By Daniel S. Cucchi and Kristen Kortick
Although cities and counties in California face health and safety shutdowns from the pandemic, utilities must continue essential services and remain in compliance with pre-existing laws. One of those laws is California’s Renewable Portfolio Standard (“RPS”) which is driving utilities to transition energy mixes to state approved renewable resources in compliance with achievement benchmarks set each year. Setting aside pandemics, election years, and the numerous other issues facing the state, California utilities reported compliance with the 2020 benchmark to the California Public Utility Commission (“CPUC”) on August 1, 2020 and provided broad outlines for achievement of long-term contracts to meet the 2030 compliance deadline. Utilities have until the end of 2020 to ensure long-term contracts are finalized. Movement in the utility sector rarely overlaps with land use law, but the mandate to bring 30% more renewable energy online in ten years could dramatically impact land use management in 2020 and thereafter. As long-term procurement contracts and benchmarks for RPS compliance deadlines approach, renewable land use development has the potential to intersect with problems related to permitting, local infrastructure and planning, and CEQA compliance. Given the scale necessary to achieve the state’s lofty goals, local agencies could play a key role in the development of renewable energy projects throughout California.
California’s Complex RPS History:
California’s RPS is a guiding document that investor-owned utilities, small electrical generators, and community choice aggregators must follow in order to comply with California’s renewable energy mandate enacted by the Legislature in 2002 and last modified in 2018. Currently, California utilities must meet 33% renewable energy by 2020. California met the 33% renewable generation goal two years early prompting the Legislature to modify renewable targets on an accelerated schedule for all future procurement deadlines. In 2015, the state codified SB 350 which requires: (i) utilities to procure 50% of all energy generation from carbon neutral sources, and (ii) 65% of all electrical generation to come from long-term energy contracts of 10 years or more. In 2018, California further mandated utilities to procure 60% of all energy generation from carbon neutral sources by 2030. During each round of modifications to the RPS over the past decade, several utilities and energy generation stakeholders expressed concerns about the difficulties in meeting future renewable energy benchmarks without fluctuations in pricing to the ratepayers or a near complete restructuring of resource procurement. Historically, utilities have not requested rate adjustments and cited RPS compliance as the justification since the RPS’s inception.
A 2016 U.C. Berkeley study estimated that between 2002 and 2015, California saw an increase of 11,234 MW of new RPS compliant energy facilities feeding California utilities energy procurement mix. In 2016, Forbes reported that roughly 60% of its Fortune 500 companies committed to procuring renewable energy for corporate operations coinciding with California’s RPS benchmarks. As of 2018, the California Energy Commission (“CEC”) reported that approximately 33% of electrical energy procurement in the state came from renewable energy development. For renewable energy developers, this indicates that while developments continue to bring more supply, demand grows with the push for clean energy from the RPS and private sector commitments to “green the supply chain.” Likely, private sector energy procurement will come from offsite power producers since it is unlikely that commercial and industrial operations could support an adjacent solar or wind farm in metropolitan Los Angeles or San Francisco. This further suggests that local agencies are likely to see more applications for renewable energy development in areas surrounding commercial and industrial epicenters.
While California utilities remain on target to meet the 2030 compliance deadline, utilities have recognized that doing so requires further technological advances such as large-scale battery storage facilities, additional transmission development, and more capacity to accept renewable energy sources. In 2018, California needed 194,842 Gigawatt Hours to achieve Total System Electric Generation.
The Race For Compliance In 2020 And Beyond!
As previously stated, the utilities must meet the mandate of procuring 33% renewable energy by the end of 2020 and energy compliance reports for the 2020 calendar year were filed by August 1, 2020. As part of RPS compliance, utilities can purchase renewable energy credits (“REC”) from any provider in the Western Electricity Coordinating Council (“WECC”) service area (the area spans from California up to Washington state, east to Montana, and south to New Mexico). The CPUC and CEC measure whether or not a utility is complying with its current renewable energy procurement requirement by cross checking the amount of overall energy demand projected by the utility in a calendar year and the total number of RECs purchased by the utility. If the percentage of RECs to overall energy use is within the mandated target, then the utility has complied with the RPS.
One mystery surrounding renewable energy procurement is whether utilities sign majority procurement contracts with in-state renewable energy developers or out-of-state renewable energy developers. When the RPS was developed, many in-state procurement providers voiced serious concerns about opening up REC credits to all energy providers in the WECC because of the competitive advantage afforded to out-of-state service providers (i.e. no CEQA hurdles, lower land values, less encroachment from urban and suburban development, etc.). However, transmission planning for out-of-state procurement has not scaled up at the same level as in-state energy development. More specifically, the transmission line capacity in-state provides utilities several different routes to transport energy locally where there is capacity to accept newly generated energy and service utilities during peak and off-peak hours.
