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Business Observer Friday, Apr. 29, 2011 9 years ago

Power Play

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Florida comes to a crossroads on whether to give renewable energy incentives to electric utilities or independent renewable energy producers and installers. Tens of thousands of jobs, thousands of businesses and one future city on the Gulf Coast are at stake.
by: Jay Brady Government Editor

REVIEW SUMMARY


What. Renewable energy legislation


Issue. Efficiency of electric utilities vs. independent renewable energy industry.


Impact. Higher electric bills for utility consumers.



When the state terminated its solar rebate program last year, many small firms that install solar power systems saw a dramatic decrease in business. At Sarasota's Elite Solar Services, a drop in revenues forced the company to reduce its employees from 15 to just two.


Now, a proposal in the Legislature to provide incentives for the largest power companies has smaller renewable energy firms arguing it could put them out of business for good.


At issue is a bill that would allow the state's four major publicly regulated power utilities — namely Florida Power & Light — to invest in new sources of renewable energy and increase utility rates to recoup their costs.


In the original bill, FPL proposed raising its rates by 2% to pay back the costs of its renewable energy projects, which include things like biomass facilities, wind farms and solar panels.


Gov. Rick Scott criticized the 2% rate increase as a tax, which prompted FPL to come back with an alternative. The amended bill leaves the rate-increase decision up to the Public Service Commission, which regulates public utilities.


If utilities are able to pay for projects through higher rates, smaller, independently owned renewable energy firms say they won't be able to compete, and the move will effectively remove private investment from the market.


The Legislature is currently leaning in favor of allowing the larger utilities to recover their costs for these projects, but the Senate bill could be dead after being postponed in an April 26 Budget Committee meeting.


Monica Kennedy, president of Elite Solar, says without allowing private investors to recover their costs as well, the long payback period makes many solar electric projects uneconomical for most consumers.


Mike Antheil, executive director of Florida Alliance for Renewable Energy, which represents the smaller, independent firms, summed up his industry's concerns April 25, in an email to members: “The renewable energy bill that we saw during this Legislature represents the most transparent power grab we have ever seen from the investor-owned utilities and their handful of direct-bid insiders, as well as the most willing group of legislators we have ever seen paving the way to their monopoly.”


It's a big decision for lawmakers because impact models show that renewable energy projects create more than power - they also create jobs. Last year, the Florida House pushed a concept favoring cost recovery for 700 megawatts of renewable energy projects built by the state's four major power companies: Florida Power & Light, Progress Energy, Gulf Power and Tampa Electric Company.


According to a U.S. Department of Energy economic impact model cited by Florida TaxWatch, building that amount of energy from solar power in a three-year period would produce nearly 45,000 jobs.


But which option produces the most jobs for the least cost to taxpayers and ratepayers? That's a fundamental question for decision-makers, but no one seems to be asking it, much less getting information to answer it.


“No such report exists,” says Antheil, but he's confident that the smaller firms can do it best and cheaper. He asks and answers his own question, saying: “Who's going to give you the more bang for the buck? Small scale distributors.”


Randy Miller, executive vice president of the Florida Retail Federation agrees. “Without a lot of people working on it, it's going to be expensive,” he says. “We think there should be some competition to seek the highest efficiency and the lowest cost.” Miller adds, “There's no incentive for [the investor-owned utilities] to seek the lowest cost.”


Depending how it's decided, there could be a few big winners and many smaller losers unless legislators find middle ground soon. But according to Sen. President pro-tempore Mike Bennett, who has spent considerable time on the issue the past few years: “The power companies don't want a compromise.”



Babcock Ranch and the bill


One big player in the debate is Babcock Ranch. Southwest Florida's 17,000-acre future “city of tomorrow” would move into the present a bit sooner if energy incentives legislation favoring the big power companies becomes law.


Syd Kitson, chairman and CEO of real estate developer Kitson & Partners, announced two years ago what was billed as a landmark agreement with Florida Power & Light to build the world's largest solar photovoltaic power plant at Babcock Ranch.


FPL spokesperson Jackie Anderson says the company won't build it without a renewable energy bill and assurance of cost recovery. Lisa Hall, a spokesperson for Kitson, says Babcock Ranch would proceed without FPL's solar plant, but not as fast. She says the solar plant will attract businesses to locate there and that the deal calls for FPL to lease commercial rooftops for solar panels.


The development strives to be the world's first city powered by solar energy, a claim it makes in its marketing materials. The developers say it will create 20,000 permanent jobs and thousands more construction and related jobs over the next 20 years.


