Insights
Publications

Batteries, Bankruptcies and the Future of Renewable Energy

June 2, 2020 Articles
Marin Lawyer

The Growth of Renewable Energy

Renewable energy sources have been rapidly deployed across the nation for more than a decade. In addition to government mandates in California and other states promoting renewable energy, federal and state tax incentives and technological advances have spurred their growth, as have the reduced cost and improved efficiency of wind turbines and photovoltaic (PV) solar energy systems. Such renewable energy sources have demonstrated great potential for meeting long-term electric power demand, but most regions remain dependent on fossil fuel generation to balance the grid when the sun is not shining or the wind is not blowing.

Technological Advances and Government Mandates

California has led the way in developing renewable energy through government-mandated renewable energy goals and storage capacity requirements. Under AB 32, enacted in 2006, the California Public Utilities Commission (CPUC) established a renewables portfolio standard (RPS) for retail electricity sellers with goals of generating 33 percent of electricity from renewable energy sources by the end of 2020 and 50 percent by the end of 2030. More recently, former Governor Brown signed SB 100, which stepped up the 2030 goal to 60 percent and added a new goal of 100 percent of electric power from carbon-free energy sources by the end of 2045. Hawaii, a state that is “off the grid” and entirely dependent on its own generating capabilities, has similarly adopted the goal of generating 100 percent of its electricity from renewable sources by the end of 2045.

Other states across the nation have adopted similar mandates and incentives to promote the development of renewable energy and storage capacity. The declining cost of PV solar also provides a significant incentive. A recent study by Lawrence Berkeley National Laboratory1 demonstrates the expansion of utility-scale solar installations throughout the nation: Although California was an early leader in utility-scale solar projects and still accounts for 40% of the cumulative installed national capacity, the Southeast has become the growth leader in recent years, with Florida alone accounting for more than 25% of all new projects, more than doubling that state’s previous cumulative capacity.

Storage Capacity Is Key to Reliance on Renewable Energy

States have also addressed the need to balance the grid through energy storage systems. Because solar and wind are variable energy sources, electricity from fossil fuel generation and other energy sources must be used to provide base load to balance the grid, as demonstrated by the California Independent System Operator’s well known “duck chart.”2 Energy storage systems have the potential to reduce or eliminate reliance on “peaker plants” and other fossil fuel sources when variable sources like solar and wind are producing little or no energy.

Once again, California has led the way. Enacted in 2010, AB 2514 calls for 1.3 gigawatts of energy storage capacity from the state’s three large investor-owned utilities by 2020, and legislation adopted since then accelerates and expands the deployment of energy storage systems. While several different energy storage technologies exist or are under development — including pumped hydropower and thermal storage — the near-term focus has been on lithium ion-based battery storage systems. These systems offer fast response times and high cycle efficiencies, can be used for utility-scale as well as residential and commercial applications, are relatively easy to deploy, and costs are continuing to drop dramatically. As with any energy project, however, utility-scale battery storage projects present land use, permitting and environmental and health and safety issues that must be addressed as these systems are proposed, deployed and operated.

Given the reduced cost of PV solar and wind energy systems, government mandates and support for renewable energy, as well as technological advances and success in expanding reliance on renewable sources and balancing the grid with energy storage systems, California seems to be on track toward achieving its renewable energy goals. What could possibly go wrong?

Challenges and Opportunities for Achieving Renewable Energy Goals

As we all know, last year Pacific Gas & Electric (PG&E), initiated Chapter 11 bankruptcy protection from an estimated $30 billion in potential liability resulting from the horrific California wildfires. Ironically, the hotter, drier climate change-related conditions that contributed to the wildfires resulting in PG&E’s losses and liabilities could also affect attainment of California’s renewable energy goals to combat climate change. Scenarios similar to PG&E’s wildfire-related losses and liabilities stemming from severe storms, flooding, storm surge, and sea level rise are entirely plausible. Such losses and liability will pose continuing challenges to the stability of power supplies, but may also present opportunities for more distributed resources and providers, including Community Choice Aggregators (CCAs), as discussed below.

Climate change-related losses, liabilities and bankruptcy proceedings for utilities could also affect existing long-term power purchase agreements (PPAs) for renewable sources, especially when combined with changes in demand, the declining cost of solar and wind, and changes in rate schedules. In California and elsewhere, PPA rates have declined significantly over the past decade, providing impetus for potential renegotiation of such agreements. PG&E pledged last year to honor renewable energy contracts in the bankruptcy plan but could still pursue efforts to renegotiate or restructure renewable energy PPAs, which are valued at approximately $42 billion, as part of the plan to return to solvency.3 The PG&E bankruptcy plan should recognize the need to preserve and promote the financial viability and stability of the renewable energy industry.

