‘Green’ Power Providers Feel Left Out in the Cold

For an energy-starved state, the plan amounted to spinning gold from straw.

At an Orange County-owned landfill, methane gas from decomposing garbage could produce enough electricity to keep the lights blazing and air conditioners humming in thousands of homes.

But when Ridgewood Power embraced the state’s call this past year for more energy, there was an unexpected hitch at the end of the road.

“Believe it or not,” a company executive recently wrote the governor, “we have a fully operational renewable-energy power plant and nowhere to sell the electricity.”

What’s more, if Ridgewood does not make electricity out of the methane brewing underground, the county may have to spend as much as $1 million to flare it off and keep the gas from polluting the air.

Ridgewood is far from alone among companies that turn the sun, wind, orchard prunings and other renewable resources into electricity for a price. These green power providers were virtually shut out of the state’s emergency response to the energy crisis.

Despite policies and statements espousing renewable energy, officials instead opted to buy from big companies because they could quickly supply high volumes of natural gas-fired electricity and help keep the lights on.

And now that the state has created a power authority to help build billions of dollars in renewable-energy supplies, the agency finds itself hamstrung by California’s fiscal problems and powerless to sign new contracts.

The companies left hanging say they feel betrayed.

“All California government officials have terrific sound bites: ‘We need renewable power. It does not pollute. It provides diversity [of fuel sources]’ and ‘It’s good for the state,’” said Jonathan Weisgall, vice president of Cal Energy, a geothermal electricity generator in Imperial County. “But their actions are contradicting their words.... California is on the verge of a renewable-energy blackout.”

For years, the state’s utilities have been required to purchase some green energy on behalf of consumers. But green power is generally more expensive than electricity from gas-fired plants, especially in the early years when capital costs are highest.

As major utilities saw hard financial times during the energy crisis, many of the renewable-power companies went unpaid for months, and some sought to be freed of their contracts so they could sell power on the open market, where prices had become higher.

For a time it had seemed the crisis would open the door for new green power plants. State officials touted renewable energy as a way to help insulate California from the volatile natural gas markets. New plants would create jobs and help the environment. And officials said improved technology and subsidies are making green energy prices more competitive, especially over the long haul, because the fuel is free or very inexpensive.

State’s Actions Did Not Match Its Words

But policies and endorsements never translated into much progress:

* When the Department of Water Resources became the power buyer for the state’s two largest utilities a year ago, the agency had a legislative mandate to acquire as much green energy as possible. But state auditors recently found that only about 2% of its $43 billion in power contracts went to green producers.

* One mission of the new Consumer Power and Conservation Financing Authority is boosting the portion of renewable energy in the state’s power inventory from 12% to 17% by 2006. But the authority still has no way to finance or buy renewable-energy plants.

* Although the California Energy Commission has awarded $240 million in subsidies since 1998 to help promote green power development, the vast majority has not been paid out because developers don’t have their facilities up and running. And that probably won’t happen unless someone first wants to buy the electricity.

These twists were startling in a state that claims to be a national leader in developing a green power industry over the last two decades. They came as the governor and others sang the praises of alternatives to gas-fired power plants.

Perhaps no one sang louder than S. David Freeman, the state energy czar who once headed the Los Angeles Department of Water and Power and other major utilities.

Building renewable-energy supplies is a matter of homeland security, he said, because California needs domestic energy supplies that are relatively protected from the winds of terrorism.

“Most oil reserves are in countries that harbor terrorism,” he said in a recent interview. “And what are we going to do when we come to that stage of the war on terrorism?”

Freeman, a longtime alternative-energy advocate, was the advisor to Gov. Gray Davis who negotiated some of the long-term power contracts last year.

But a report by the state auditor in December found that green-energy contracts accounted for only 230 of the 12,000 megawatts the state water department committed to buy in the peak year of 2004. The auditor also found that the average price of green energy was slightly less than what the department paid for nonrenewable electricity.

“Despite the legislative mandate to secure as much renewable power as possible, the department ... missed a significant opportunity to add environmentally friendly power,” the report concluded.

So what happened? Producers of green energy lost out, Freeman said, because they were a “cottage industry” that didn’t have enough strong proposals assembled.

