Freeman Hall had good reason to be enthusiastic when California’s tariff for wholesale distributed generation was launched in 2013.
A co-founder and president of Los Angeles-based Solar Electric Solutions, Hall’s company already had plenty of experience with the kind of projects that the incentive -- called the Renewable Market Adjusting Tariff, or ReMAT -- was designed to encourage.
“We are a classic small developer that got started developing projects in 2009,” said Hall. “At the time, people said you have to get big before the economics kick in. We said, ‘No, you can do 5-, 10-, 20-megawatt projects as cheap as 100 megawatts.’”
There were other reasons for Hall to be bullish about the possibility of pursuing projects under ReMAT. A program administered under California’s renewable portfolio standard, ReMAT was designed in a way that nearly mirrored the mechanics of California’s Renewable Auction Mechanism (RAM) -- a program that Solar Electric Solutions already had success with.
“We developed RAM projects and got some of the first awards and had the first projects from RAM that actually came on-line,” said Hall, referring to 12-megawatt and 9-megawatt power plants the company developed in the Twentynine Palms area of California, which were eventually purchased by Duke Energy.
Indeed, ReMAT was conceived to spur the development of projects sized 3 megawatts and smaller using a very similar approach as RAM -- a feed-in tariff meant to reflect market pricing. Under ReMAT, a total of 750 megawatts of capacity were mandated to be procured statewide, including about 500 megawatts allocated to California’s three large investor-owned utilities.
Winning projects under ReMAT was a straightforward process. Instead of competitive bidding used to award contracts for large projects, ReMAT opened up a chunk of capacity at a set price for three different product types every two months at a non-negotiable price -- 5 megawatts per period for SCE and 3 megawatts each for SDG&E and PG&E.
Developers that could profitably build a project at the price offered were awarded contracts on a first-come, first-served basis. If bidders accepted 100 percent of the capacity offered up in one period, then the price would adjust downward when the next chunk of allotted capacity became available. If less than 20 percent of the capacity was snapped up, the price would go up. And if between 20 percent and 100 percent of the capacity was claimed, the price would remain the same.
Program design drives prices down
In some important ways, ReMAT has worked as exactly as policymakers and regulators planned. Tapping into the powers of market forces has proven to be an effective way to drive prices down.
When ReMAT launched, the opening price available to solar projects was $89 per megawatt-hour. In SCE’s territory, the most recent price of $45 per megawatt-hour was snapped up by developers, which prompted yet another drop to just over $37 per megawatt-hour. (Whether a sufficient number of developers accept this price will be revealed on July 1.)
“That is a home-run for policymakers and ratepayers. The goal is to deploy projects near load with no new transmission and pricing that’s very competitive, which is good for everybody,” said Hall. “As a developer, we think policymakers should be excited about the experience of the program, where success is happening [at a level] consistent with the goals set out.”
In fact, ReMAT is mentioned specifically as one of the tariffs California has in its toolbox for encouraging widespread distributed resource deployment in the CPUC’s action plan, which was released last November.
“We must continue to develop the market opportunities and remove unnecessary barriers to unleash the full value that DERs can provide,” the action plan concluded. “The commission must coordinate its efforts, both internally and with our sister agencies, to push efficiently toward these goals.”
Yet despite that prioritization of distributed generation, the program has ground to a halt.
In fact, around 75 percent of the capacity allotted to the state’s investor-owned utilities has yet to be awarded three and a half years after ReMAT launched. SDG&E stopped accepting ReMAT applications last year and filed a petition with the CPUC to close out the program entirely. Developers and solar advocates fear that SCE could soon follow suit and close out its ReMAT program as well.
“We have a whole market segment that is dying on the vine, even as it’s clear that it provides benefits,” said Brandon Smithwood, the director of California state affairs for the Solar Energy Industries Association, which has joined with developers and other renewable energy advocates to lobby for changes that would kick-start ReMAT.
“These are affordable distributed generation projects and we can see the benefits, and they add up. PG&E last year canceled $335 million of transmission because of rooftop solar and energy efficiency," said Smithwood.
Sacramento, we have a problem
So what’s going on here? How is a program that is driving down prices and leading to the deployment of beneficial distributed generation being left to wither?
Developers and clean energy advocates argue that a few easy tweaks by regulators could fix ReMAT and quickly get the remainder of the capacity built. In fact, supported by both SEIA and the Clean Coalition, an advocacy group, Hall’s company filed a petition to modify ReMAT in November 2015.
At the time, Solar Electric Solutions had a ReMAT project in the development queue. Hall said he realized something was wrong with the program when SCE changed its pricing without notifying developers. One of the appealing things about ReMAT for solar developers was that it included boosted time-of-delivery pricing for periods of the day when electricity demand is higher.
“Out of the blue, they changed it without telling applicants,” he said. “They were dampening premiums to deliver power during summer afternoons as the duck curve stuff became a bigger deal.”
That communication snafu, which was quickly remedied, led Hall to investigate the rules governing ReMAT. What he and others discovered were, at least to his mind, fundamental but easily remedied problems.
As originally configured, ReMAT’s allotted capacity was divided into three product categories: baseload, as-available peaking, and as-available non-peaking. But in its original petition to modify the program, Solar Electric Solutions noted that there had been scant interest and activity in anything except the as-available peaking category, which solar projects fall into.
In fact, when the petition for modification was submitted, 97 percent of baseload and 83 percent of the as-available non-peaking capacity had yet to be contracted by investor-owned utilities. That lack of activity also means that the prices have not dropped in each of those categories.
