Quick, Dirty End to 'Clean' Energy?

By CHRIS KRAUL

Aug. 29, 1996 12 AM PT

TIMES STAFF WRITER

SACRAMENTO —

Will the state’s geothermal, solar and wind power companies survive electric power deregulation?

The expected passage this weekend of the historic deregulation bill AB 1890 will do more than open the state’s electricity markets to free competition and over time give consumers a choice who they buy power from.

It will also strip so-called renewable energy producers of most of the economic incentives and protections that over the last two decades have helped them carve out an 11% share of the state’s power capacity. California, which produces 90% of the nation’s renewable energy, led the nation in developing renewables to protect the environment and diversify energy sources in the wake of Arab oil embargoes.

But the state has paid a steep price for its leadership in so-called clean energy. The subsidies for alternative energy embedded in power bills paid by all ratepayers are nearly as big a factor as financially troubled nuclear power plants in pushing the state’s electricity bills to 50% above the national average.

Whether consumers will continue to carry the economic burden in the new competitive marketplace is the question confronting the industry. Although the costs of wind, solar and geothermal energy have dropped significantly in recent years, making them more competitive with fossil fuels, consumers will have to pay a premium of at least 15% for being environmentally correct in their power choices.

The good news for the industry is that the new bill contains provisions designed to ease the transition of renewable energy producers into the cutthroat cost-based energy market, which will be phased in over five years starting in 1998. It sets aside about $460 million in funds that may end up being used as consumer credits for purchases of “green” energy.

Renewable energy producers will also be given a head start in negotiating direct sales of their energy to consumers, a process that generally will be much slower for other power marketers.

Those provisions lead some industry experts to predict that deregulation won’t bring down the curtain on their sometimes quixotic, always entrepreneurial industry. They expect renewables to find a niche with environmentally conscious consumers across the nation who are willing to pay a premium for clean energy.

“This bill provides a stable transition mechanism and gives renewables the opportunity to find new opportunities, new markets,” said John White, executive director of the Center for Energy Efficiency and Renewable Technologies, a Sacramento-based environmental research and lobbying firm.

“There are a lot of people out there who pay more for bottled water, recycled paper towels, organically grown fruits and vegetables, and a lot of them are not going to mind paying a little more for clean energy,” said Executive Director Jan Smutny-Jones of Independent Energy Producers, a Sacramento-based trade group that includes renewable energy firms.

But skeptics inside and outside the industry insist that the overwhelming number of California consumers will buy on price alone, and that alternative fuels, still significantly more costly than natural gas and coal, will be at a huge disadvantage in the new marketplace.

Unless modified, the provisions of AB 1890 may simply delay the demise of the already decimated wind power industry, officials said.

“The reason is that environmental impacts and fuel price stability are things that a deregulated market is not likely to put much if any emphasis on,” said Nancy Rader, the West Coast representative for the American Wind Energy Assn. in Berkeley, a group of 155 wind power generators and suppliers.

Hap Boyd, director of government and regulatory affairs at Zond Corp. of Tehachapi, California’s largest wind power firm with about 260 megawatts of power generation capacity, said deregulation will “create a commodities-type market that will make it tough for companies like ours to secure long-term financing” for new projects.

Dan Ozenne, senior manager of utility consulting at Arthur Andersen consultants in Los Angeles, said he expects renewable energy firms to have a “rough go of it” in the deregulated environment.

“I’ve heard that theory espoused that people will pay more for green energy, but frankly don’t find it very credible,” he said. “There are a few people out there willing to pay more, but very few.”

California’s renewable energy industry was spawned by federal- and state-mandated incentives dating from the 1970s designed to wean consumers off a dependency on foreign oil and promote the development of environmentally safe energy sources.

The mandates forced utilities to agree to buy power from renewable energy producers at prices based on doomsday projections of petroleum prices rising to as much as $100 a barrel, said Vikram Budhraja, an Edison International senior vice president. Oil prices went lower, but the mandates still guaranteed the high prices to the renewable power producers.

The incentives have worked to a great extent, enabling alternative energy companies to narrow the gap between the cost of fossil fuels and become a viable industry in the process.

“The survival of renewables will depend on how competitive they can be compared with the other alternatives,” Edison’s Budhraja said. “Some technologies have made significant progress, like wind and geothermal power . . . but some might not survive the competitive environment.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Still a Small Piece of the Pie

Alternative electrical energy sources (geothermal, biomass, wind and solar) supplied 10.4% of California’s energy needs in 1994, more than double that of 1984. Estimates for 1995 place alternative energy at 11%. California energy sources:

1984

Natural gas: 27.55

Hydroelectric: 22.15

Coal: 8.9%

Nuclear: 6.45

Alternative: 5.0%

Oil: 1.2%

Energy imports: 28.9%

1994

Natural gas: 36.9%

Energy imports: 16.8%

Nuclear: 15.1%