I've just read through the LADWP approval letter, and a few things stand out:
First, a minor technical point: the Board seems not to have considered the higher financial risk involved in large tenders like the one proposed here, and how this additional risk may offset the efficiency gains of competitive tenders. These higher risks have to be priced into individual bids, which raises the cost of capital, and pushes up the required PPA price. From our experience in markets around the world, it is by no means clear that tenders always yield lower prices (or greater efficiency) than well-designed FITs. The Board may wish to bear that in mind in the future.
The second, perhaps more important, point I would make is that moving LADWP’s solar projects to large scale tenders can be read as a step away from the 'democratic spirit' of FIT policies, and a step closer to the top-down decision-making of traditional utility procurement.
To that extent, while it is undoubtedly 'innovative' in certain respects, it is also regressive in others.
One criticism frequently raised against moving everything toward large-scale tenders is that it shuts out the vast majority of people who may want to invest in solar projects. Part of the success of FIT policies around the world has been their ‘open-market’ character, i.e. they are available to anyone.
As I followed LADWP’s policy occasionally from ten thousand miles away here in Berlin, it struck me that this was one of the really positive elements of the Department's initial policy. It enabled a wide range of people in the Los Angeles area to participate, and also avoided expensive transmission investment by connecting the majority of projects at the distribution level.
One final point I would make is that, while significant and important for California, the policy remains fairly modest by international standards: Germany has been installing 150 MW of solar PV per week for the last 150 weeks in a row (on average), and while installations have slowed a little in Q1:2013, March was back on track with 530MW added.
Ultimately, as module and balance-of-system (BOS) costs continue to decline worldwide, solar power installed on and around homes and businesses is now the cheapest electricity supply option in many parts of the world. Against that backdrop, limiting its development to exclusive tenders like these risks being seen as ‘Ancien Regime’ pretty soon, particularly in California where you're blessed with such an abundant solar resource.
In short, the genie's out of the bottle - and it's time for regulators to wake up.
Those are my quick thoughts on the Board's letter.
Toby D. Couture
Director of Renewable Energy
Tel: +49 30 536 0770, ext. 65
M: +49 151 6491 7018