On Tuesday, August 24, 2010, the CPUC issued a proposed decision to launch a new renewable incentive program designed to drive development of mid-sized renewable energy systems — those ranging in size from one MW to 20 MW.

The CPUC proposal establishes a one GW pilot program for power from eligible mid-sized renewable energy systems. The program requires California's three largest investor-owned utilities — Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric — to hold biannual competitive auctions into which renewable developers can bid, known as the Renewable Auction Mechanism. Utilities must award contracts starting with the lowest-cost viable project and moving up in price until the MW requirement is reached for that round. The program will use standard terms and conditions to lower transactional costs and provide the contractual transparency needed for effective financing. Development security and relatively short project development timelines ensure project viability.

The CPUC proposal has several advantages, which include the following:

  • While transmission is the most significant barrier to development of large-scale renewable projects, the proposed program establishes a market for smaller renewable projects that can be incorporated into existing utility distribution infrastructure.
  • Smaller projects likely will be easier to finance than large-scale ones.
  • The proposed program will use competition to establish a price that is both sufficient for project development and protective of ratepayers. This mitigates the difficulty in implementing fixed-price feed-in tariffs, whereby if the fixed price is set too low, then incentives to develop renewable projects are decreased, and if the fixed price is set too high, then ratepayers pay unnecessary costs.

In general, there is a clear gap in the development of mid-sized renewable energy projects in California; the state has robust policies for developing utility-scale projects and for putting smaller systems on homes and businesses, but mid-sized projects have been underdeveloped. The CPUC can act to finalize and adopt the proposed program in as soon as 30 days. If adopted, this program will present significant opportunities for further development of renewable energy systems and will bring new sources of clean energy to California.