Calif. rule may stunt Oregon clean energy market

In a bold policy move last week, a California authority limited the amount of renewable energy credits its utilities can purchase outside the state, raising questions about the future of renewable energy development on its borders, including in Oregon.

The decision comes from the California Public Utility Commission, which issued the rule Jan. 13, effective immediately.

The new rule mandates that in-state utilities purchase 75 percent of the renewable energy credits needed to meet the California's Renewable Portfolio Standard from inside the state. California aims to generate 20 percent of the energy from renewable sources by 2020. (Oregon's goal is 25 percent by 2025.)

Geared to combat climate change and also to spur new industry in renewable energy, RPS standards have become the norm in many states. But California's differs in that it now mandates the renewable energy come in substantial part from projects either located inside the state or with a direct transmission line into California.

The decision, aggressively pushed by union and labor leaders, is a power play by California - already the largest force in the energy market - to claim an industry that's seen encouraging economic gains in the last few years. Likely to reshape the renewable energy business, it also illustrates the influence states have over the industry. The new rule also highlights the jockeying taking place between states while the federal government fails to provide a long-term, stable framework for renewable energy development for the whole nation.

"If the biggest market in the county says, 'That's going to be your rule,' that's going to be the way it's done," said Tom Grauntt, spokesman for Pacific Power. "If they started buying a certain kind of ice cream, it's going to affect the market. It's 40 million people."

Despite the enormity of California's energy market, developers have, until now, benefitted from operating on its fringe. Setting up along transmission lines throughout Oregon, Washington and other states, developers can feed power to California's massive consumer base while also tapping development incentives and smoother permitting. The arrangement helps developers avoid legal tangles with environmental groups over siting issues, a more common occurrence in California, and also lowers costs, particularly the high cost of building and permitting transmission lines in California.

Now, as California moves to reshape the renewable energy market, developers outside the state may start to struggle.

"All this makes this whole situation so gray. And if you're a business trying to decide whether you should invest half a billion dollars in a wind farm in Oregon or Washington, or Montana for that matter, your financial folks are going to be pretty scared," said John Audley, deputy director of the Renewable Northwest Project.

"We're talking about lots of money. It is very high-stakes poker," he said.

Though utilities in California may still purchase up to 25 percent of renewable energy credits from projects outside the state, most of that percentage is already subscribed, Audley said. The Shepherds Flat wind farm planned in Eastern Oregon, for example, has contracted to sell its power to Southern California Edison.

"The opportunity to sell them more energy is gone unless the legislature revisits this issue," he said.

It is unclear whether the political climate in California will support change. Frustrated developers are already raising concerns about the constitutionality of the new regulation because it interferes with interstate commerce. A legal battle could unfold from here, or, the California legislature could simply move to increase the renewable portfolio standard to 33 percent by 2020, which would allow for more out-of-state purchasing.

Though the California PUC is still working to refine its new rule, which could allow more wiggle room for out-of-state developers to sell to California, renewable energy development will likely remain less attractive in other states despite those small revisions.

Developers are expressing frustration, particularly those who have set down roots in Oregon and Washington.

Paul Copleman, spokesman for Iberdrola Renewables, said companies necessarily consider more than just state borders when developing renewable energy projects. They're looking for available resources, such as good wind speeds, the ability to transmit the power, and a supportive community. He said Iberdrola's consistent, multi-year investments in Washington and Oregon were brought about by ideal conditions that will likely remain in place despite the California rule.

"We're disappointed that the commission failed to qualify real-time deliveries from Oregon and Washington as being equivalent to in-state generation," he said.

"If you look at renewable energy development, it's been one of the economic bright spots in the Northwest in the last couple years. I think the region as a whole should be concerned that this could have the effect of reducing investment in renewables in the Northwest," he said.

Thor Hinckley, who manages the green power program at Portland General Electric, said the commodities market appears to be weathering the uncertainty well. Hinckley manages renewable energy credits for 77,751 residential customers and more than 150 of Oregon's largest businesses - including Intel, Burgerville and New Seasons - through PGE.

"We're a big consumer of these, and we've been watching what goes on in California because California is the dog that wags the tail of the rest of the West Coast," he said.

Observers say it's not yet clear whether the new rule will foster renewable energy development in California, as intended. The biggest hurdle lies in broad transmission gaps between unpopulated wilderness areas that best support renewable energy projects and urban areas that consume energy. Permitting new transmission lines is especially difficult in California, as well as costly.