“Those two product types are stuck at the initial price they launched at, $89 per megawatt-hour,” said Hall. “If an occasional small wind or landfill gas [project] comes out, that is not a good deal for the ratepayer.”
How to fix ReMAT
To ensure that all of the capacity allotted under ReMAT actually gets contracted and built -- and, of course, to give itself an opportunity to build them -- Solar Electric Solutions and other allies suggested a number of changes to the program rules.
“The massive disparities in the level of participation across the various categories are a symptom of limitations embedded in program design," wrote a group of advocates, including Clean Coalition, the California Wind Energy Association, SEIA and the Coalition for the Efficient Use of Transmission Infrastructure, in a recent letter to CPUC Commissioner Clifford Rechtschaffen.
There are numerous changes being pushed to fix those “limitations."
During each period, capacity remaining in the baseload and as-available non-peaking buckets that goes unclaimed could be made available to the as-available peaking category, which includes solar. “The legislature didn’t define that you have to have as-available peaking, baseload and non-peaking,” said SEIA’s Smithwood. “The legislature just said that you had to do this amount of megawatts, and the idea that we are not going to put those megawatts out on the grid because of this feature of how it was implemented is a real shame.”
At the same time, advocates want to see a boost in the number of megawatts awarded in each solicitation. The reasoning behind this is simple. Because ReMAT is meant to have its pricing driven by market forces, there needs to be a large enough procurement to trigger those forces.
“The individual allocation every two months is 5 megawatts, which, for 3-megawatt projects, is not enough to have two projects get approved,” said Kenneth Sahm White, economics and policy analysis director at the Clean Coalition. “If you had one single project accept the offer every two months, that was considered to be sufficiently active that the price wouldn’t change. Having 10 megawatts per allocation was what we originally recommended, and it would allow three projects to get through and give you an actual test of the market.”
Another fix would increase the project security deposit for developers, from $20 per kilowatt to $40. The rationale behind this is to prevent developers who might not actually be able to finance and build a project from snapping up contracts by accepting unrealistically low prices.
For its part, the Clean Coalition has argued in favor of interconnection changes. In the past, ReMAT applicants were required to advance through an expensive interconnection process in order to be eligible for a contract. The costs of interconnection studies, said White, are about $200,000 per megawatt.
“That would be fine if you knew you would be offered a contract after making it through interconnection. But that’s just to enter the queue,” he said.
Instead, the Clean Coalition believes developers need to demonstrate financial and technical viability to move ahead.
“You have to have shown evidence from the interconnection process that you’re viable,” said White. “You have to put a deposit once you’re in the queue but you don’t have to be committed in that interconnection queue. Once you are offered a project, then you have a limited amount of time to show that you can meet deadlines for delivery on schedule, and if you don’t hit milestones, you lose the contract.”
Pressure builds to fix ReMAT, but no guarantee anything will change
Small wholesale distributed-generation developers and their supporters don't believe that the CPUC commissioners and their staff are purposely stunting the program.
“The commission has a lot going on. The procurement folks are focused on integrated resources planning, which I’m involved in, and there’s just a lot going on,” said SEIA’s Smithwood. “I don’t think people are purposely slow-rolling this. We need more people [at the CPUC] because we have an overworked commission.”
That said, Smithwood and others believe it would require a minimal amount of effort to fix ReMAT and quickly get the remainder of capacity contracted and built. CPUC could issue a ruling seeking comments and replies, followed by a proposed decision. “After that, you wait a month and then you have a final decision,” said Smithwood. “In theory, if the commission wanted to move as fast as they could, you could do it in three months.”
For a program that has been languishing for years, there is actually some urgency to act quickly. Developers like Solar Electric Solutions are especially concerned that SCE will follow SDG&E’s example and take advantage of a rule that would allow it to close out its ReMAT program once it has allotted all of its remaining as-available peaking capacity.
Those supporting changes to ReMAT have garnered support from Kevin de Leon, the president pro tempore of the California state senate and a powerful force in state politics. In May, de Leon wrote a letter to Michael Picker and Robert Weisenmiller, the president and chair of the CPUC, respectively, urging action on clean energy procurement generally.
“I write to urge you and your respective commissions to act expeditiously to ensure our state retail sellers of electricity procure as much inexpensive and available new renewable energy as possible in advance of the potential expiration of the federal production tax credits,” said de Leon, whose letter was included as part of an ex parte communication meeting about ReMAT between the California Wind Energy Association and Sandy Goldberg, an adviser to CPUC Commissioner Cliff Rechtschaffen.
Nevertheless, years of effort have not resulted in any tangible progress toward fixing ReMAT.
Reached for comment, the CPUC did not make any commissioners or staff available for an interview, opting instead to answer questions via email.
Terrie Prosper, a spokesperson for the CPUC, said that ReMAT was originally scheduled to be revisited in the second quarter of 2016. But other issues kept ReMAT from being discussed.
Prosper would not say whether the CPUC believes any changes need to be made. “Through our deliberative process, we will consider what rules, if any, should be adjusted,” she said. Furthermore, Prosper noted there is no schedule for revisiting the ReMAT rules.
For his part, Hall hopes for a renewed sense of urgency.
“ReMAT is the only remaining, essentially statewide program for small wholesale distributed generation. The program, despite the glaring flaws that need fixing, has delivered projects at attractive pricing,” he said. “It is a model for wholesale distributed generation and DER implementation, where market pricing adjustments are incorporated in pricing. It would be a failure of policy where a victory is otherwise in sight.”