Common Tragedies

Thoughts on Environmental Economics

Green infighting

Posted by Rich Sweeney on January 7, 2009

From Greenwire, a preview of what’s to come as government attempts to promote green investment. Like any other market, the renewable energy and efficiency market consists of both complements AND substitutes. It’s really hard not to appear to be picking winners in these situations, which inevitably invokes outcry from the losers. In this instance, interest groups backing energy efficiency and distributed renewable energy are attempting to block a large transmission investment aimed at bringing geothermal and solar energy to badly congested markets. We’re gonna need all of the above if we are gonna significantly reduce our carbon emissions from electricity, but that doesn’t seem to matter a whole lot to the critics listed here. I’ll post the whole article below the jump.

Calif. transmission project sparks debate on renewable energy (01/07/2009)

Debra Kahn, E&E reporter

A $2 billion West Coast power-line project approved by California regulators last month is being touted by its backers as a lifeline for renewable power and a weapon in the battle against global warming.

But critics of the San Diego Gas & Electric Co. project say the 150-mile power line will provide little relief for short-term electricity transmission woes and will do less to promote renewable energy than the utility and its supporters claim.

At issue is the Sunrise Powerlink, which would link geothermal, wind and solar energy resources in the Imperial Valley to the Los Angeles and San Diego areas and help meet the state’s renewable power target of 20 percent by 2010 (E&ENews PM, Feb. 20, 2008).

SDG&E has pushed hard for permission to build the Sunrise project and bill ratepayers for its construction with an advertising campaign in San Diego. The utility is supported by two advocacy groups, Californians for Clean and Reliable Energy and the Community Alliance for the Sunrise Powerlink.

Businesses, labor proponents and government officials flooded a meeting of the California Public Utilities Commission last month, urging the panel to let SDG&E build the line to Imperial County, one of the nation’s poorest areas, with an unemployment rate that reached 27 percent last fall. Said Chula Vista Mayor Cheryl Cox, “We’re counting on the PUC to use existing regulations to ensure Sunrise Powerlink delivers on its promise.”

The commission voted 4-1 to approve the project, against the recommendation of an agency judge, who concluded that Sunrise would not affect SDG&E’s renewables procurement before its completion in 2012 and is not needed to relieve congested transmission before 2014 at earliest.

SDG&E currently has just one significant renewables contract in the valley, for 900 megawatts of power from Stirling Energy Systems Inc., with the first 300 megawatts from a concentrated solar plant scheduled to come online in 2012. The utility also has several smaller solar and geothermal contracts in the valley.

Under commission President Michael Peevey’s plan, which was supported by Gov. Arnold Schwarzenegger (R) and passed by the commission, verbal assurances from SDG&E and its owner, Sempra Energy, were included saying the company will work toward meeting a 33 percent renewable power goal and strive to sign more contracts for renewable energy from Imperial Valley.

The panel turned down a competing proposal from Commissioner Dian Grueneich that would have forced SDG&E to put in writing its pledges to secure renewable energy from the valley and would have committed the utility to a 33 percent renewable portfolio standard by 2020.

“Without a renewable requirement, we spend $2 billion of ratepayer money on a new transmission line that … can be used to transmit nonrenewable energy and may well undercut this state’s global warming goals,” Grueneich said. “If we rely instead upon SDG&E’s oral representations … we cannot justify approval of Sunrise” (E&ENews PM, Dec. 18, 2008).

‘Benefit of the doubt’

Some key players, including some leading state lawmakers and a member of the agency that approved the line, maintain that SGD&E and Sempra Energy are not as eager to use the line for renewable energy as they claim.

The Utility Consumers’ Action Network, a San Diego-based ratepayer group, has pledged to file a petition for a rehearing with the CPUC within 30 days, then take the matter to the State Court of Appeals if the commission rejects the petition. The group’s executive director, Michael Shames, said he would argue that the decision was arbitrary and capricious and violated the California Environmental Quality Act, which requires agencies to consider more environmentally friendly alternatives.

State Assembly Speaker Pro Tem Lori Saldaña (D) opposed the project entirely. “I believe that the CPUC should direct SDG&E to pursue a strategy of local distributed generation,” she wrote in a letter presented at a hearing last month. “The recent wildfires linked to existing transmission lines have demonstrated the tremendous risks these structures pose for our backcountry communities.”

Saldaña added, “However, if the CPUC should decide to approve the southern route of the Sunrise Powerlink, they should also require SDG&E to sign an enforceable, binding clean energy guarantee. This is absolutely crucial to ensure that any new transmission line moves only 100 percent renewable energy and will never be used to import coal-fired electricity or energy from Sempra Energy’s gas-fired power plants and liquefied natural gas terminal in Mexico.”

