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Solar in USA: Warren Buffett Likes Solar, but Not the Price Tag

Solar in USA: Warren Buffett Likes Solar, but Not the Price Tag
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Warren Buffett has called global warming a “major problem” and put his company’s money where his mouth is, spending billions to develop solar and wind power. Yet he’s no hero to some renewable energy proponents.

Their beef: They say the utility arm of Berkshire Hathaway Inc., his conglomerate, has been trying to undermine an almost 40-year-old law intended in part to promote the growth of cleaner energy. Berkshire, they say, is effectively stifling solar projects to protect utilities it owns, such as PacifiCorp, based in Portland, Ore. “I’m sympathetic to reasons that the law is difficult for utilities, but PacifiCorp speaks out of both sides of its mouth,” says David Brown, co-founder of solar developer Obsidian Renewables LLC in Lake Oswego, Ore.

Berkshire Hathaway Energy says it’s not so simple. The company, which owns several utilities using conventional and renewable power sources, is the second-largest owner of clean-energy assets in the U.S. But along with other utilities, it argues that the law is outdated, often raises costs for its customers, and forces utilities to buy more electricity than needed.

The law is called the Public Utility Regulatory Policies Act, or Purpa. Congress enacted it after the 1970s OPEC oil embargo to draw new players into the utility-dominated business of generating power. It required some utilities to buy power from certain power providers if doing so was less expensive than building new plants themselves. The idea was to boost the then-emerging natural gas industry—and perhaps spur renewables including solar.

The act worked—too well, from the standpoint of the utilities. As solar panel prices plunged in recent years, developers deluged utilities with projects to sell them power. Utilities complain the law is producing a surplus of power. Moreover, utilities say the contracts with developers, whose terms are generally set by state utilities regulators, often lock them in for years at high prices that don’t necessarily reflect the current market. “Why should our customers be saddled with billions and billions of dollars of above-market prices?” asks Kathy Steckelberg, vice president for government relations at the Edison Electric Institute, which represents U.S. investor-owned electric companies.

“The fact that renewables are increasing in our market we don’t see as a problem,” Steckelberg says. Utilities would rather build or buy solar and wind farms themselves so they can pass on the development cost to ratepayers, rather than pay outsiders for the power. Yet under Purpa, they often can’t refuse an eligible deal.

Solar developers have proposed plans to generate about 3.5 gigawatts of power in Berkshire Hathaway’s territories, the second most among regulated utilities in the U.S., according to Bloomberg New Energy Finance. A spokeswoman for Berkshire’s utilities unit wrote in a statement that Purpa “is no longer the key driver for renewable energy development.” She cited rising corporate demand for renewables, falling costs, and government initiatives, such as state and federal tax incentives.

In Wyoming, the company’s Rocky Mountain Power, a division of PacifiCorp, is seeking a 40 percent cut to what it must pay small Purpa-eligible projects. PacifiCorp, which serves 1.8 million customers throughout the western U.S., has estimated the long-term contracts will cost consumers $1.1 billion above market prices in the 10 years through 2025. In Oregon, PacifiCorp asked regulators to reduce the size of any renewable deal it’s forced to take, as well as the length of the contract during which it must buy power. The utility won a partial victory last year: Regulators said certain facilities of up to 3 megawatts would qualify, down from a threshold of 10 megawatts, but left the required contract term at 20 years.

“There’s no project that I can imagine that I would do for PacifiCorp,” says Brown, whose Obsidian has developed multiple solar farms that provide power to the utility. “The prices are too low, and they say they don’t have any interest or need for renewable energy.”

States including Idaho and Montana have sided with the utilities by reducing the length of power-purchase contracts. In Idaho’s case, the term went to 2 years from 20, according to EnerKnol, a research firm. Contracts of such short duration make it almost impossible to get financing for new projects, solar developers say.

Long-term contracts are important for renewable providers because lenders prefer companies that can project a steady cash flow for many years. “You cannot raise capital against a two-year contract,” says Matthew McGovern, chief executive officer of Santa Monica, Calif.-based Cypress Creek Renewables LLC, one of the most active Purpa developers. “Utilities are now saying, ‘Well, why not?’ They know the answer.”

Utilities may have a friend in President Trump, who’s said climate change is a hoax and who’s keen to tip the scale from renewables to coal and other fossil fuels. Trump is in a position to reshape the Federal Energy Regulatory Commission, an agency with some authority over Purpa. Then there’s Congress, where some members are eager to strip away much of Purpa. Berkshire Hathaway Energy has proposed altering the law by, among other things, making it so utilities wouldn’t be obligated to buy power from Purpa projects when states determine the extra electricity isn’t needed. Its Rocky Mountain Power unit recently announced a plan to invest an additional $3.5 billion in wind generation and transmission lines to bring the energy to customers.

Solar companies are resisting the changes. Many utilities are saying, “ ‘we need to take this back,’ ” says Adam Foodman, chief operating officer of solar developer O2 Energies Inc. “But that’s not in the interest of the public.”

SOURCE: Bloomberg

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