CA Reverse Auction Mechanism (RAM)

verdeagendaElectronics - Devices

Nov 21, 2013 (3 years and 7 months ago)

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The California

RAM
Program


CA Reverse Auction Mechanism
1

(RAM)

The California Public Utility Commission’s (CPUC) Energy Division led a stakeholder process
to discuss
the possibility of expanding the
Commission
’s

existing

Feed i
n Tariff (FiT)

program
.

Stakeholders desired
a

streamlined procurement program leveraging a standard contract

s
imilar to a FiT
. However, the
y

eschew
ed

administratively determined prices in exchange for market
-
based pricing

through a reverse
auction

mechanism, or RAM as it became known
.


Ultimately, the stakeholder process designed a procurement mechanism requiring California’s three
large investor
-
owned utilities (“CA IOUs”), Pacific Gas and Electric, Southern California Edison, San Diego
Gas and
Electric, to offer simultaneous auctions for pre
-
determined volumes every six months. Four
auction periods occur at pre
-
determined dates across two years.

For each auction, s
ellers offer the CA
IOUs a fixed price for a standard contract for energy and RECs
, and utilities sort bundled offers based
solely on price. Projects are limited to 20MW and under, meet strict project viability screens to
participate, and require commercial operation within 24 months of CPUC approval
2
.

Following each
auction the [weig
hted average price] of each solicitation is published once the finalists are determined,
and the CPUC approval process is fast tracked due to
developer and IOU acceptance of the non
-
negotiable, pre
-

approved
standard contract
agreement terms.


The RAM prog
ram
provides
an immediate
feedback
loop between supply and demand,
forc
ing
developers to design
competitive
projects to meet
CA IOU
criteria,
which is a
fundamental improvement
over
the
traditional CA IOU procurement solicitations

that are bilaterally negotiated with potentially
stale market prices
.
The RAM auction is not a perfect procurement of energy at market prices, however
it combines the best practices of both (i) incentivizing build of
utility scale

projects through long te
rm
contracts

(ii) timing transparency for completing project financing and (iii) pricing transparency for
signaling to developers which technologies and systems are most efficient for providing renewable
energy at
the least cost to the ratepayer
.
Competiti
on is amplified
, and developers provide better
products due to the pre
-
determined
demand volume
and immediate pricing feedback.

This
standardization ensures that IOUs get projects that support their system needs, while harnessing market
forces to provide t
hat value at the lowest cost possible
3
.



Early results

match expectations

R
AM program advocates expected the program

would result in low prices.

By p
roviding
market
transparency and a frequent f
eedback loop to
communicate the average auction
clear
ing

pric
e
, the
program

enables price discovery informing

participants

that
in six months
the next clearing price will
likely
be lower
.
In March 2012, the three CA IOUs implementing the RAM program each released a



1

Definition of a Reverse Auction: This should be covered by the PREF intro.

2

Recent modifications to the RAM program have extended the original 18
-
month COD timeline to 24 months

3

General solicitations do not always achieve this focused impact on price. While renewable solicitation
s

do
typically
select based on lowest cost, they often
allow utilities to value less quantitative aspects such as technology
diversification.



summary of the results of the initial

auction held in November 2011, ahead of the next scheduled
auction in May 2012.


The results from the RAM I auction demonstrate robust competition in this 20MW and under segment
of the renewable market. Across the th
ree CA IOUs the average high
clearing
price was
$89.23/MWh

for an energy
-
only product. In each of the IOU territories solar PV dominated the bidding volume,
making up over 95% of all RAM I
bids. Of the 15 winning projects
across the three IOUs,
13 are
solar PV

projects.
Although
individual c
ontract

pric
ing

is not
publicized
, we know

from the
average high clearing price that
energy
-
only
solar PV is going for
s
ub $90/MWh prices

and is
likely headed lower
.



RAM
, Grid Parity, and
Policy
Certainty


The
California
RAM program

combines the right program
elements to

drive reduction
s

from
the entire cost structure of ground mount PV systems

in CA

and
result in grid parity for solar PV realized sooner than from other procurement tools
.

S
mart de
velopers
know that to win, cost
-
reducing innovations are
required from all aspects of a

project, from
development to construction to the ultimate financing structures used
.
In
novation will be paramount in

the three remaining RAM auctions
4


where
p
otentially

6GW of
sub
-
20MW projects

in CA

compete for
the remaining 688 MW of
remaining RAM
program volume
5
.


During the remaining auctions, solar PV developers will be relying on the
regulatory
certainty each
scheduled auction provides to support aggres
sive competition while racing toward achieving grid parity.
In the same way, they are also relying on the support the federal Investment Tax Credit provides to each
project’s cost structure.
Based on the authorized program size, the expected auction date
s and project
approval and buildout timeframes illustrated below, each RAM project contributing toward lower cost
design and construction will come online before the ITC sunsets in 2016.




4

The RAM P
rogram was approved as a 1,000MW pilot, with the expectation that if successful, the program could
be expanded.

5

In the California Independent System Operator Queue released April
19
, 2012 over
2.2GW

of 20MW and under
solar PV
is actively working its way

through the CAISO interconnection process

0
20
40
60
80
100
120
PG&E
SCE
SDGE
Solar PV
Wind
Baseload
PROJECT

TECHNOLOGY VOLUME (MW)


Figure
1
:RAM Technology Volume



Figure
2
: RAM Auction and Buildout

Timeframe


2011

2012

2013

2014

2015

2016

RAM I

Auction

Execute
Contract &

Construction

Construction

COD



RAM II

Engineering
Design

Auction &
Execute
Contract

Construction

Construction
& COD



RAM III


Engineering
Design &
Auction

Execute
Contract
&
Construction

Construction

COD


RAM

IV


Engineering
Design

Auction &
Execute
Contract

Construction

Construction
& COD




The transparency of the RAM program, the rules for participating, and the procurement volumes
expected over the life of the program,

provide the regulatory certainty required to attract significant
private capital to the renewable sector and build an industry of the scale required to squeeze out costs
and begin to compete with conventional sources of electric generation. The industry
has transformed as
module manufacturers have ramped up capacity and brought down the largest cost component of a
solar PV facility. Continued declines in module prices ha
ve

assisted in the path toward grid parity, but
of
equal importance are the other inn
ovations that have resulted in cut
-
throat competition amongst a
large number of developers in the solar space
.


Any uncertainty created by the threat of eliminating or accelerating the sunset of the ITC could be a
large disruption in the solar PV industr
y which could reduce or eliminate significant private investment
and the competition associated with that private investment. Such a shift could impair the industry’s
ability to find new areas for cost reduction and at least temporarily decelerate the tre
nd toward grid
parity.