The clock is ticking for California’s electricity providers -- public and private -- to convert to 100% carbon-free energy under a new law that Gov. Jerry Brown says puts the state at the forefront of combating climate change.
The law Brown signed Sept. 10 sets a target of 100% clean electricity by 2045. It also ramps up the requirement to hit 50% renewable energy by 2027 and 60% by 2030. California’s utilities – some of which vigorously lobbied against the legislation – are now confronting how to meet that goal.
“California is committed to doing whatever is necessary to meet the existential threat of climate change,” Brown said in his signing message Sept. 10. “This bill, and others I will sign this week, help us go in that direction. But have no illusions, California and the rest of the world have miles to go before we achieve zero-carbon emissions.”
In a report this month, Moody’s Investors Service called the legislation a credit negative for generators with fossil fuel plants and utilities, including the Los Angeles Department of Water and Power.
Without fossil fuel-fired plants, the question will be how to achieve enough electricity supply from what is expected to be mostly wind and solar power, wrote Toby Shea, a senior credit officer with Moody’s.
"This creates a serious matching problem for the grid because the sun does not always shine and wind does not always blow," he wrote. "Their intermittency also creates frequency problems for California's grid operators. Therefore, the grid will need a deep reservoir of the on-demand instantaneous power production that can make up for any shortfall when solar and wind production falls off suddenly."
If supply and demand are not matched, blackouts and other grid failures could result, he said.
Energy providers presently rely mainly on natural gas generation as a back-up for shortfalls of solar or wind power but with the new law they will have to increase battery storage, Shea said. He estimated the cost at $100 billion.
“This level of expenditure can be a significant credit negative because high utility bills can hurt customer relationships and subject utilities to higher political risk during the rate approval process,” Shea said. “It may also crowd out utilities' ability to raise rates for other spending needs or capital investment.”
The state's two largest investor-owned utilities were
Supporters of the new law have said it will spur new technology that could help lower the costs and pointed to the success of previous laws including the requirement for 33% renewables by 2020.
According to the governor’s office, California met the 2020 target four years ahead of schedule – reducing emissions 13% while the economy grew 26%.
“It’s proved out that it’s doable,” said Scott Lesch, power resources manager for Riverside Public Utilities. “Eight years ago, it looked like it would cost an exorbitant amount of money and it would be a real hardship. As we’ve gone down this path, it hasn’t proved that way.”
The city now has a renewable portfolio of 38% and is well on its way to reach the 60% target by 2030, he said. Along with other cities, Riverside Public Utilities is part of an umbrella organization in which it can shop for the best pricing on renewable energy, Lesch said. The utility is confident it can reach the state targets “without undue rate stress,” he said.
“I believe the broader idea is that you will continue to have technology improvements and new technology come into play that will alleviate some of that,’ Lesch said.
The two big investor-owned utilities, PG&E and Southern California Edison, say they remain concerned about the costs of converting to carbon-free electricity but are now working to achieve those goals. During the legislative debate, PG&E raised concerns about the potential impacts to customer bills, spokeswoman Lynsey Paulo said in an email.
“If it’s not affordable, it’s not sustainable,” she said. “We believe customers must be protected from unreasonable rate and bill impacts and that any new policies must treat all electricity providers to the same planning and procurement requirements under the new policy.”
The San Francisco-based utility is also concerned about maintaining grid reliability, she said.
“How the state implements this important clean energy goal will be critical, and we believe California has consistently, over time, achieved the right balance of aggressively pursuing carbon reductions in a manner that has kept the communities we serve vibrant,” she said.
Southern California Edison also raised concerns about cost, saying it opposed the bill because the utility believed there were more cost-efficient ways to achieve the same goals. But the utility said that if implemented thoughtfully, the legislation aligns with its own targets to move to increased clean energy.
“This enactment of this legislation is a starting point,” according to an Edison statement. “We look forward to working with state leaders to implement a practical pathway for a cleaner grid along with ensuring the financial health of utilities in order to continue the critical role we play in achieving the state’s energy and environmental goals.”
Last year, PG&E announced it reached the 2020 renewable goal and delivers nearly 80% of its electricity from greenhouse-gas free resources including nuclear, large hydro and renewable.
The company is also on pace to reach California's 2030 goal of 50% renewables and a separate company goal of 55% renewables by 2031 ahead of schedule. Its renewable power sources include solar, wind, geothermal, bio-power and hydroelectric.
In its blueprint for reducing pollutants and greenhouse gases, Edison reports that it’s ahead of pace to reach a 50% renewable portfolio by 2030.
Lesch noted that the target of carbon-free provides more flexibility than requiring 100% renewable energy. Carbon-free still allows for the use of nuclear and hydroelectric power.
In the Moody’s report, Shea said regulators may “take advantage of the flexibility provided in SB 100 should the cost of consuming only 100% carbon-free electricity remains a cost prohibitive proposition as 2045 approaches.”
Another moderating factor is the lengthy time to implement the change, he said, allowing new technologies to develop and battery costs to decline.
Lesch said Riverside is approaching the targets step by step, looking at the near-term requirements for 2030.
“I think the vast majority of the utilities will be doing this incrementally,” he said. “And I think the laws allow us to do it incrementally. They realize you can’t be 100% green tomorrow.”
