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Power Struggle: Will Local-Energy Groups Come Clean?

Judith Lewis Mernit

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Seven years ago local officials in Marin County, California organized to form a nonprofit electricity company with the noblest intentions. Buying and selling electricity allowed the group, Marin Clean Energy (MCE), to route around the local utility giant, Pacific Gas & Electric, which for years had resisted its customers’ pleas for cleaner, more reliable power, all the while “greenwashing” its image with marketing campaigns. “People wanted more of a sense of how their dollars were being invested,” Alex DiGiorgio, MCE’s community development manager, tells Capital & Main. “They wanted more access to competitively priced renewable energy.”

They also wanted to “catalyze local project development,” DiGiorgio says, to see their electricity bills go toward something more beneficial for the local community than large hydroelectric dams, polluting gas-fired power plants and a nuclear facility built over an earthquake fault.

But critics of the local-power movement say agencies like MCE — whose very reason for being was to stimulate renewable energy development — mostly support already extant renewable facilities. That’s because in their quest to find affordable power that they could rightfully label green, MCE went far beyond the local community, beyond the state and even outside the regional market. Its first power purchase contract was not with a new solar plant in the Central Valley nor a wind farm in Wyoming, but with Shell Energy North America, a subsidiary of Royal Dutch Shell based in Houston, Texas.

The hard reality is that in 2008, when MCE was first formed, and even in 2010, when the agency began serving customers, the renewable energy markets of the West remained far behind community power’s ideals. Wind and solar power still cost more than their dirtier counterparts, and their intermittent, often unpredictable power posed challenges that grid managers had yet to solve.

The agency has also exploited other tricks of the strange and complicated renewable energy market to sell customers premium options derived from 50 percent or even 100 percent renewable energy. Instead of buying actual green electrons, MCE’s buyers fluffed their portfolio with free-floating renewable energy “credits” bought and sold independent of actual generation. They’ve also relied on substitute power supplies, offered on the market to balance intermittent wind and solar energy, but which too often simply cloak coal or nuclear electrons in green.

“MCE is trying very hard to be a leader on clean energy,” says Matthew Freedman, a staff attorney at The Utility Reform Network (TURN), a San Francisco-based consumer and clean-energy advocate. “But the test for success is whether they’re driving new renewable energy generation in the state and in the West.”

So far, MCE, along with many other community power agencies around the country, is failing that test. “If all you’re doing is trading short-term energy surpluses from already existing energy facilities,” Freedman says, “you’re not having much impact on new generation.”

In fact, he says, the community groups in some cases might be having the opposite effect. California lawmakers have “tried to develop rules that will result in meaningful, incremental change in the amount of renewable energy generated in the state,” Freedman says. But by relying so heavily on virtual green energy products designed by third-party sellers — “market actors who operate like financial traders,” as Freedman describes them — groups like MCE are contributing to an energy market made to look more green than it actually is.

The way they’re operating now, Freedman says, “will not help California achieve its ambitious clean energy goals.”

 

Thirteen years have passed since the California State legislature made it possible for entities like Marin Clean Energy to come into being, when Assembly Bill 117 established what’s known as Community Choice Aggregation. The new law made starting up easier for community power groups by guaranteeing them an initial customer base: No longer would they have to lure consumers away from their traditional utilities; once a community power group had been established by elected officials, everyone within its territory who didn’t explicitly opt out would automatically be subscribed.

Nor would community-choice groups need to take over their distribution networks, with all their wires and poles and switching stations — a prohibitive capital investment. Community choice aggregators, or CCAs, could still contract with their established utility for the metering and transmission of electricity; the nonprofits would just make the decisions about where that energy came from, with an emphasis on clean, local power.

The state’s investor-owned utilities, PG&E in particular, have fought the CCA movement. In 2010, PG&E sunk $46 million into a failed ballot initiative that would have effectively killed CCAs by requiring prior approval from potential customers in their respective jurisdictions. More recently, the utility pushed a bill by Assemblyman Steve Bradford (D-Gardena) that would have made future CCAs “opt-in” businesses— available only to consumers who explicitly choose to enroll. Under pressure from environmental groups, the bill failed.

But the CCA trend has not only continued, it seems to have picked up momentum as more renewable energy plants come online on the Western grid. Marin Clean Energy, California’s first CCA, now serves 11 municipalities spread out across three counties. Sonoma County inaugurated its public-power service in May of 2014 to serve 20,000 customers, and a year later, Lancaster, California signed its first 850 customers to Lancaster Choice Energy.

“We could never realize our goal of becoming a ‘net zero’ city” — one that produces more energy than it uses — “if we were still buying power from Southern California Edison,” says deputy city manager Jason Caudle, one of the program’s main engineers. SCE will still provide distribution and metering services to the city.

Consumer satisfaction with the new agencies has so far been high. Only 20 percent of consumers in MCE’s service area have elected to stay with PG&E, which DiGiorgio credits mostly to the agency’s ability to provide affordable electricity. The Shell deal might have “raised a few eyebrows,” he admits, but MCE’s first task was to offer low-cost clean energy to everyone in its jurisdiction, even those on fixed incomes. If it couldn’t do that, DiGiorgio says, “people would conclude that renewable energy wasn’t economically feasible.”