Although several transmission development corporations have committed to long-range transmission lines from states all over the WECC region, those goals are still just that, goals. Long-range transmission lines spanning several thousand miles require permitting, approvals, and complete development across multiple states as well as approval for incoming transmission into California by the CEC and CPUC. While out-of-state transmission may aid California in the deadline to bring 100% renewable energy onboard by 2045, it is unlikely to support the development race by 2030. In-state developers have the capacity to build-out shorter sections of transmission lines even with CEQA hurdles in a shorter time frame. By 2030, the race for transmission building has the potential to largely be won at the local level since local grid building demystifies the complexity of connecting transmission across numerous jurisdictions.
Post COVID-19 Infrastructure Boom?
As the CEC reported in May 2020, overall statewide energy consumption has decreased since the stay-at-home order was issued by Governor Newsom. Residential energy consumption increased from 8.9 to 12.4%, but overall, there is a decrease in industrial and commercial energy demand. Further, in coordination with the California Department of Public Health (“CDPH”), the CEC issued an order in April 2020 making solar voltaic and energy storage installers essential workers citing the need to keep consistent energy on the grid to support the health pandemic.
With utilities needing to bring another 27% renewable energy online in ten years, renewable energy investments could see a post-pandemic expansion. Between 2008 and 2012, twelve states expanded controls of each RPS. Further, Congress enacted several loan guarantees, subsidies, and cash grant programs. Of those programs, Section 1603 of the American Recovery and Reinvestment Act specifically created direct payment in lieu of federal tax incentives programs: the investment tax credit (“ITC”) and the production tax credit (“PTC”). By 2012, 21 GW of wind energy and 9 GW of solar energy development benefitted from the ITC and PTC. These programs remain active grants with a sunset by the end of 2020. However, in a rare directive, the U.S. Treasury in May 2020 gave extensions to qualifying ITC and PTC energy providers who intend to bring new energy online by October 2020, but whose projects have been delayed due to the pandemic. Absent federal intervention, the bottom line remains that California utilities are mandated to bring 60 percent renewables online in the next ten years.
Further, at the federal level, industry and voters are looking to 2020 presidential race to gauge the future of federal involvement in renewable development following the 2020 election cycle. Although federal implementation of clean burning energy could boost California’s energy goals, federal support under a new administration would be a windfall to preexisting implementation of state and private enterprise plans.
Renewable Development and Local Governments:
Over the years, California’s lawmakers have continued to seek new ways of streamlining the development of in-state renewable energy. For example, Assembly Bill 2188, enacted in 2014, requires local governments to streamline permitting of residential rooftop solar projects in order to encourage statewide compliance with the RPS at the local level. More recently, at the 2020 Abbott & Kindermann, Inc., annual conference, we noted that Governor Newsom was planning to pause a new state law requiring solar on all new home construction. In February 2020, the State reversed the Governor’s solar freeze and finalized its rule with modifications. Under the finalized rule, most new construction is still required to include solar, but not all. Municipalities across the state are also redeveloping government offices as small-scale electrical providers such as the City of Los Angeles and City of San Diego. Further, cities across California, such as San Francisco, are also implementing a city-based RPS and committing to 100% carbon neutral energy generation.
Renewable energy development requirements and policies such as these could put pressure on local governments to pass ordinances supporting these efforts, but in order to achieve the state’s aggressive RPS goals, moderate to community-scale energy development projects are likely to become the norm. Depending on the size and intensity of the project, the local agency’s consideration of these permits is likely to trigger environmental review. CEQA offers a few exemptions that could be applicable to renewable energy projects, most of which are used to support a limited amount of development in existing developed locations and are not specific to energy development (e.g., Existing Facilities, Infill, etc.). Absent local agency streamlined approval processes, many, if not most projects will not benefit from those exemptions. For instance, community-scale solar projects similar to the SMUD SolarShares program allowing for 150 MW of concentrated solar, likely will require full CEQA review.
Bottom line, California’s RPS has so far avoided the consequences of federal swings in renewable energy growth policies and that is unlikely to change in the coming years. Regardless of where utilities decide to contract to procure their renewable sources, many of the long-term utility contracts signed in 2020 will aid in the achievement of the 2030 RPS compliance benchmark. As the State transitions from the 2020 benchmark into the 2030 benchmark, government at all levels should anticipate potentially significant increases in land use development for renewable energy generation.
Daniel S. Cucchi is a senior associate and Kristen Kortick is a law clerk at Abbott & Kindermann, Inc. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, Inc. at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, Inc., or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.