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Solar News

FIT to be Tied in California: The Renewable Auction Mechanism

12-23-2010

There was a flurry of legislative activity affecting the solar industry as the year draws to a close. The most closely watched battle was here in Washington, D.C., where the President signed into law an extension to the treasury grant program. But another regulatory development in California may have a major impact not only on the capital of the solar industry in the U.S., but also in other states that will closely watch what will be the effects of the new incentives in California.

As reported in Solar Industry Magazine, the California Public Utilities Commission (CPUC) approved the Renewable Auction Mechanism (RAM) program, which is designed to drive small- to mid-sized renewable energy development. This is not a program for your typical residential solar installation. "This feed-in-tariff program will require investor-owned California utilities to purchase electricity from solar and other renewable energy systems up to 20 MW in size," according to the magazine.

But hold on, is RAM a feed-in tariff or an auction. Greentech Media weighs in on the debate: "A RAM is decidedly not a feed-in tariff (FIT), which has a set price." Greentech agrees that the RAM program is a major spur to the solar industry, but definitely not a FIT. "So, is a bidding program the answer or is a feed-in tariff the way to go?" Greentech Media cites the Solar Alliance that support for the solar industry will occur "if four pillars of policy are in place -- incentives, net metering standards, thoughtful interconnection standards, intelligent utility rates and revenue policies."

Bob Morris, writing for the California Independent Voter Network, gives some more details of the RAM Program:

The projects must be completed within 18 months and will be between 1 and 20 MW in size. As in an eBay reverse auction, the lowest bid for a viable project wins, followed by higher bids.  The hope here is to avoid what happened in Spain when a solar boom ended up crashing after a production cap was met and subsidies stopped. With RAM, developers of solar, biomass, wind and geothermal projects can in effect get funding for their small to midsized projects with the understanding they need to be operational quickly. Such projects can be built much faster than huge desert-based solar projects, which while they can output large amounts of power, can also take years to build.

Greentech Media quotes the managing director of solar research at GTM research, who supports the RAM program: 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."

Morris ponders whether it can work and observes some pitfalls:

Can it work? One obvious pitfall is that projects get completed late, or are over budget, or in other ways the bid ends up not being profitable and the project is abandoned. Another potential problem is a lack of suitable transmission lines. Hopefully these smaller systems can be built closer to cities, where they would be both more efficient (because of less waste during transmission) as well as being able to use existing and adequate transmission lines. Also, I'm unclear as to whether these are one-time bids, if they expire (and what happens then?), and if they can be re-negotiated if needed.

But everyone agrees that the RAM program, even if it is not a feed-in tariff, has the potential to be a major game-changer in the solar energy industry, and, as Morris points out, "to jump-start more renewable energy production in California."


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