California update

Author: James M. Berger Publication | June 5, 2018

Marin Clean Energy became the first community choice aggregator in mid-May to receive a credit rating. Moody’s Investors Service assigned it a Baa2 rating and stable outlook. This is the second-lowest rating that is considered investment grade.

Market response has been muted. Bankers report that they had already been viewing Marin as essentially investment grade.

Moody’s cited the strength of the California joint power agency statute and the Marin Clean Energy joint power agency agreement that underpin MCE’s business model. Moody’s also cited MCE’s established track record of operations and consistently improving financial performance in giving the rating.

Community choice aggregation allows local governments to pool their electricity load in order to purchase power on behalf of their residents, businesses and others, who have the choice to sign up with a CCA.

Currently, there are 16 CCAs in California. According to the California Community Choice Association, more than 80 cities are currently engaged in or considering community choice energy and more than 50% of California residents will be served by a CCA by 2020.

Unlike traditional utilities, CCAs do not have a strong financial record. This makes project financing a renewable energy project based on a contract to sell its output to a CCA difficult, because financial parties look to the revenue stream and how strong it is. In addition, customers can leave a CCA, and if enough leave, the CCA could shut down. (For more information about California CCAs, see “Community choice aggregators and community solar” in the April 2018 NewsWire, “Financing projects with CCA contracts” in the December 2017 NewsWire and “America’s Leading Renewables Market in Flux” in the August 2017 NewsWire.)

There have been at least two financings of large solar projects that have power purchase agreements with CCAs and other projects are coming to market, but the financings to date have not been as favorable to the sponsors as they would have been with a utility PPA. The lenders protect themselves with additional cash sweeps and other mechanics that help to pay down the debt faster and create additional reserves that can be accessed if necessary.

With Marin Clean Energy having been given an investment grade credit rating, this could have several positive effects.

First, it could be the start of a trend. If more CCAs receive credit ratings, they could be viewed as viable alternatives to utilities in terms of financing projects. CCAs can look to the factors that Moody’s cited to determine what rating agencies view as important in assigning a rating to a CCA.

In addition, developers may be more eager to sign PPAs with CCAs, knowing that the projects have a better chance at being financed. With a dearth of utility PPAs, especially in solar-drenched California, most new contracts are expected to be signed in the next few years with CCAs or corporate offtakers.

New homes

California became the first US state in May to require solar panels on all new homes. The California Energy Commission voted unanimously to adopt building standards that require solar photovoltaic systems on all new homes starting in 2020, in an effort to cut energy use in new homes by more than 50%.

The new solar mandate applies to all houses and condominium and apartment buildings up to three stories tall that obtain building permits after January 1, 2020. There will be limited exceptions, such as when a roof is too small to accommodate solar panels.

The new standards are expected to increase the cost of constructing a new home in California by about $9,500, but will save $19,000 in energy and maintenance costs over 30 years. This calculation does not take into account the time value of money.

Homebuilders can take one of two steps — add solar panels to the homes or build a shared solar-power system serving a group of homes. Any rooftop solar panels installed can be included in the cost of the home or, based on a customer’s preference, made available for lease or to supply electricity on a monthly basis.

Most of the details still need to be fleshed out. However, this will create a significant new market for solar installers and the rooftop solar companies that retain ownership of rooftop solar systems and either lease or sell electricity to the homeowners on whose roofs they sit. California builds nearly 100,000 new homes every year, and only about 20% come with rooftop solar systems already installed. The new rules are expected to result in about 200 additional megawatts of solar developed per year in California.

Offshore wind

Redwood Coast Energy Authority selected a consortium in April to develop a floating offshore wind farm off the coast of Humboldt County, which is in northern California. There were six respondents to the request for qualifications that Redwood issued on February 1, 2018.

The winning consortium is comprised of Principle Power Inc., EDPR Offshore North America LLC, Aker Solutions Inc., H. T. Harvey & Associates and Herrera Environmental Consultants, which will enter into a public-private partnership to pursue the development of the wind farm.

To date, only one offshore wind farm has been constructed in the United States, the Block Island wind farm off Rhode Island. Most other offshore wind farm activity has been in the Atlantic Ocean, where the ocean remains shallower for much further distances than off the west coast.

The ocean floor becomes deep very quickly in California, making traditional offshore wind farms, which are anchored in the ocean floor, unworkable. The proposed solution is to design wind farms that float and then are tethered with long cables to the ocean floor so that they do not float away.

The proposed project off Humboldt County is a 100- to 150-megawatt floating wind farm planned more than 20 miles off the coast of Eureka, California. There could be 12 to 17 700-foot tall wind turbines in the project, which is expected to take five to seven years to develop.

The floating platform technology that Principal Power has developed was used in a small demonstration project for five years off the coast of Portugal.

Other companies are also working to develop floating offshore wind farms. The first commercial-scale floating wind farm began producing electricity in late 2017 off the coast of Scotland. The potential market in the US is massive. The National Renewable Energy Laboratory estimates that more than 800,000 megawatts of energy potential is available to floating offshore wind technology off the US west coast.


Contacts

James M. Berger

James M. Berger

Los Angeles