Energy Solutions: California’s Energy Transition
THE ISSUE: PLANNING FOR AND IMPLEMENTING CALIFORNIA’S ENERGY TRANSITION
Driven by concerns over emissions and technology development, the energy industry is undergoing significant change, particularly in California. The state has implemented a number of initiatives to reduce emissions in the energy industry and encourage new energy technologies. Since these programs were first initiated, we have seen significant price reductions and technological improvements in renewable energy, behind the meter demand automation, clean transportation, and the smart grid technology necessary to weave all of these new technologies into one well-connected, low emitting energy network. During this time, we have also seen new technology-driven discoveries of historic high levels of domestic natural gas reserves.
From an economic perspective, this transition has already led to some business growth in the clean tech industry, but it also has the potential to lead to significantly more new business opportunities, job creation, and increased economic growth. Absent well-designed state policy, however, the potential exists that there will be higher energy prices, reduced reliability, and business flight. How can Southern California maximize job creation and economic growth, without unnecessary increases in rates as it continues its pursuit of a low carbon future in the energy industry?
The challenge, especially for California’s utilities, is how to weave together so many new policy mandates in a consistent and equitable manner that provides for a sustainable energy market structure that will allow for this transition in the energy marketplace to occur without unintended consequences, and in a manner that maximizes our ability to utilize infrastructure investments that have already been made to support this transition. It is critical that the state’s policy mandates not be in conflict with each other or unnecessarily increase the cost of energy in our state.
The challenges involved with California’s Energy Transition were highlighted in two recent reports released in December 2012, one by California’s nonpartisan Little Hoover Commission and the other by The Hoover Institution at Stanford University (the two groups are not affiliated), both of which raised concerns that California’s unprecedented and rapid move toward greater dependence on renewable energy may come at a steep price for consumers. But electrical rates are just one concern raised by the reports. They also outlined the lack of a coordinated state strategy for implementing California’s new renewable energy initiatives – a finding echoed again in late December within a report on energy issued by the Legislative Analyst’s Office.
These three reports, coming in rapid succession, offer an important warning and a timely call to action. They highlight the magnitude of the issues involved, the need for strategic integration of multiple renewable policies and mandates, the cost implications for businesses and consumers, and above all the need for California to be successful in this energy transition if our state hopes to lead a global movement toward clean energy and reduced GHG emissions.
As an example, our state’s commitment to clean energy has led to a recent mandate called the Renewable Portfolio Standard which requires that 33% of all utility procurement in California is to be met by renewables by 2020. While most would applaud this important step, it comes with added cost and forecasting risk. Because renewables generate electricity when renewable resources are available – when it is sunny or windy – but not necessarily when people use electricity and not necessarily in a way that provides for consistent energy production day-after-day, the mandate for renewables requires utilities to have adequate capacity available, including non-renewable energy, as a backup to new renewable sources.
Another example of the challenges involved with California’s Energy Transition involves the state’s promotion and the resultant significant growth in distributed renewable generation. This term, “distributed generation”, refers to the scenario in which energy generation in California is significantly complemented and enhanced by thousands (if not millions) of small renewable generation sources distributed throughout the state (mostly solar rooftops on homes and businesses). As with the Renewable Portfolio Standard, most would applaud this policy, but several mechanisms exist to promote distributed generation, each of which makes available different levels of compensation for essentially the same resources. Distributed generation also requires new services from utilities to ensure that the energy these customers produce is available when they need it, but utility rates and the utility market structure has yet to be updated so utilities can charge these customers for these new uses of the grid. This forces other customers that do not have or cannot afford solar to pay these costs. Clearly, a utility structure that was designed for the technologies on which the industry has depended for the last century must be updated to accommodate the new technologies on which California will depend for electricity over the next century.
What’s more California’s Energy Transition needs to not only take into account electricity, but must also provide for smart uses and integration of natural gas. Fact is that as a state, California is the second largest consumer of natural gas in the United States. It should also be noted that nationwide there have been significant recent discoveries of vast natural gas reserves. This will make natural gas a very cost effective and available energy source for decades to come. But natural gas does produce GHG emissions, albeit far less than gas, oil, diesel, or other petroleum products. Because of this, some critics argue that we need to reduce and rapidly eliminate our use of natural gas as part of California’s Energy Transition. Proponents however, would argue that natural gas is critical to California’s ability to transition to renewables. Why? Because as stated earlier, renewable energy production is inconsistent (requires sun and wind) and, therefore, a well-planned renewable energy grid will always require a certain amount of non-renewable power generation and natural gas is a very clean and cost effective fuel for meeting this need.
Likewise, natural gas is currently proving successful as a transportation fuel with several models of natural gas vehicles on the market and selling well. Already significantly cleaner than gas or diesel, proponents argue that over time these cars will continue to achieve even lower emissions as natural gas technology advances.
As to both natural gas and electricity, the volume and significance of the energy policies that have been recently promulgated as part of California’s Energy Transition will have a net effect of sweeping transition within the energy industry and, therefore, must be properly anticipated and planned for by our policy makers and regulators. Done right, California can successfully complete its Energy Transition and guarantee a safe, reliable, environmentally friendly, and cost-effective energy system within our state. Our dependence on such an energy system cannot be overstated and cannot be put at risk.
The Leadership Council supports the environmental and economic goals behind California’s Energy Transition and its increased emphasis on renewables and other clean energy sources within the state’s energy portfolio. To do this successfully, we support approaches that are not only environmentally friendly, but also smart, feasible, economically sound, and market driven.
With this in mind, the Leadership Council supports refinements to California’s energy policies designed to achieve the following goals that would help Southern California (and the rest of the state) accomplish its renewable and low emission objectives in a way that maximizes economic growth and minimizes upward pressure on energy costs.
- Support investment in solar panels and wind turbines that are manufactured in California.
- Promote cost-effective renewable energy investments without unnecessary cross-subsidies.
- Ensure adequate infrastructure to meet California’s distributed renewable generation and clean transportation policies.
- Promote energy efficiency programs for customers and businesses.
- Ensure an adequate future natural gas market to help California make the transition to a lower emission future and protect the investments of natural gas consumers.
- Ensure that the environmental benefits associated with “once through cooling” electric generation facility retirements can be achieved without excessive environmental compliance costs.
- Ensure that California is realizing true economic benefits from its commitment to renewables and a green economy.
- Ensure that regulators and policy makers have a coordinated and overarching state energy strategy for implementing California’s new renewable energy initiatives; one that achieves policy coordination and provides clear authority for various roles and responsibilities among the many state agencies involved with implementation.
Support the Little Hoover Commission recommendation that California must adopt an overarching state energy strategy and until such a plan is in place, the state should enforce a moratorium on new energy-related mandates.
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