Wildfires and the Winds of Change

Posted on January 24, 2019 by R. Christopher Locke

Renewable energy sources have been rapidly deployed across the nation over the past decade.  In addition to state government mandates for addressing climate change, federal and state tax incentives and technological advances have spurred their growth, as have the reduced cost and improved efficiency of photovoltaic (PV) solar energy, wind turbines, and energy storage systems.

California has led the way with government-mandated renewable energy goals.  Under AB 32, enacted in 2006, the California Public Utilities Commission (CPUC) established a renewables portfolio standard (RPS) for retail sellers and goals of generating 33 percent of electricity from renewable energy sources by the end 2020 and 50 percent by the end of 2030.  Last year, Governor Brown signed SB 100, which stepped up the 2030 goal to 60 percent and added a new goal of 100 percent of electric power from carbon-free energy sources by the end of 2045.  Hawaii, a state that is “off the grid” and entirely dependent on its own generating capabilities, has similarly adopted the goal of generating 100 percent of its electricity from renewable sources by the end of 2045.;

States have also addressed the need to balance the grid through energy storage systems.  These systems can reduce or eliminate reliance on “peaker plants” and other fossil fuel sources when the sun is not shining and the wind is not blowing, and variable sources like solar and wind are producing little or no energy.  Once again, California has led the way.  Enacted in 2010, AB 2514 calls for 1.3 gigawatts of energy storage capacity from the state’s three large investor-owned utilities by 2020, and legislation adopted last year accelerates and expands the deployment of energy storage systems.

Other states across the nation have adopted similar mandates and incentives to promote the development of renewable energy and storage capacity.  And the low cost of PV solar itself provides a significant incentive.  In fact, a recent study by Lawrence Berkeley National Laboratory documented the geographic spread of new solar installations in 2017, with 40 percent being built in the southeastern states and another 17 percent in Texas alone.

Despite the current Administration’s withdrawal from the Paris Climate Accord and its support for fossil fuels, some recent federal actions have also addressed renewable energy and climate change.  Last year the Federal Energy Regulatory Commission (FERC) amended regulations to facilitate development and use of energy storage systems.  And earlier this month, House Speaker Pelosi re-established the Select Committee on Climate Change and appointed Representative Kathy Castor (D-FL) as Chair. 

Given the reduced costs of solar and wind energy systems, government mandates and support for renewable energy, technological advances, and success in expanding reliance on renewable sources and balancing the grid with energy storage systems, we seem on track toward achieving renewable energy goals in many states.  What could possibly go wrong?

Last week Pacific Gas & Electric (PG&E), announced that it would seek Chapter 11 bankruptcy protection from an estimated $30 billion in potential liability resulting from the horrific California wildfires of the past two years.  Ironically, the hotter, drier climate change-related conditions that contributed to these wildfires and affected PG&E’s potential liability could adversely impact attainment of California’s renewable energy goals to combat climate change.  Scenarios similar to the wildfire-related losses and liability for PG&E could be presented for electric utilities elsewhere in the nation due to severe storms, flooding, storm surge, and sea level rise.

Climate change –related losses, liabilities and bankruptcy proceeding for utilities could in turn affect existing long-term power purchase agreements (PPAs) for renewable sources, especially when combined with changes in demand, the declining cost of solar and wind, and changes in rate schedules.  Indeed, PPA rates have declined significantly over the past decade, providing impetus for potential renegotiation of such agreements.  In PG&E’s 2001 bankruptcy, the court took into account the need for continuation of essential services and left the existing PPAs largely in place.  If older PPAs are renegotiated or restructured, the parties and the court should recognize the need to preserve and promote the financial viability of the renewable energy industry.

In recent years, community choice aggregators (CCAs) have been created by some cities and counties and may provide opportunities to help stabilize power supplies that historically have been furnished almost exclusively by investor-owned utilities.  However, reliance remains on the utilities to maintain and control transmission and distribution networks, and there are some uncertainties about the long-term financial viability of CCAs.

Further government action may also help to stabilize energy supplies and commitments to renewable energy sources and goals.  Last year California passed SB 901, allowing PG&E to issue bonds, supported by increased rates, to cover losses and liabilities relating to the previous year’s wildfires.  And last week, Governor Newsom announced his intent to work with the legislature to find a solution that provides continued reliable electric power, addresses fire victims’ claims, and promotes California’s renewable energy goals.

Reducing potential impacts associated with climate-related risks will depend not only on pursuing programs and infrastructure to prevent and respond to wildfires and other climate-related events, but also on maintaining credit-worthy power purchasers and the financial viability of renewable energy project owners, developers, manufacturers, and suppliers.

In California this will require the support of, and coordination with, the CPUC, FERC, the legislature, the Governor, and the courts.  As noted in Liam Denning’s January 16 opinion in Bloomberg: Business News, the issues are “multi-dimensional” and the solution “will be a job not just for a judge but for the regulators and legislators, too.”



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