California has the most far-reaching renewable energy laws in the United States. But this week’s bankruptcy filing by the state’s biggest electric utility, PG&E, is raising major questions about whether the state will be able to meet its ambitious targets for solar, wind and other types of green electricity in the years ahead.
“It’s not just business. The state’s environmental and climate goals are at stake,” said John White, executive director of the Center for Energy Efficiency and Renewable Technologies, a non-profit group in Sacramento.
“How are we going to finance all of the clean energy initiatives we need?”
In stacks of court documents, PG&E asked a bankruptcy court to allow it to potentially cancel up to $42 billion in contracts that it signed over the past 15 years to buy electricity from other companies. Seventy-seven percent of those 387 contracts, or 298, commit PG&E to purchase solar, wind or other renewable energy to meet California’s environmental goals, according to its bankruptcy filing.
And many of the deals — known as “power purchase agreements” — were made when clean energy was much more expensive and locked PG&E into agreements for 15- to 20-year periods.
The deals helped finance construction of large solar and wind farms across the state. But PG&E argues it is now stuck with billions of dollars of high-priced renewable-energy contracts and facing staggering debts from wildfires sparked by its power lines. It also sees declining demand for its electricity as more Californians install residential solar systems and buy power from local community non-profits. On Tuesday, PG&E asked the bankruptcy court to bar federal regulators from requiring that its contracts be left intact.
If PG&E can’t choose which contracts to reject and which to keep, the company would be subject to “irreparable harm” as it tries to reorganize and reduce its debts, wrote PG&E attorney Peter Benvenutti in the filings.
Ultimately, the decision will be up to federal bankruptcy judge Dennis Montali, in San Francisco, who is overseeing the case. Montali, appointed by President Bill Clinton in 1993, oversaw PG&E’s prior bankruptcy in 2001, which took three years to complete.
Already, however, PG&E’s bankruptcy is making big waves across the renewable energy industry.
Three weeks ago, S&P Global Ratings cut the credit rating of Berkshire Hathaway’s Topaz Solar Farm, a massive, 550-megawatt project in the Carrizo Plain of San Luis Obispo County, to junk status. The ratings company noted that the plant, one of the world’s largest solar facilities, relies on PG&E for all of its revenue.
Also this month, the credit agency Fitch Ratings downgraded NextEra Energy’s 250-megawatt Genesis Solar project in the Sonoran Desert, near Blythe, citing its link to PG&E.
When renewable energy companies have their credit ratings downgraded, it makes it more expensive for them to borrow money, driving up the costs of new projects.
PG&E and California’s other large utilities are on track to meet a state law requiring utilities to provide 33 percent of their electricity from renewable sources by next year.
More efficient technology and larger projects have helped bring down the costs of green energy. Between 2008 and 2015, the price utilities paid for solar energy dropped 77 percent. And the prices of wind contracts have gone down 47 percent over the same general time period, according to the California Public Utilities Commission.
Meanwhile, pollution is falling. Since 2004, as renewable energy has boomed, California’s greenhouse gas emissions have dropped by 13 percent, even as the economy has grown by 26 percent over the same time.
Last year, citing the need to reduce further greenhouse gas emissions and air pollution, former Gov. Jerry Brown signed a new law requiring 60 percent renewable electricity by 2030, with the other 40 percent by 2045 coming from “carbon free” sources like hydroelectric dams, nuclear power or natural gas plants that capture and store their emissions.
White and other renewable energy advocates worry that if PG&E walks away from many of its old renewable power contracts, that could put solar and renewable energy companies in a financial bind, even potentially bankrupting some.
“The contracts represent the base of California’s energy transition and how we are going to minimize climate change,” White said. “We’re worried that our destiny is now largely in the hands of the bankruptcy court judge.”
Clean energy advocates also have concerns about the fate of PG&E programs to build electric car charging stations, provide rebates for energy-efficient homes and other environmental measures.
But some experts say bankruptcy, while disruptive, may not wreck California’s green energy goals.
If the solar and wind contracts are broken, PG&E will have to renegotiate them at a lower cost, and that could help keep prices lower for ratepayers, said Shon Hiatt, an assistant professor of business administration at the University of Southern California.
As long as California law requires utilities to provide large percentages of their electricity from solar, wind and other renewable sources, he said, there will always be a demand.
“Some of these other companies may go bankrupt,” Hiatt said. “But they won’t go out of business. There is a demand for the supply based on the state mandate.”
California Gov. Gavin Newsom issued a statement Tuesday that stressed his administration is “working to ensure that Californians have access to safe, reliable and affordable service, that victims and employees are treated fairly, and that California continues to make forward progress on our climate change goals.”
On Friday, at the request of the renewable energy company NextEra, the Federal Energy Regulatory Commission (FERC) announced it has “concurrent jurisdiction” in the bankruptcy case along with the judge to OK or reject any attempt to void power contracts. But PG&E argued in its court filings that allowing FERC such veto power would “threaten the integrity” of the bankruptcy process and put those renewable energy companies ahead of other potential creditors, including wildfire victims.