Saldana spokesman Joe Kocurek said he was disappointed by the decision but was happy that SDG&E agreed to a rerouting of the line to avoid Anza-Borrego Desert State Park. “We preferred Commissioner Grueneich’s decision as a backup,” he said. “We’re not sure the utility, because of their tendency to misrepresent the project, deserves the benefit of the doubt on this issue.”

Senate President Pro Tem Darrell Steinberg (D) and three other senators echoed Saldaña’s concerns in a letter to Schwarzenegger, pressing him to require SDG&E to commit to a 33 percent renewable power standard (RPS), to replace any renewable contracts that fall through with renewable power from the same region, and not to send any new coal-powered electricity over the line. “Approval of the Sunrise Powerlink without renewable conditions would not only be at odds with your administration’s policies on renewable energy, but it would arguably contravene the strong greenhouse gas reduction policies articulated in California’s greenhouse gas laws and in the scoping plan drafted by the Air Resources Board pursuant to A.B. 32,” they wrote.

Sempra Energy CEO Debra Reed said the utility would make good on its promises. “I personally committed that we would replace contracts on that line if they didn’t perform,” she said. “I would expect us to buy a lot from Imperial.”

Reed said she might have been willing to commit to a 33 percent RPS if the commission had taken up another decision that would allow utilities to use tradable renewable energy credits (TRECs) to meet their renewable obligations, but the panel postponed that vote until January.

SDG&E spokeswoman Stephanie Donovan also dismissed accusations from the Sierra Club and other environmental groups that the utility refused to go along with Grueneich’s plan because it does not intend to adhere to its verbal commitments.

“What we have said from day one is we are contracting for only renewable power for that line,” Donovan said. “If we can come up with 1,000 megawatts of renewable generation, that’s what we would like to do.”

More transmission vs. distributed generation

Other critics, like retired San Diego mechanical engineer Bill Powers, said the line would hurt the case for rooftop solar panels and other types of distributed generation. Powers said SDG&E has been lobbying for the transmission line for a decade, but the utility began touting it as a conduit for renewables only after the CPUC rejected its original proposal in 2002. The commission ruled then that it was not needed to meet reliability standards and was not cost-effective. After that, the utility changed the name of the line from Valley-Rainbow to Sunrise Powerlink and said it would be used for renewable energy.

“This whole emphasis on transmission is an artifact of the fact that utilities make their best money on transmission,” Powers said. The Federal Energy Regulatory Commission guarantees utilities a rate of return of about 11.5 percent for transmission lines, compared to about 8 percent for other projects. Since 2007, FERC has guaranteed SDG&E an 11.35 percent return on investment for transmission projects, a rate that expires in 2013.

Does the federal incentive to build transmission deter utilities from considering alternatives like expanding distributed generation? No, said Jim Owen of the industry group Edison Electric Institute. The high rate of return is a reward for a lengthy permitting process that threatens lawsuits every step of the way, he said. In a worst-case scenario, lines can take 14 years to get through the process, as in the case of American Electric Power Co. Inc.’s Wyoming-Jackson’s Ferry line from Virginia to West Virginia.

“There’s so much uncertainty surrounding transmission construction and policy, in order to get investors to bring capital to these projects, given all the uncertainty and the amount of time it takes to bring it to fruition, the general thinking has been that federal regulators need to add a little bit of juice to those returns,” Owen said.

In California’s case, especially, the need for more transmission is not open to debate, Owen said. The state’s power crisis of 2000-01, in which wholesale electricity prices rose as much as 30 times higher than expected, could have been curtailed in part by more transmission, he said.

“At the time Southern California was needing electricity very badly, there was a little bit of excess capacity in Northern California, but there were limitations on how much of that excess capacity could be sent,” Owen said. “If they’d had more transmission capacity seven, eight years ago, it could have been to some extent mitigated by importing additional electricity, some of which was excess hydropower capacity, but it did not happen because there were so many constraints on north-south transmission.”

“Transmission can itself, if you have a liquid and robust system, can supplant the need for additional generation of any kind,” Owen continued. “If you have a more liquid system that allows you to move electricity from places where demand is less to demand is more, that’s going to help you offset the need for new electricity of any kind.”

But FERC itself has said transmission might look deceptively appealing in some cases. A 2007 FERC report said utilities should especially consider distributed generation when the proposed transmission project is aimed at solving longer-term capacity issues.

