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SACRAMENTO, California, US, April 5, 2006
(Refocus Weekly)
The failure rate for large renewable energy
solicitations is 20% to 30%, based on a sample of 21,500 MW of
contracts in California.
“Contract failure rates vary considerably among utilities, across
situations and by technology,” says a report, ‘Building a Margin of
Safety Into Renewable Energy Procurements: A Review of Experience
with Contract Failure’ prepared for the California Energy Commission
by KEMA. “Failure rates much higher than these levels are supported
by historical experience.”
The report presents the experiences of electric utilities in
contracting for green power projects, and the objective was to
collect “success and failure rates” for renewable energy contracts
based on California and 21 other programs across North America.
“Some of these experiences are considerably more relevant to the
contracting efforts,” and the report admits that “available data are
somewhat spotty in places” but extensive with 21,500 MW of
renewables examined.
Capacity-based success rates among California contracts from the
1980s averaged only 45%, but then rose into the early 1990s to 60%
to 92% across the country. “We find some weak evidence that
capacity-based success and failure rates have changed somewhat over
time,” and data on recent utility experience shows a capacity-based
success rate of 53%.
“If projects that are not achieving their performance goals are also
included as successful projects (leaving only cancelled projects and
those that are significantly delayed and not yet on-line as
failures), the success rate jumps to 62%,” it notes, with success
rates varying considerably among utilities and across situations.
Landfill gas projects experience the least amount of failures while
“the attrition rate for wind power and other renewable technologies
has been higher,” which it notes is similar to the experience in
Europe.
“In implementing state renewables portfolio standards, utility
purchasers and electricity regulators must confront the reality that
signed renewable energy contracts will not always yield operational
projects on the timeline given in the contracts themselves,” the
report notes. “Renewable energy projects may fail to achieve
scheduled commercial operations for a variety of reasons, some of
which are outside the control of both the purchasing utility and the
renewable developer. If not addressed, this risk of contract failure
could cause individual load-serving entities, or entire states, to
fall short of their renewable energy targets.”
The experience of government-run auctions for green power contracts
in Europe and incentive solicitations in the U.S. bear less
relevance to California’s current contracting practices, and success
rates among these programs often are lower than for utility
solicitations in which a full revenue-requirements contract is
offered and where procurement mechanisms are used to reduce the risk
of contract failure.
Project success rates have ranged from 22% to 33% in Europe, from
22% to 63%
in the states of New Jersey, New York, Pennsylvania and
Massachusetts, and 37% for the California Energy Commission’s
production incentive auctions.
“The disparity of experiences further complicates the development of
a single, uniform target for over-procurement at this stage of the
California RPS,” and the report was “unable to link specific
mitigation strategies with lower failure rates or to separate the
influences of solicitation design and overall market conditions on
failure rates, or to provide specific recommendations on which of
the mitigation approaches might be most effective.”
“There is a clear need to carefully monitor the ongoing status of
renewable energy contracting in California,” it concludes.
“California’s renewable energy contracting efforts are unique in
their scale and design, and each RFO is different. A single uniform
over-procurement target gleaned from the experiences described in
this paper and held constant for years would not be appropriate.”
“Ongoing and more systematic monitoring of contract failure in the
state will help inform the appropriate level of (and changes to) any
over-contracting target that might be established,” it suggests. “As
experience is gained in the state with renewable energy contracting,
it may also be helpful to more carefully scrutinize the different
approaches used by the state’s IOUs to lessen contract failure,
document early experience with those various measures, and compare
in some detail the approaches used in California with those applied
in utility solicitations elsewhere in North America.”
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