the customer class and any resource adequacy value.

Customers are limited to procuring 100% of their electricity demand and (except for certain defined government-related entities) no more than 2 MW of capacity. In the aggregate, a single entity and all of its affiliates and subsidiaries cannot subscribe to more than 20% of the total capacity available under the program in a single year.

Next Steps
SB 43 represents a tremendous step forward in the area of virtual net-metering and paves the way for more changes in the future. A number of details will need to be defined through the CPUC’s process which will certainly impact exactly how customers and developers are affected by this new program. Utilities are required to file tariffs implementing the program by March 1, 2014, and the CPUC is required to approve the final tariffs by July 1, 2014. The program will sunset on January 1, 2019. 

The Green Tariff Shared Renewables Program has been predicted to generate over $2.2 billion in economic activity and create around 6,000 new jobs. Millions of utility customers, including renters, businesses, schools, governments or military who currently have no suitable on-site renewable generation, will be able to participate through their utilities. Full text of the Program can be found at http://www.leginfo.ca.gov/pub/13-14/bill/sen/sb_0001-0050/sb_43_bill_20130928_chaptered.pdf.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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