Aldyen Donnelly: Why California will not be imitating Ontario’s Feed-In Tariff (FIT) program

(June 6, 2011) From Glen Murray’s twitter:
P Gipe from California FIT programs in Ontario best in World, others are imitating it… Aldyen Donnelly responds.

“P Gipe” is a riot!  And there is no way any amount of promotion of Ontario’s Feed-in Tariff (FIT) is going to get California regulators to give a moment’s thought to imitating the Ontario FIT.

How California’s FIT works

California law initially obliges utilities to comply with renewable power supply mandates which increase, over time.  But California law also puts a limitation on the cost renewable power suppliers can charge, in aggregate, and utilities can legally fail to comply with their renewable supply mandates if the price the market asks is deemed too high.  The California “Public Utilities Code § 399.15(d) defines the cost limitation as “a limitation on the total costs expended above the MPR for the procurement of eligible renewable energy resources procured to satisfy RPS goals”.

The “Market Price Referents” or “MPR” is a schedule of electricity prices that is the market regulator’s current best estimate of what the price of electricity would have to be to meet all of California’s electricity demand using combined cycle gas turbine technology.  The positive difference between the actual contract prices paid by utilities and the MPR is the amount that counts towards the electrical corporations’ cost limitation. The regulators call the contract costs that are applied to the cost limitation the “above-MPR funds” or “AMFs”.

Every year, the regulator published a new MPR schedule.  Then the utilities’ can use the “AMF Calculator ” to determine the companies’ maximum financial exposure to the state’s renewable energy mandate. The following is the current summary of the total costs that utilities can pass through to their rate-bases over the next 10 years in premiums over the MPR to meet their renewable content mandates:  If/when utilities can prove that it would cost more than these total amounts to comply with their renewable mandates, they have two choices: (1) apply for relief from the mandate or (2) enter into renewable supply agreements the full cost of which cannot be passed through to their customers.

Total AMFs for Each Utility for current RPS reporting period
Utility                           Amount (2008$)
BVES              $         328,376
PG&E              $ 381,969,452
SDG&E            $   69,028,864
SCE                  $ 322,107,744
Total                $ 773,434,436

Utilities are required to write the regulator once each year and, using the AMF calculator, inform the regulator how many “AMFs” are left given the renewable power purchase agreements they have in place (see sample letter). The reason we were so certain that California would not achieve its originally-legislated 2012 renewable energy target was that the utilities have used up all of their AMFs by the end of 2009.

When you compare California’s regulated renewable power cost limitation to Ontario’s forecast cost for the Samsung deal alone, clearly Ontario is looking at much higher per capita FIT programme costs than California is.

Please also note that the rules keep changing in California, when it comes to the price paid to home owners or businesses install solar, PV or wind power generation technology.  Before 2010, the home owner could only receive the renewable premium for electricity sales less than or up to their own home’s consumption.  In other words, they would pay the posted rate for any electricity they accepted from the grid and get paid a premium for electricity they generated into the grid, but only up to their consumption.  They would not get paid for electricity delivered into the grid over and above their own consumption level.  This rule was changed and as of 1 January 2010 state laws now allow homeowners who produce more than they use over the course of the year to opt to sell the excess power to the utility at a rate that is privately negotiated and undisclosed. Any premiums that the utilities pay homeowners for surplus solar power are deducted from the AMFs.

The state also has a cost rebate programme called the California Solar Initiative (CSI).  But to qualify for this rebate the customer is not allowed to install a system that inherently produces more power than the household typically demands.

Ontario’s FIT also differs greatly — but in the opposite way — from most European FITs, in this regard.  In Europe, the FIT premium is typically paid on the positive difference between the electricity the household delivers into the grid and the electricity the household takes from the grid.  So while Ontario pays the FIT on gross deliveries of renewable electricity into the grid (and the households pay the posted rate for electricity they take from the grid), most European nations simply subtract the electricity the households take from the electricity the households deliver and pay the high, FIT rate, for the difference.  The net result is that most European FIT liabilities are much lower than Ontario’s FIT liabilities, even if the posted FIT rates appear to be higher than Ontario’s.

Both California and the European regulators say that their different strategies are to encourage energy efficiency.  (Ontario’s FIT design is bad for efficiency.)  I think the European approach does encourage efficiency, but the California approach is inferior.

Aldyen Donnelly, June 6, 2011

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