January 12, 2006

Yesterday, the California Energy Commission (CEC) released a consultant report that you might find of interest. The report is titled “Building a Margin of Safety Into Renewable Energy Procurements: A Review of Experience with Contract Failure.”

In implementing state renewables portfolio standards (RPS), 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. 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.

Based on a variety of data sources, this CEC-commissioned report summarizes potentially relevant experience with renewable energy contract failure from historical experience in California; from a broad group of other North American electric utilities; and from government renewable energy contract and incentive auctions. Though prepared within the context of the California RPS, this paper should be of broader interest.

The report finds that contract failure rates vary considerably among utilities, across situations, and by technology. Nonetheless, the data suggest that a minimum overall failure rate of 20-30% should generally be expected for large renewable energy solicitations conducted over multiple years. Contract failure rates much higher than these levels are supported by historical experience.

The report recommends that utilities and utility regulators anticipate and monitor renewable energy contract failure on an ongoing basis. As additional contracting experience is gained, the report also notes that it will be helpful to scrutinize the different approaches used by utility purchasers to mitigate contract failure, document early experience with those measures, and compare in some detail the approaches used in various jurisdictions.

The report can be found at: http://www.energy.ca.gov/2006publications/CEC-300-2006-004/CEC-300-2006-004.PDF .

The CEC’s notice of availability can be found at: http://www.energy.ca.gov/portfolio/notices/2006-01-11_notice_availability.html .