But whether the nonprofit aggregators are truly spurring the development of new renewable energy remains an open question. Sonoma Clean Power, which started up, says public relations director Kate Kelly, with robust financial support from the county, its water agency and a local bank, has been able to sign a substantial number of fresh contracts for what California regulators consider “Category 1” power — renewable energy from a single, verifiable source. Lancaster has signed one agreement with a new 10-megawatt solar facility, and another with an already existing wind farm in the nearby Tehachapi Mountains. However, MCE operated for four years before it signed a substantial contract with a new renewable energy provider, a 10.5 megawatt solar plant on the grounds of the Chevron refinery in the city of Richmond, to be completed in August of 2016.

But both MCE and Lancaster also purchase significant amounts of “Category 3” renewables — renewable energy credits sold, often at bargain-basement prices, independent of the wind, solar or geothermal electrons responsible for those credits. Such credits perform an important function in the energy marketplace, says Noah Long, the legal director for the Natural Resources Defense Council’s Western Energy Project, serving a voluntary market of companies and utilities that  either want to support renewable energy beyond the mandatory goals states set for utilities — or at least make it appear that they do.

“Corporations that espouse green values buy them to claim they use 100 percent renewable energy,” Long says. Electricity retailers in California can also use the credits to meet 15 percent of their state-mandated goals, of 30 percent renewables by 2020 and 50 percent by 2030. California utilities can’t use them in the 100 percent renewable options they offer customers, the way MCE and Lancaster do; a 2013 law, supported by TURN and the Sierra Club, created a “shared renewables” program for utilities instead that draws upon actual renewable energy generation. But utilities in many other states can. “Over half of the renewable energy in the U.S. right now serves the voluntary market,” Long says.

What so-called “unbundled” renewable energy credits don’t do, or do only rarely, is finance new generation. Nor does “Category 2” renewable energy, blocks of non-renewable power paired with unbundled credits from wind and solar plants out of state. When MCE had to account in its compliance reports for its Category 2 supplies, it named the Palo Verde Nuclear Plant in Arizona as one of the sources of imported electricity bundled with credits and passed off as renewable. Which means that, after credits and electrons got mixed up and moved around on the market, MCE customers ended up supporting exactly the kind of generation they’re trying to dump.

 

More important, perhaps, is the fact that all the buying and selling and trading of credits, swirling around on the market untethered from their generation, deprives new and verifiable renewable energy projects of financing. The more CCAs rely on substitute power and untethered green tags, the less inclined they’ll be to support new generation.

“If you’re planning to build a $500 million project, even if you’ve already invested in the planning and permitting, you’re still not going to build that project without a long-term power purchase agreement,” says Matthew Freedman. “Ten years is good; 20 is better.” That’s how a new energy facility attracts investors, who want most of all to know that they’re going to get their money back, plus a decent return.

Such agreements also help the buyer: “If you sign a contract for six cents per kilowatt hour, that electricity costs six cents on the first day and six cents on the last day,” Freedman says. “You just bought an insurance policy to protect you against the potentially rising cost of conventional energy.”

For the sake of both its long-term finances and to remain true to its clean-energy goals, then, Sonoma Clean Power has pledged to derive no more than three percent of its entire energy portfolio from unbundled renewable energy credits. Voters in San Francisco in November approved a ballot measure that would limit the use of unbundled credits by its forthcoming CCA, CleanPowerSF, which will launch next year after more than a decade of planning. And MCE, which has already reduced the use of such credits from 30 percent in 2014 to 15 percent in 2015, will match Sonoma’s goal in 2016.

DiGiorgio makes no apologies, however, for buying them in the past. The revenue earned from supplying premium services with unbundled credits has helped support MCE’s “feed-in-tariff,” program, which offers fixed-price contracts with small-scale solar providers within its service area. One of those projects, at the San Rafael Airport, is the largest solar installation in Marin County’s history.

“It’s only one humble megawatt,” DiGiorgio says, just one one-thousandth of an average coal plant. But it demonstrates the power of what he calls “truly democratized” energy. “PG&E has been in the utility business for 100 years, and solar technology’s been available since the late 1970s. So why wasn’t a solar facility developed in Marin County before that?” (Today PG&E is two percentage points shy of meeting its 33 percent by 2020 target for renewable energy. It’s possible that CCAs have pushed the company along.)

Jason Caudle of the ambitiously green-minded Lancaster says his city will pursue the same strategy as MCE for as long as it needs the revenue to operate.

“Look,” he says, “do we want energy from all local renewable resources to sell to our citizens? Absolutely. Should the marketplace expect us to do it in the first year of operation? No. I think all the CCAs will get there. It’s just going to happen over a period of time.”

Freedman hopes Caudle’s right, and that the trend continues. “I do think CCAs are moving in that direction,” he says. “I hope they are.” He encourages consumers to ride herd on the agencies to make sure that they do.

“If you have an entity representing themselves as being extremely green and providing a superior environmental product to their customers, you need to look beyond the top level numbers,” he says. “This game of musical chairs won’t solve our long-term problems.”

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