By Ken Silverstein, Editor-in-Chief, EnergyBiz Insider
San Francisco may be home to a newfound Green Rush, whereby the city will provide the means by which its citizens can buy all of their electric generation from a renewable source. The city’s Board of Supervisors approved the first of three readings this week, all of which must be Okayed by the mayor there.
The idea is centered on a broad and reliable customer base to provide the funding necessary to maintain a steady and comparatively inexpensive power source. It has particular resonance in those states that allow community-wide aggregation, or the ability of cities to purchase power on behalf of their consenting citizens.
“Community Choice provides the basis for a community to finance and build local renewables to power the community,” says Paul Fenn, head of San Francisco-based Local Power. “Customers who opt to switch to green power provide the city with necessary leverage to put up capital for building local renewable facilities and efficiency measures.”
In this case, Shell Energy North America will be the sole provider of the green power for a first phase of early adopters willing to pay a premium for the 100 percent renewable service. As the remaining 90 percent of customer load is phased in, the CleanPowerSF program will be free to contract with other suppliers.
After the veto-proof 8-to-3 vote to bankroll the nearly $20 million project, the Board of Supervisors paved the way for the program’s launch in the spring of 2013. Customers will be able to opt out, although the greater participation rate the less the city’s risks, and the lower the cost per capita. Fenn says the service will ultimately be price-competitive with Pacific Gas & Electric.
The theory is that is that if the whole town joined the effort it could then replace the current provider, which is PG&E. Fearing the worst, the San Francisco-based utility has opposed such efforts. However, even those who would partake must still move their green electrons over PG&E’s wires. For now, the city will focus on getting its residents to enroll in the new offering, realizing that a potential take-over of an investor-owned utility is an overwhelming undertaking.
California implemented Community Choice that permits the state’s cities and counties to switch residents and businesses to a new power supplier in 2002. Similar programs are now law in 25 percent of U.S. electricity markets with more than 800 municipalities now under service, according to Fenn — most recently Cincinnati and hundreds of municipalities in the Greater Chicago suburbs, with the City of Chicago itself putting it on the ballot for voter approval later this year. The technique is used to win more bargaining power as well as to finance a portfolio of green power and energy conservation projects.
The idea first surfaced in 2001 when San Franciscans approved a solar bond authority to pay for green energy deals. But issuance of the bonds, called “H Bonds,” have waited a decade for the Community Choice program to provide a source of revenue to repay them. Under a series of ordinances and plans adopted in the meantime, CleanPowerSF will allow the entire city’s 400,000 meters to repay financing of the local renewable projects. That, then, becomes the basis by which the city would build its own green energy plants as well as provide financing for customer-owned solar and efficiency measures.
Besides California, the citizens of Massachusetts, Illinois, New Jersey, Ohio and Rhode Island can receive their electricity via Community Choice aggregation. San Francisco would become the second local government in California set up its own energy plan, with Marin County being the first. As for San Francisco, it says that the only way it can meaningfully cut its greenhouse gas emissions is through the use of such community-wide aggregation plans.
PG&E is by no means cut out of the deal. Its natural gas generators would still be necessary given the intermittency of the wind and solar power to be used. Its transmission and distribution lines, meantime, would also be required to move the green electricity — all things for which it still gets paid.
According Fenn, the utility will not lose money from procurement losses, which are covered by a “customer responsibility surcharge.” PG&E will ultimately earn less “rent,” he adds, because fewer electrons will get sent over the company’s lines. That load reduction will result from more customer-owned demand-side resources as well as from more on-site generation such as photovoltaic energy.
To become economical, the city needs nearly its full population taking part, which necessites a mandatory ‘opt-out’ provision. San Francisco must therefore get this deal right before it would even consider the monumental — and ever more expensive — task of taking over the local utility there.
EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been named one of the Top Economics Journalists by Wall Street Economists.