The California Renewable Auction Mechanism (RAM) is now official and the program is soon to start after a unanimous approval by the California Public Utility Commission. The resolution, as voted upon 5-0, can be found here.
The RAM is an auction in which developers bid on the lowest levelized cost of energy (LCOE) price they can afford. The program is intended to support small to mid-sized renewable energy development and requires investor-owned California utilities to purchase electricity from solar and other renewable energy systems from 1.5 megawatts to 20 megawatts in size.
So, it's not a feed-in tariff (FIT) -- and if you're a FIT fundamentalist, this program is going to leave you feeling unsatisfied. No program is perfect and this one won't be either. Detractors claim that it favors larger developers who can afford the deposits and the lower bid costs.
Stephen Smith of the Solvida Energy Group earlier this year said: "This approval is a monumental validation for the wholesale distribution solar market in California. It's a win-win for all of California: it accelerates California's progress toward RPS goals, protects its utility ratepayers with a market-driven, highly competitive process and rewards developers that can demonstrate viable, cost-effective project models. Not to mention the local tax revenues gained and skilled green jobs created."
Adam Browning of Vote Solar said this in a press release earlier in the review process: “This is an elegant program that will drive significant new development in small to mid-sized renewables in California. The approach builds on best practices to deliver cost-effective solar on-line quickly, in a way that delivers sustained value to ratepayers. Building on California's 80,000 behind-the-meter solar systems and the Renewable Portfolio Standard that is driving large-scale projects, this program pioneers a new approach to wholesale distributed generation. At scale, solar is more cost-effective than the fossil fuel alternatives. All it takes is the right market mechanism to turn the opportunity into reality, and we thank the Commission and Commission staff for their vision."
According to the PUC, the decision establishes a 1-gigawatt pilot program (over two years) for power from eligible mid-sized renewable energy systems. The program requires California’s three largest investor-owned utilities to hold competitive auctions twice a year into which renewable developers can bid. Utilities must award contracts starting with the lowest-cost viable project and moving up in price until the megawatt 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. To ensure project viability and realistic pricing, the program requires development security and relatively short project development.
The PUC press release lists five key program elements of the RAM:
- A simple, standard, non-negotiable, pre-approved contract
- Project viability: the seller must meet minimum criteria to participate in the auction
- Market-based pricing: bids are selected on price, starting with the lowest price bid until the auction capacity cap is reached
- Streamlined procurement: CPUC staff can approve executed contracts through a Tier 2 advice letter
- Transparency: interconnection maps show available capacity on electrical system, annual program forums solicit program feedback, utility reporting requirements on the auction response and project development milestones of executed contracts
The first auction is on for the fourth quarter of 2011.
Dan Berwick, Borrego Solar’s director of policy and business development, had this to say: “The unanimous decision from the CPUC is a good sign that California is serious about implementing another effective solar and renewable energy procurement program, which will promote solar and help hold the industry accountable for building only the most financially sound, cost-effective solar projects. The program takes the best parts of successful feed-in tariffs, but innovates to introduce market competition that will keep prices as low as possible. California has established itself as the definitive solar leader, and as the successful CSI program winds down, this program is well-suited to maintain California’s stance as an industry leader.”
Browning of Vote Solar believes that the RAM has stronger project security and requires a larger development security payment than other programs. He believes this will eliminate speculators and keep high-quality developers involved. There are periodic program reviews and reports to remove the speculators and make it "painful to fail." He adds that the RAM will succeed because "instead of setting a price -- it sets an outcome."