Factoid #9 — California Can Satisfy 33 Percent of its Electricity Supply Needs With Renewable Energy by 2020 With Little or no Increase in Electric Rates

On November 1, 2005, the Center for Resource Solutions* submitted a
181-page report “Achieving a 33% Renewable Energy Target” to the
California Public Utilities Commission (CPUC).

The report, prepared as the result of work funded by the Energy Foundation
at the request of the CPUC, found that it is economically and
technologically feasible for California to meet 33 percent of its electric
power supply with wind, solar, geothermal and biomass resources by 2020.

Based on the best available data, the report determined that the state’s
investor owned utilities (IOUs) could reach a 33 percent target with
little to no increase in rates. The RPS will result in small average rate
increases through 2021, and beyond that will produce long-term rate
savings. Overall, a 33 percent RPS is likely to result in net savings to
California’s electricity customers over a twenty-year period.

More specifically, using the best information available at this time, a 33
percent RPS would result in a small negative ratepayer impact in the first
decade (2011-2020). On a net present value basis (2011$, 9% discount
rate), the RPS will increase costs to California IOU ratepayers by $1.26
billion over the period 2011-2020, or roughly an average 0.57 percent rate
increase over the period.

However, these cost increases are more than offset by longer-term
ratepayer savings that accrue in the years 2021 to 2030, after the initial
capital investments of the RPS have been completed. The net present value
of RPS ratepayer impacts for the period 2011 to 2030 is – $175 million
(2011$, 9% discount rate), in other words, a net savings.

These estimates are meant to be indicative rather than absolute since, as
this analysis demonstrates, there is considerable uncertainty surrounding
future rate projections and RPS costs. The two variables that most affect
the results of this analysis are the natural gas forecast and the estimate
of renewable energy costs.

Although there is much uncertainty surrounding the development of a
25-year natural gas price forecast, the report’s authors believe that the
forecast used in this analysis is conservative. At the time this analysis
was done, current natural gas NYMEX future prices for the next year period
range from $10-14MMbtu. The natural gas price forecast used in this
analysis does not reach a nominal price of $10MMbtu until the year 2019,
and does not reach $14MMbtu until 2026.

Given the potential for future variability in these factors as well as
transmission and greenhouse gas policies, the report suggests that it is
important to adopt RPS policy mechanisms that allow the CPUC the
flexibility to adapt to different future market scenarios as actual events
unfold.

The report also found that there is a sufficient amount of renewable
energy resources in California and neighboring states to meet the 33
percent target.

The report was discussed at the CPUC’s business meeting on December 15,
2005 where the Commissioners recommended passing the report on to the
California Environmental Protection Agency (Cal/EPA) to aid the Climate
Action Team in planning to achieve the Governor’s greenhouse gas reduction
goals announced in June of this year.

A centerpiece of the Governor’s plan is to increase the state’s goal for
renewable resources from the existing standard of 20 percent by 2010 to 33
percent by 2020. The CPUC requested this report to begin the process of
assessing the feasibility of meeting this more aggressive target. The CPUC
is charged with implementation of these goals for the State’s investor
owned utilities and other energy service providers.

“The 33 percent goal is a cornerstone of the Governor’s greenhouse gas
reduction policy and a policy of this state as set forth in the Energy
Action Plan II. This report provides an excellent first cut at identifying
the issues that must be tackled by this Commission and a framework for
thinking about these issues as we move forward to make the goal a
reality.” said PUC Commissioner Grueneich.

The report is available to the public on the Center for Resource Solutions
website at: <http://www.crs2.net/pub/Achieving_33_Percent_RPS_Report.pdf>

It may also be found on the CPUC website at:
<http://www.cpuc.ca.gov/word_pdf/misc/051102_FinalDraftReport_RenewableEnergy.pdf>

* The Center for Resource Solutions (CRS) is a national nonprofit located
in the Presidio of San Francisco. CRS operates national and international
programs that design clean energy policies. For more information about
CRS, visit <http://www.resource-solutions.org>.