In recent years, other approaches have also been adopted to promote renewable energy sources and to help stabilize power supplies that historically have been furnished almost exclusively by investor-owned utilities. As noted above, CCAs have been created by some cities and counties, including Marin, to provide such opportunities. However, reliance remains on the utilities to maintain and control transmission and distribution networks, and there are uncertainties about the long-term financial viability of CCAs in some regions.

Further government action may be needed to stabilize energy supplies and commitments to renewable energy sources and goals. In the case of PG&E, California has enacted legislation allowing it to issue bonds, supported by increased rates, to cover losses and liabilities relating to wildfires. More recently, PG&E reached a proposed settlement with FEMA for wildfire-related claims, resolved wildfire-related criminal liability with a plea agreement, reached a proposed settlement with a committee of wildfire victims,4 and is finalizing a proposed reorganization plan in the bankruptcy court proceedings.

The long-term stability of power supplies will depend on maintaining credit-worthy power purchasers and the financial viability of renewable energy project owners, developers, manufacturers, and suppliers. In California, achieving these objectives will depend on both the PG&E bankruptcy plan as well as the State’s continued commitment to promote renewable energy sources and storage capacity, in part by addressing challenges to the stability of the energy supplies, the distribution network and renewable energy sources.


1 Bolinger, et al., Utility Scale Solar: Empirical Trends in Project Technology, Cost, Performance and PPA Pricing in the United States(Lawrence Berkeley National Laboratory, December 2019)
2 http://www.caiso.com/Documents/FlexibleResourcesHelpRenewables_FastFacts.pdf#search=fast%20facts
3 https://www.greentechmedia.com/articles/read/pge-proposes-18b-bankruptcy-reorganization-but-faces-setback-on-bond-legisl
https://www.utilitydive.com/news/will-pge-be-forced-to-turn-to-ppas-to-get-a-bankruptcy-exit-plan-confirmed/575045.
4 https://www.utilitydive.com/news/pge-fema-claims-bankruptcy/573888
https://www.ft.com/content/582dd6e7-2ea5-4520-ae4c-d50c00c3799e

Firm Highlights

Publication

Changing Climate, Changing Laws: Addressing New Wildfire Risk Requirements in Project Development

In this op-ed for pv magazine, David Lazerwitz and Linda Sobczynski of Farella Braun + Martel examine the levels of precaution necessary to ensure fire risk mitigation in project development. The increasingly common occurrence...

Read More
Publication

Renewable Energy Roundtable Update in the Wake of COVID-19

The COVID-19 pandemic has resulted in widespread disruption of business and industry across California, including the state’s vibrant renewable energy and energy storage industry. Farella Braun + Martel attorneys are tracking developments and advising...

Read More
Publication

San Francisco Bay Area Counties Issue Stricter Limits on Commercial Activities in Updated COVID-19 Shelter-In-Place Orders

To combat the growing number of coronavirus cases in the Bay Area, six local counties (Alameda, Contra Costa, Marin, San Francisco, San Mateo, and Santa Clara) have issued updated Shelter-In-Place orders that extend the...

Read More
Publication

Permitting Utility-Scale Battery Energy Storage Projects: Lessons From California

The increasing mandates and incentives for the rapid deployment of energy storage are resulting in a boom in the deployment of utility-scale battery energy storage systems (BESS). In the first installment of our series...

Read More
Publication

CARES Act Paycheck Protection Program Summary (Updated)

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Paycheck Protection Program (PPP) aims to provide qualifying small businesses, nonprofit organizations, veterans organizations, tribal businesses, sole proprietors, and independent contractors forgivable loans of...

Read More
Publication

Fed Announces New Main Street Lending Program

Loans Will Provide Additional Support for Small and Mid-sized Businesses On April 9, 2020, the Federal Reserve released the terms of its Main Street Lending Program , a $600 billion loan fund for U.S...

Read More
Publication

Is Your Business an “Essential Business”? Navigating California State and County COVID-19 Shelter-In-Place Orders

In light of the recent “Shelter-In-Place” orders issued by all nine Bay Area counties (Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara, Sonoma, Solano, and Napa) and the subsequent “Stay-At-Home” order issued...

Read More
News

SCOTUS Clean Water Act Test ‘Devastating’ for Industry

Sarah Bell commented on the U.S. Supreme Court ruling saying that the Clean Water Act can be used to regulate pollution that travels through groundwater. Read full article, here . The case is  County...

Read More
Publication

Force Majeure and Contractual Non-Performance During the Coronavirus Pandemic

Never in the experience of most of us has an event so thoroughly interrupted business as usual as the coronavirus (COVID-19) pandemic. Everywhere, contract parties facing severe stress in their businesses are reassessing their contractual...

Read More
Publication

Business Interruption Coverage for the Coronavirus (COVID-19)

The coronavirus (COVID-19) has already caused severe disruption to the economy. In the U.S., governmental entities as well as the private sector are implementing more and more drastic measures to respond to the coronavirus...

Read More