California, the world’s eight biggest economy, has a lot in common with Australia, the 13th biggest. Both have emission reduction targets, a carbon price, renewable energy targets, strong rooftop solar programs, and energy efficiency measures. The one big thing that California has that Australia doesn’t is ambition.
That is why on all those measures, California is way ahead of Australia. There is no talk of repealing or diluting the carbon price, and its renewable energy target is 33 per cent by 2020 instead of 20 per cent in Australia. Some time in the next couple of years the California legislature in Sacramento is likely to move the bar even higher, to 40 or even 45 per cent (by 2025 or 2030).
Edward Randolph, the energy director from the California Public Utilities Commission, which oversees the investor-owned utilities in the state, says constantly raising that level of ambition has proved extremely successful.
“A lot of people argued against the 33 per cent target saying it was too difficult, but the legislature said ‘no, we’re going to set broad and ambitious goals and let the engineers figure out how to do it,” Randolph tells RenewEconomy in an interview in his San Francisco office last week.
“And quite frankly I think that has been the right way of doing it, saying ‘this is what we are going to do, you guys go figure it out’. That’s worked really well and that’s why I’m certain that in the next year or so the legislators will come back and say we ready to move to 40 per cent or 45 per cent. They don’t wait for us to get to the goal. Once they start seeing progress, they move the goals. And I honestly think it works.”
It’s not stopping there. The office of Democrat governor Jerry Brown, who apparently loves solar, has mandated 3,000MW of rooftop solar by 2017, has a program to encourage “self generation” in other technologies (such as fuel cells), and is looking at taking leadership in the electricity storage market, pushing for a mandated 1GW of storage to be installed by 2020. All these targets are over and above the renewable energy target, known here as Renewable Portfolio Standard.
How is this possible? A lot of it is due to the fact that the Democrats control the state legislature, but even some key Republicans have thrown their support behind these initiatives, despite the federal rhetoric. That marked the governorship of Arnold Schwarzenegger – admittedly more Hollywood than Republican – and in towns like Lancaster, even Republican mayors are pushing to make solar compulsory on all rooftops.
Right now, California sources around 21 per cent of its electricity from renewables – which include wind, utility scale solar, hydro and geothermal. But the mix is rapidly changing. In 2011, as this graph below shows, wind and geothermal accounted for nearly two thirds of all renewable generation. By 2020, solar will account for nearly one half (47 per cent).
Randolph says that California will likely exceed its 33 per cent target by some margin in any case. Unlike Australia trading market in renewable energy certificates, Californian utilities write direct contracts with suppliers (often negotiated after an auction or bidding process). Even with a 40 per cent failure rate on those contracts, the state will still hit the target. But Randolph says it is now clear that the failure rate will be nowhere near that level. “We are finding that projects are taking longer than we thought to get done, but they are getting done.” Unlike Australia, the idea of exceeding the target is not proving to be a political lightning rod.
The other finding is that, contrary to detractors, the target is not proving expensive. Costings by the CPUC estimate that retail electricity prices will rise no more than the rate of inflation – about 2-3 per cent – out to 2020 – that’s the same increase of the past decade.
Indeed, as it is elsewhere, it is now becoming clear that renewables such as solar PV and wind are challenging fossil fuels on costs – even in the wholesale market.
Last week, the San Jose municipal authority wrote contracts for 80MW of solar PV at 6.9c/kWh, which after a 30 per cent investment tax credit works out to be around 10c/kWh.
Randolph says he has just approved more contracts for distributed solar systems of between 3 and 10MW in and around the same price. “I just signed off on a couple of contracts and they are competitive with fossil fuels,” he says.
The other point of note is that California has not had to add to fossil-fuel generation capacity to support renewables. About 10GW of old, inefficient gas-fired generators will be closed in coming years for environmental reasons– these are mostly 50-year-old generators which use sea-water cooling through a method known as “once-through cooling”. Randolph says these will be replaced by newer gas turbines that can provide the flexibility to respond to renewables.
Storage though will be critical, Randolph says, especially as the penetration of renewables goes beyond 35 or 40 per cent. “If we want to be doing it and have it being environmental meaningful, we will need storage. If you doing that (filling in the gaps) with gas, you are not getting an environmental benefit.”
It’s for this reason, and a desire to be at the forefront of development, that California is looking to require utilities to procure 1,000MW of storage out to 2020. What that means, the type, and where, and how it is measured is yet to be worked out.
“That is a pretty big target,” Randolph says. “We’re maybe contemplating more storage in California than currently exists around the world. But it’s the same theory when we looked at goal of 3,000MW of solar – at that time the only two places that were all in on solar – us and Germany. You have got to make the commitments to drive the market.
“My view on storage is that there are lots of people saying we about 5 years away from having technologies that are marketable and make economic sense. Generally that means it is probably around 15 years away. So maybe we can kick start it.”
All of these policies are on top of the energy efficiency measures that California introduced in the energy crisis of the 1980s, and which has seen no rise in per capita consumption of electricity since 1980, despite the huge proliferation in appliances in the home and business. Much of this has been achieved through strict energy efficiency target, green building codes and retro-fits.
That crisis is guiding much of the decision making today – and why California is seeking to reduce its reliance on imported fuels. The only coal it uses is from a plant in Utah owned by the Los Angeles authority, which is under pressure to divest it. Gas is imported from Canada, Colorado and Texas. One of its two nuclear plants, the 2,200MW San Onofre, recently closed down a decade ahead of schedule due to technical issues, and the other, the 1,900MW Diablo Canyon, which recently went missing in action during the recent heat-wave, is due to close in 2022.
The governor is focusing on distributed generation. Hence the rooftop solar target, the self-generation program (which even if it uses gas-fired equipment must show a reduction in emissions), and even stronger targets with energy efficiency.
The biggest challenges, Randolph says, are how the utilities adapt. The different dynamics of the renewables technologies at utility level, but also the focus on rooftop solar and other forms of distributed generation, self generation and storage, runs counter to the business model of the utilities. There is currently a cap on rooftop solar that equates to 5 per cent of peak demand for a utility, but they are under pressure to change it.
“That has become a big conversation here now – what the utilities model looks like 20 years from now” Randolph says. “If we really want to meet these renewable energy goals, utilities are going to have to have a different business model.
“The comparison would be with what the telecom industry used to look like. I’m fascinated to watch how this plays out. I know we need to find a different model for the utilities long term.”
But just as he says it took 30 years from the time the original power plant was installed by Thomas Edison in New York (it was a distributed co-generation plant) and the industry settled on a centralised model, it would take time before the new model was settled.
“We got 100 years basically of the same model on the engineering side and the economic and regulatory side. Now we say we are going to rethink this whole thing. We are not going to figure this out in 5 years. I don’t know why people think it wouldn’t take a while to get it right for the second time.”
But what about the aspirational goal of 100 per cent solar? Randolph says California has not modeled it, but he doubts it will come to pass. For a start, he says the biggest priority should be on reducing emissions from transportation, and the best way to do that is to electrify it as much as possible.
“If we going to meet climate goals in 2050, where we need to focus our energy is on transportation. That means dramatic load growth on the electricity side. So maybe you never get 100% renewable, but if you get electricity carbon free as you can, the offset on the vehicle is massive.”
But transport could also offer a solution to storage, particularly by using electric vehicles to draw down electricity when the grid needs it. That might not be popular with EV owners, who want a full charge after plugging in their cars, and don’t want their batteries cycled repeatedly to an early death.
“I’ve got friends with EVs, and when I talk to them about using vehicles as storage they go ballistics, saying you can’t do that,” Randolph says. “So how we do that is something we’ve got to think about and work through.”