In a first-of-its-kind move, the California Public Service Commission is proposing to require its investor-owned utilities to hold reverse auctions to determine the price they will pay for power from newly-developed solar generators between 1 and 20 MW. (NY Times coverage)
Rather than have the PSC stipulate rates for solar power, the staff proposal, filed on Thursday, would require a series of auctions among the investor-owned utilities to determine the rate they would pay until such time as 1,000 MW of power had been installed.
According to Adam Browning, the executive director of Vote Solar, a San Francisco advocacy group, the reverse auction proposal fills a big hole in California’s renewable energy program – photovoltaic projects that generate between one and 20 megawatts and can be built quickly and plugged into the existing transmission grid.
“With this program I think you’ll see a lot of photovoltaic systems on otherwise unusable land, like railroad rights-of-way or wastewater plants that have lots of roof space,” said Mr. Browning. “One other advantage of this type of policy is that it guarantees that only the people who make good business decisions are going to get these contracts.”
Developers were generally positive towards the proposal. “Such an approach is very likely to spur a large volume of PV projects in the state,” wrote Arno Harris, the chief executive of Recurrent Energy, a San Francisco-based solar developer, in an e-mail message.
An additional advantage to the proposal is that it would begin to develop data on the rates paid for solar power — data that is not available today because most large solar projects negotiate confidential power purchase agreements.
“One of the things this is likely to do is create some real valid data about the cost structure of distributed power plants,” said Julie Blunden, vice president for public policy at SunPower.
Others expressed concern that the auction process might favor large developers or large projects to the detriment of smaller projects.
While the proposal remains to be implemented, it is a novel and creative way of solving the problem of introducing government stimulus without undercutting the competitive market. As the NY Times piece notes, the Spanish solar market crashed last year when solar capacity hit the ceiling allocated by the government for incentives. Once the incentives were gone, the value of solar fell to the floor. A similar problem exists in any government-backed incentives program that artificially inflates the value of a particular good.
California’s auction proposal encourages solar development but allows the market to set the price, thereby eliminating the risk of artificially inflating the price.