Last week, to the delight of some and the chagrin of others, Califonia's CPUC gave a green light to the Renewable Auction Mechanism (RAM).
The bidding-based RAM program is intended to promote small to mid-sized renewable energy development -- it requires investor-owned California utilities to purchase electricity from solar and other renewable energy systems from 1.5 megawatts to 20 megawatts in size. Here's a link to the CPUC decision. The program is capped at one gigawatt.
A RAM is decidedly not a feed-in tariff (FIT), which has a set price.
Feed-in tariffs are tricky things.
Run them right and the result can look like Germany's solar miracle -- a country with Alaska-level sun can sprout a solar industry and develop an energy grid with a strong proportion of renewables. Run them wrong and it looks like Spain a few years ago or the Czech Republic today. Failure to provide a cap or setting the wrong price can result in a land rush and a spate of poorly executed projects at immense cost to the taxpayer. Paul Detering, the CEO of Tioga Energy, a solar developer, has said repeatedly that FITs are flawed because they are always set at the wrong price.
We gave voice to supporters of the RAM program last week and they ranged from advocacy groups like Vote Solar to solar manufacturers, big (Suntech) and small (Solaria), as well as developers like Tioga Energy.
But there were a few objections to the auction mechanism.
So, is a bidding program the answer or is a feed-in tariff the way to go?
To quote the Solar Alliance, "At the moment, solar electricity cannot compete effectively with fossil fuel generation, which is heavily subsidized with tax credits, depletion and depreciation allowances, liability shields and other measures. Solar has the potential to compete against these sources today with the support of temporary incentives that will accelerate demand. These have been proven in several markets to in turn reduce costs over time."
According to the the Solar Alliance, any state can develop a world-class solar market if four pillars of policy are in place -- incentives, net metering standards, thoughtful interconnection standards, intelligent utility rates and revenue policies.
Shayle Kann, managing director of solar research at GTM Research, had this to say: "Overall, I'm very much in favor of the RAM program. It is a unique take on the feed-in tariff that allows for market-based pricing while still providing a long-term, stable power off-take agreement for project developers. My only major concern is whether project viability screens and deposits are sufficient to avoid the possibility of underbidding in order to win contracts."
I spoke with Ted Ko of the FIT Coalition to get a different perspective on the RAM auction program. The FIT Coalition is a 501c3 policy group backed by charitable groups and foundations such as Natural Capitalism Solutions.
Ko wants the solar industry to scale and for costs to come down -- as do most of our readers. He cites Germany's solar miracle as being driven by the incredibly low cost of capital for solar development. It is incredibly low because of the certainty of the project. And that's due to the feed-in tariff, according to Ko.
"That kind of market structure is the way to get markets moving," said Ko.
As for the Renwable Auction Mechanism, Ko said, "The auction mechanism is not proven. We don't think it's ideal."
Ko looked at it as more an experiment by the CPUC. "It should be thought of as a pilot experiment. It's a good step for California, but still just a pilot."
California Governor-elect Jerry Brown has called for 20 gigawatts of renewables with 12 gigawatts of distributed generation and the RAM is "far too small for what we need to be going for," said Ko, adding: "It's seven to eight times smaller than what Germany does in a year." And the program doesn't get any projects completed until 2013 or 2014, while a FIT would speed that up, according to Ko.
Ko believes that the RAM would advantage the larger players and favor larger projects. This seems to be the opinion of many of our commenters in this mostly civil comment thread. Ko emphasizes, "It's the larger players who will dominate."
Ko mentions, "Something we've heard from developer [is that] In the bidding process, developers will squeeze down their margins on ten different risk factors." And that results in the underbidding problems cited by GTM Research's Shayle Kann.
Ko also cites the time wasted on failed bids -- what he called "parasitic transactions," which are, in other words, costs that don't need to be there. He adds, "The industry could be a lot more efficient, [...] Therefore, the cost of capital is more expensive."
He concludes, "Why go with an experiment that's way too small when you can go with a proven method? We need a real FIT."