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Greening the Grid

Can markets co-exist with renewable mandates?

Fortnightly Magazine - April 2007

will load-serving entities assure themselves of the necessary congestion rights to gain access to these newly developed renewable-energy sources, after they have paid the subsidy as a transmission customer? The financial transmission rights that RTOs have developed assume that LSEs will be hedging prices. But in this case, the renewable mandate operates as a sort of physical overlay on top of the financial market. Without some sort of cap-and-trade program, where LSEs can buy and sell renewable energy certificates, it remains likely that auctions and allocations of purely financial transmission rights on behalf of LSEs will not guarantee access to the actual renewable resources. After all, RTO-style transmission hedging rights are keyed to anticipated grid congestion and the aggregate collection of aggregate price differentials between grid nodes. These financial rights are based on price, not on emissions or other physical characteristics.

• Market Fairness. Why is this wholesale rate subsidy needed, when state law already guarantees cost recovery through retail rates set by the state public utilities commission for transmission expansions that access demonstrated renewable resource areas found necessary for the achievement of the state’s RPS mandate? (See Cal. Pub. Utils. Code sec. 399.25; and Cal. P.U.C. Decision D.06-06-034, June 15, 2006.) Also, how will other market players react? Will Cal-ISO’s transmission rate subsidy offer fair treatment to market players that already have invested their own dollars to develop renewable resources?

Consider the case of the Imperial Irrigation District, which has not joined the Cal-ISO as a participating transmission owner, but which owns grid assets and actively is engaged in upgrading its network to bring more renewable energy on line. In particular, Imperial has been collaborating with Citizens Energy and San Diego Gas & Electric to develop the Green Path Project, designed in particular to deliver geothermal energy to the Cal-ISO grid.

Green Path would forge new connections from the Imperial Valley Substation to San Diego Gas & Electric Co.’s Sunrise Powerlink line, and from the proposed Devers II substation to the Hesperia substation, within the service area of the Los Angeles Department of Water and Power. Also, Imperial says it already has constructed a 230-kV collector system to facilitate future delivery of renewable energy from the Salton Sea area to Cal-ISO. With certain minimum upgrades to these existing facilities, Imperial claims it could boost delivery of renewable energy to Cal-ISO by anywhere between 600 to 1,600 MW.

Thus, Imperial protests mightily when Cal-ISO identifies the Salton Sea area as an example of an Energy Resource Area (an area “not readily accessible to the Cal-ISO grid”) that would be perfect for a MURT trunkline project.

Imperial wants to know how the Cal-ISO can describe the Salton Sea area as an ERA “not readily accessible to the Cal-ISO transmission grid,” when Imperial already has invested its own nickel in Salton Sea grid upgrades. This disregard, says Imperial, suggests that the Cal-ISO’s new subsidized regime for trunkline financing will attract the smart money for renewable energy development, and leave Imperial’s existing grid-upgrade projects uncompetitive and stranded.

“The fallout,” writes Imperial, “if applied carte blanche