Calculating a project’s cost based on added capacity may make transmission look more economically attractive than if it was calculated based on actual need, the report says, noting that “utilities should evaluate traditional T&D [transmission and distribution] upgrade options from a capacity-shortfall point of view and compare their economics with alternatives such as DG [distributed generation]. Such an approach is one way to deliver just-in-time and right-sized capacity to resolve smaller short falls while minimizing the initial capital outlay.”

The San Diego Renewable Energy Society estimates that half of San Diego’s renewable generation needs can be met with local resources, including on-site photovoltaics, biomass and wind, in addition to geothermal. The group took an agnostic approach to Sunrise, saying it trusted the CPUC to make a good decision.

“We do not know if a new transmission line from Imperial County is needed by 2010 as claimed by SDG&E in their application to the CPUC for the Sunrise Power Link, or many years later, or not at all,” they wrote. “We rely on CPUC to balance all these factors and to decide if and when a new line is needed, and the best route that minimizes impacts.”

‘Part of the solution’

Rich Caputo, a director of the San Diego Renewable Energy Society, was more bullish on the line, calling predictions by the Sierra Club and other opponents that Sempra would attach its gas-fired power plants to the line “conspiracy theories.”

Distributed generation cannot provide more than about 7 percent of generation, Caputo said, since it is strongest between about 10 a.m. and 2 p.m. Concentrated solar power, geothermal, biomass and wind power are essential to supplanting fossil fuel use, and all of those options will require transmission lines from suitable areas, he said.

“To come up with a no-wire approach means you’re not going to use four out of five electricity options,” Caputo said. “That’s foolhardy. It means you’re not going to displace much fossil fuel, or it’s going to be expensive, or both.”

Caputo conceded that energy efficiency and conservation could replace fossil fuel with renewable energy contracts without increasing total capacity, in which case more transmission lines would not be needed. But while California has kept its per capita energy use constant since the 1970s, the rest of the country has not, he pointed out. Electricity demand has increased from 1,500 billion kilowatt-hours in 1970 to more than 3,700 billion kilowatt-hours in 2004, and is projected to reach 5,600 billion kilowatt-hours by 2030, according to FERC.

“We have to do a lot better here, and the rest of the country has to do a lot better,” Caputo said. “If that really happens, then you can be putting in renewables, displacing fossil fuel on existing wires, and then you don’t really need much new transmission lines, except they’ve got to go from where they are now to where renewables are.”

But Caputo, who just published a book on energy policy, “Hitting the Wall: A Vision of a Secure Energy Future,” said he was not optimistic about the nation’s ability to balance competing strategies to achieve a higher percentage of renewable energy.

“I’m part of the solution, Bill Powers is part of the solution, SDG&E’s part of the solution, Schwarzenegger’s part of the solution, but it all doesn’t fit very well,” Caputo said. “It looks like people are seeing two different worlds, with almost nothing in common.”

Click here to read the California state senators’ letter.

Click here to read the 2007 FERC report.

3 Responses to “Green infighting”

  1. Hydra said

    “It’s really hard not to appear to be picking winners in these situations, which inevitably invokes outcry from the losers. ”

    Green Infighting

    If that’s the case then BOTH sides are broken. The idea ought to be to come up witht the compromise that comes closest to meeting everyone’s goals (maximize net social welfare) subject to the condition that the winners pay off the losers such that no one is WORSE off.

    This frees up the maximum revenue for the next best compromise (the highest goals being already met) which means that lesser special interests get their needs met sooner than if we continue the general pattern of infighting.

    We are not going to get all of the above, at least not at the same time, but there is probably only one best path to getting most of it soonest. We should be looking for that path and not encouraging people to advocate for either distributed energy, massive renewable, or any other single issue politcal wedge.

  2. Hydra said

    Benefit of the doubt.

    Case in point.

    Saldana doesn’t believe the utility deserves the benefit of the doubt on this because of their tendency to misrepresent the issues.

    And this is based on Saldano’s belief that “CPUC should direct SDG&E to pursue a strategy of local distributed generation,”…

    Oh well, shucks then, thet’s go spend money. Never mind who believes what. Don’t confuse me with facts, my mind is made up.

  3. Carlos Ferreira said

    I really can’t see how transmission investment can detract from renewables. The facts is that you need to distribute power, and if you allow users with solar panels to pump some electricity into the grid (can you do that in California? We can, in Europe) and so reduce your bills and the strain in utilities, it’s good.

    Keeping users away from distribution is just a way to benefit someone and increase prices artificially. As you say, we need both renewable generation and distribution capacity. Case to point: the countries that were worst off when Russia closed the taps on the gas to Europe were the countries where there was no gas distribution infrastructure.

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