California's Green Wall

Deck: 

A new law dampens coal-by-wire prospects.

Fortnightly Magazine - March 2007

A new bill signed into law by California Gov. Arnold Schwarzenegger last September, and which went into effect in January 2007, essentially prohibits California utilities from signing long-term contracts for power, including those from out of state, unless they emit less than 1,000 pounds of CO2/MWh of electricity produced.

While the law does not specifically bar coal-fired generation, the limit is set low enough to rule out all coal-power plants. A modern, highly efficient natural gas-fired plant barely would qualify.

For many years, California has had it good. The state gets roughly 20 percent of its electrical energy from out-of-state coal without the environmental degradation associated with coal-burning power plants. This unwritten and unacknowledged policy, sometimes referred to as coal-by-wire, has served it well—offering cheap power without local pollution. But all good things eventually come to an end, and so it seems for the undeclared coal-by-wire policy.

The new law is part of a comprehensive effort to reduce greenhouse-gas emissions in California from all sources—power plants, cars, industry, and agriculture. Another measure requires all distribution entities in California to meet 20 percent of their generation from renewable resources by 2010, a deadline that was pushed forward by the governor.

These measures, plus the new carbon-cap law signed by the governor last year and going into effect by 2012, have sent utilities—large and small, private as well as municipal or city-owned—into a frenzy as they scramble to find alternatives to coal to meet their future demand. Roughly 10 percent of California’s greenhouse gases may be attributed to electricity generation from coal-fired plants outside the state; there are none within its borders. The carbon cap requires greenhouse-gas emissions to be cut to their 1990 levels by 2020, roughly 25 percent below where they otherwise would be.

For example, Southern California Edison Co. (SCE), a unit of Edison International, recently announced an agreement to buy 1,500 MW of wind-generated power from Alta Windpower Development LLC, owned by Australian Allco Finance Group Ltd. It will be the largest known contract for wind if it comes to fruition over the next decade.

Capping Greenhouse Gases

In late August 2006, California passed Assembly Bill 32—the California Global Warming Solutions Act of 2006. This legislation has received national attention and professes to establish a statewide greenhouse-gas (GHG) emissions limit to be achieved by 2020, and which would be equivalent to emissions levels in 1990. The devilish details of how this all will be done have been delegated to the State Air Resource Board, with various rules and requirements to be established over the next several years. A first step is to determine what GHG levels will exist in 2020 and to determine who has the rights to emit at these levels in 2020. Those without sufficient rights will need either to reduce their emissions to zero or purchase rights from others in California who have excess, or from entities in other states or countries (to the extent that programs can be developed with those other areas). There is a provision in the California GHG legislation that allows the governor to modify the GHG deadlines in California if he determines that meeting them would cause significant economic harm.

Although not official, the California Energy Commission (CEC) has prepared calculations of GHG emissions that occurred since 1990 (see Figure 1).

Global Energy has taken the CEC’s historical GHG data for electricity production and added our forecast of such data through 2020 (see Table 1). Note, in the first column we assume that imports are not assigned in GHG emissions. In the second column we assume that imports are assigned GHG emissions based on coal-fired generation.

This forecast does not have the electricity production in 2020 meeting its 1990 GHG gas-emission levels. As the table indicates, from the standpoint of GHG emissions goals from power supplies for California electricity load, it does not matter if imports are considered coal-based or free of GHG since imports will be about the same in 2020 as they were in 1990. If the electricity sector needs to meet, on its own, its 1990 GHG levels, it will need to reduce GHG by about 30 million tons per year from what it is otherwise assumed to emit in 2020. Not counting imports, nearly all of California GHG from power plants comes from gas-fired resources. To meet its goals on its own, the power industry in California would need either to convert all of its gas- fired generation to highly efficient gas-fired generation or replace more of the generation with renewable power, which might cause significant economic harm.

In addition to this GHG legislation, California legislators have passed a bill (S.B. 1368) that prohibits any load-serving entity in California from acquiring a new baseload resource (either through ownership or purchased-power adjustments) that emits more GHG than a combined-cycle, natural-gas-fired baseload generation. This legislation simply reinforces the policy goal in California to be proactive in attempting to reduce global warming.

Paying for Green

The search for alternatives is, of course, not limited to large investor-owned utility players, but has spread to smaller players, including cities and municipalities not under the control of the California Public Utilities Commission. A case in point involves the tiny Truckee Donner Public Utility District on the north shore of Lake Tahoe in the Sierra Nevada Mountains. City officials were about to sign a 50-year contract with Intermountain Power Agency (IPA) based in South Jordan, Utah, to supply the growing community with inexpensive coal-generated power.

A few years ago, the city officials would have been thrown out of office by the public had they paid a nickel more for power than absolutely was necessary. But in this case, they came under intense pressure from some vocal locals, and considerable arm-twisting from powerful politicians, to reject the least-cost supply source. Gov. Schwarzenegger, as well as California’s senior Sen. Dianne Feinstein, encouraged the utility to reject the coal contract on environmental grounds. The governor’s letter said, in part, “We all recognize the need for a stable and affordable supply of electricity, but we have a responsibility to generate it in a way that is environmentally sensitive.”

Why would a small town the size of Truckee, Calif., get such enormous publicity and pressure on a seemingly trivial power contract? City officials originally had planned a vote on the contract in December 2006 before the new law went into effect in January but were caught off-guard by the public outcry. They said rejecting the coal contract from IPA likely would raise the rates on the district’s 12,000 customers by 30 percent. A startled Reed Searle, general manager of IPA, said the company “has heard California’s demand for cleaner energy.” Other California cities and municipalities will face similar decisions in the next few years.

Pacific Gas and Electric Co. (PG&E), a unit of PG&E Corp., is offering Climate Smart, a voluntary program aimed at environmentally conscious residential consumers. The company estimates that as many as 4 percent of its customers may sign up to become carbon neutral—which for PG&E would be relatively painless since the company generates power predominately from hydro, nuclear, and natural gas—which are either carbon-free or low-carbon fuels. The cost is around $4 to $5 for the average residential customer per month—or about the cost of a morning café latte.