Government participation in business has become a huge topic over the past year and it’s something that I’m very interested in.  I really think we’re writing the next chapter in the history of controlling the means of production.  In the past we had extremists such as Hayek and Trotsky; now we have centrists like Obama. 

While I personally tend towards extremism, I’m becoming more comfortable with some of the market interventions that we’re beginning to see in renewables.  I’m all for renewable portfolio standards—the government should regulate emissions—but the stimulus package went far beyond simple regulation.  The stimulus package asks all levels of government to deploy capital and to play an increasing role in business (never one of government’s strengths).

It’s hard to skim through renewable energy news without running into this topic.  I was recently skimming VentureBeat and saw an article on a new solar farm that San Fransisco is developing.  Or, to be more precise, San Fransisco has committed to a multi-year PPA with Recurrent Energy which will own and operate the plant.  The PPA rate will be $.235/kwh rate and will be used to power government buildings.

It seems a little odd to me that San Fransisco would enter into a PPA rather than purchase electricity directly from the utility.  California has a (comparitively) very progressive set of utilities and aggressive renewable portfolio standard.  It seems to me that utility and power generation regulation are appropriate ways for a state to shape energy policy.  Making independent, risky, and complicated power purchase arrangements is not.

I also wonder whether the price being paid is reasonable.  I don’t know what PPA rates typically are in CA (although I did try looking it up).  I was able to find a very interesting report on the state’s renewable portfolio standard and energy price projections called MPRs that they use to evaluate potential projects.  In short, the $.235/kwh price is about double the comparable baseload MPR.  There are two legitimate reasons why this price discrepancy could exist.  First, solar is not a baseload resource and so some element of the premium is due to the fact that on-peak power is more valuable.  Second, the city may be able to sell renewable energy credits for the power it generates. 

There is another possibility, however: San Fransisco may be purchasing power at a non-economically-optimal price.  At first glance this would seem to be completely fair—if the voters of San Fransisco want to have their own supply of solar electricity then more power to them, right?  I disagree.  Government, as business, has limited resources and needs to deploy them in the most economically efficient ways possible.  Solar is a very legitimate public policy goal but needs to be pursued using the most appropriate tools.