“It wasn’t because we stiff-armed them or ignored them,” he said. “But I had a job to do--put a fire out--and I had to use what water I had. I think we did a hell of a job, but it left the renewables out.”

Since the mid-1980s, Ridgewood Power of New Jersey has operated a 5-megawatt generating plant at the Olinda Alpha Landfill in Brea, near nurseries, an oil field and a new housing tract. As the energy crisis unfolded, the company built a 2.5-megawatt plant, and it plans to boost its capacity by 7.5 megawatts--enough for about 10,000 homes.

Ridgewood obtained expedited permits and approvals for the 2.5-megawatt facility.

But the company still struck out: It got no state price subsidy and no state or utility contract. It has only a nonbinding letter of intent for purchase of electricity by the power authority with a purchase option.

“The California Energy Commission, the power authority and you ‘pumped us up’ and encouraged us to forge ahead with the construction of a renewable-energy power plant,” Executive Vice President Martin V. Quinn wrote Davis on Dec. 11. “Now that the plant is fully constructed and ready for operation, the state has ‘pulled the plug’ and is not giving us the support they promised. This is not good public policy!”

Orange County Could Pay Up to $1 Million

The lack of power outlets complicates matters for Orange County, which owns the landfill and receives 18% royalties from the electricity sales.

Landfill manager Dave Lowry said the county will have to find a way to cleanly dispose of excess methane gas if another power plant is not built within two or three years. Building a system to flare off the gas could cost as much as $1 million.

Company officials said the state responded to the letter and is trying to help them find a buyer, but President Bob Swanson said he’s not banking on it.

“For this energy to receive this type of treatment ... will have an extreme chilling effect on other renewable projects in the state,” he said.

Freeman voiced frustration that as chief of the state power authority formed last summer, he has not yet been able to start bankrolling renewable-energy operations.

By mid-October, the authority had signed letters of intent with dozens of companies, including Ridgewood, and was poised to sign contracts for as much as 3,000 megawatts. But Freeman broke the bad news at an Oct. 19 board meeting:

The power authority could not sell $5 billion in bonds to finance its work until the state sold more than $12 billion in bonds to pay for electricity purchases.

Both offerings have been in limbo because the state water department and Public Utilities Commission could not agree on how the financing should be structured. But officials agreed on the financing last week,which could clear the way for the bond sales later this year.

PUC President Loretta M. Lynch said the real problem is that California already has bought too much power.

She said one option is for water department contracts to be renegotiated so the state will acquire less fossil-fueled electricity, freeing up dollars for renewable energy.

“We don’t want all this excess power and to buy additional power,” she said. “It’s not fair to consumers.”

The PUC has asked utilities and others to come up with plans for including renewable energy in future electricity procurement.

For the sake of the environment, Freeman hopes the roadblocks are cleared soon.

“I think it’s crucial that it begin in the next few months,” he said. “The air quality in most communities is not healthy, and we don’t have room in the air for more pollution.”

Each year, dozens of biomass plants turn 6 million tons of orchard waste into electricity, reducing the amount burned in California’s fields.

Sierra Forest Products of Delano, for example, produced enough power for thousands of homes during the energy crisis. But, without a long-term contract, the company could not afford to operate and was about to lay off its staff. The plant got a temporary reprieve recently when it and nine other biomass facilities received three-month contracts from the state water department.

“We came up because we thought there was a need for power,” said General Manager Ken Duysen. “But if we can’t pay our bills, we are prepared to shut it down.”

Oak Creek Energy Systems, a wind farm in the Tehachapi Mountains, plans to add capacity to produce 115 megawatts, but it can’t get financing without a power contract.

“Lots of wind projects in the offing are held up,” said company President Harold Romanowitz.

In all, 60 of the 73 renewable-power projects that have won subsidies from the Energy Commission have yet to begin operation.

But Marwan Masri, manager of the commission’s program, said the poor market for renewable energy “is a short-term crisis.”

He said he expects the market to improve as utilities become credit-worthy again, the power authority is able to sell bonds and the recession eases.

In the meantime, he said, “We’re very concerned.”