“The impacts are very significant from a jobs perspective and economic development perspective,” says Kitson about his dream for southeast Charlotte County and a piece of northeast Lee County.


Kennedy agrees that such a community would be significant. But like others in her struggling industry, she says FPL's method of increasing renewable energy discourages competition and puts ratepayers at risk.


That method is embodied in the House and Senate bills. The 2% rate increase proposed in the original version of Senate Bill 2078 adds up to charging rate payers an estimated $377 million without the normal review by the Public Service Commission. It would increase the average monthly bill for residential ratepayers by $2.64.


Scott rebuffed the idea of rate increases, which spurred amendments to the original bill. “The governor does support choices for Floridians when it comes to energy, but not if it includes a rate increase,” says Lane Wright, the governor's press secretary.


Sen. JD Alexander, R-Lake Wales, chairman of the Budget Committee, sponsored an amendment at the April 26 meeting that removes the 2% provision and leaves it to the PSC to decide if cost recovery for renewable energy is appropriate. But that approach still keeps the power companies in control.


Alexander also supported an amendment that limits the cost of renewable energy a utility provides in an effort to minimize the cost to ratepayers. That cost may not be greater than the producer's average retail rate per kilowatt hour. That's about 10.5 cents per kilowatt hour says Alexander, and would thus eliminate any renewable energy projects costing more than that amount.



Selling into the grid


Kennedy and Antheil say to get private investors to finance renewable energy projects, individuals and business have to be able to sell the extra energy they produce back into the grid, an idea known as distributed generation.


To encourage this, they argue that roughly 20% of the $377 million big power companies propose collecting for renewable energy should be dedicated to purchasing this electricity from small producers. With assurance that the utilities will purchase the energy at a reasonable price, the hope is that would provide the needed incentive to attract private investors and create jobs.


Currently, the bill allows for 5%, with half of that dedicated to solar projects, meaning less than $19 million for renewable energy projects and less than $9.5 million for solar.


An amendment offered by Sen. Thad Altman, R-Melbourne, would increase to 20% the percentage dedicated to renewable energy capacity, or nearly $76 million. And with half going to solar projects up to 10 kilowatts — nearly $38 million — Anthiel and Kennedy hope that would be enough to attract private capital to invest in Florida's solar industry from manufacturing to installation.


Currently, there are no solar panel manufacturing facilities in Florida.


Kennedy asks, “If utilities are allowed to go to the ratepayers for money to build solar and sell that electricity back to customers, then why can't other producers access that same money to build solar and sell the power to the utilities?”


As it is, power company customers can sell their unused power back to the utility under a plan known as net metering. They just can't sell it to anyone else because the power companies have the sole authority as a regulated monopoly to sell power in a defined franchise area.


“We're absolutely supportive of distributed generation,” FPL spokesperson Jackie Anderson says. “We have more than 1,000 customers that have customer-owned renewable energy.” That may be so, but FPL has 4.5 million customers.


Still, Anderson maintains that the most effective way to bring renewable energy to the state, particularly solar, is through the large investor-owned utilities. Previous legislation allowed FPL to build three solar or hybrid solar plants including the 25 megawatt solar plant in DeSoto County, which Anderson says FPL would like to expand.


The PSC authorized cost recovery of the three projects providing a total of 110 megawatts statewide. Anthiel says FPL's cost recovery was roughly 40 cents per kilowatt hour.


And giving FPL and the big power producers a leg up is the roughly 4 cents per kilowatt hour price they pay to customers who sell to the grid the excess energy they generate through net metering.


Bennett explains that the power companies are required by state law to buy the renewable energy at the “avoided cost,” essentially the incremental cost for the utilities to provide the same amount of electric energy.


He says the price is artificially low. “They pay me 4 cents per kilowatt-hour, but say it's going to cost 8 cents,” says Bennett. “Why isn't that the avoided cost?”


That regulated low price creates another disincentive for potential competitors. “We would build a whole lot more solar panels if we could sell it back for 11 cents per kilowatt-hour,” says Kennedy.


Anthiel says his group's objective is to get into statute a provision allowing independent power producers to sell into the grid. He says that would gives them the chance to prove they can do it cheaper while shifting the risk from ratepayers to private investors.


And according to Antheil, for every dollar of renewable energy purchased by the big power companies, it will stimulate at least $2-$3 of private investment depending on the purchase price and the cost of installation.


“You will never truly have a green energy program in the state of Florida,” says Bennett, “unless you can get other people, private investors, to participate. Private investors won't participate because they can't get a fair return on investment.”

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