California approves reverse auction renewable energy market

By Todd Woody
December 16, 2010

IMG_1349.JPGThe California Public Utilities Commission on Thursday approved a unique reverse auction market to let renewable energy developers bid on small-scale projects under a program that would generate up to 1,000 megawatts for the state’s three big investor-owned utilities and further spur the solar industry.

Think of it as the eBay approach to ramping up production of carbon-free electricity.

The idea is to avoid problems with so-called feed-in-tariffs that set rates artificially high for renewable energy production. In Spain, for example, high rates spurred a solar building boom that was followed by a crash when a cap on renewable energy production was reached and rates fell.

Under the plan approved by California regulators, the onus would be on developers to calculate the cost of their projects and then offer a bid high enough to generate a profit yet low enough to beat out competitors. The 1,000 megawatts to be developed would be split between Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

At peak output, 1,000 megawatts would power about 750,000 homes.

“This mechanism would also allow the state to pay developers a price that is sufficient to bring projects online but that does not provide surplus profits at ratepayers’ expense,” utilities commission staff wrote in their original proposal. “Providing a clear and steady long-term investment signal rather than providing a pre-determined price can create a competitive market.”

Dubbed a reverse action mechanism by the utilities commission, the program applies to renewable energy projects that generate up to 20 megawatts of electricity. The hope is to encourage development of small-scale solar power plants that can be built relatively fast and plugged into the grid without major – and expensive – transmission upgrades.

Developers much complete their projects within 18 months and deploy commercially proven technology, according to the decision adopted Thursday.

Adam Browning, executive director of The Vote Solar Initiative, a non-profit San Francisco advocacy group, said the new program fills a gap in California’s renewable energy program.

The state offers incentives for homeowners and businesses to install solar systems that generate up to 1.5 megawatts and utilities have signed contracts with developers to build big projects that will produce hundreds of megawatts each. Lost in the middle were mid-sized projects.

“The decision will help expedite solar development,” said Browning. “This is a way of harnessing the power of distributed generation to deliver a more robust grid and renewable energy development in a much more timely fashion.”

(Photo: Todd Woody)

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reverse auctions create an environment where bidders get an opportunity to place multiple lowering bids and the buyers know they will receive true market value. Great job California utilities!

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