CA’s 100% Renewable Power Mandate Forces Big Decision for Developers: S&P Global

Photo credit: PeterThoeny, Flickr Creative Commons

With California governor Jerry Brown’s recent announcement that California will move to 100% renewable power by 2045 (from 35% today), developers face a big decision: whether to repower existing assets or replace them with advancing renewable technologies. However, because the 100% renewable mandate is imposed by the state, it is possible the state would provide “some kind of preferential pricing, through PPAs or other incentives,” according to a new report from S&P Global Ratings.

The question of whether to replace existing assets with advancing renewable technologies will be particularly important  in regards to aging turbines. This could better serve hydropower and geothermal assets, which have a longer asset life.

Other considerations that will arise as a result of the mandate: Battery storage must be improved, perhaps by as much as 200%, and new battery storage technologies must continue to develop. The state must also determine how to integrate its load-bearing utilities and community choice aggregators (CCAs) into the mix, the report states.

Predictions

The report finds that, while gas-fired power generators will not see any immediate effect, they will ultimately face a significant threat to their market position, finances and credit stability. In fact, the significance of the mandate for the state’s electric utilities “cannot be overstated,” write the authors. S&P Global believes that important political, regulatory, and technological changes must be overcome to meet the governor's goal. Currently, gas contributes about 33% of the state’s power.

Additionally, S&P Global says, bringing new renewable energy sources online will require a close look at debt funding: while they could be strong from a credit perspective, it will be important to evaluate evolving ESG risks.

Other findings:

• Solar and wind stand to benefit significantly as renewable energy mandates increase. Solar PV will make up the lion’s share of the power required to meet California’s ambitious targets.
• The timescale of Jerry Brown’s plan begets a new challenge for wind and solar. With an asset life of approximately twenty years, developers will have to determine whether to repower existing assets or replace them with advancing renewable technologies. This could better serve hydropower and geothermal assets, which have a longer asset life.
• The need for new renewable assets conjures one crucial question: how will it be financed? Though securing financing for utility-scale solar and wind comes without struggle, the rise of community choice aggregation (CCA) in California could raise doubt as the financing vehicles for these methods are less tested.