California’s Homeless Biomass Problem
California’s immense stores of waste biomass once had a plush abode in the equitably priced, long-term power purchase agreements (PPA) that stemmed from the state’s aggressive interpretation of federal legislation—the Public Utilities Regulatory Policy Act of 1978—born out of the energy crisis of the early 1970s. At its peak in the early 1990s, the California biomass energy industry produced almost 4.5 billion kilowatt-hours (kWh) per year of electricity, according to the National Renewable Energy Laboratory, and each year provided a good home to more than 10 million tons of the state’s solid wastes. PURPA required electric utility companies to buy privately produced power at their avoided cost of generation, in essence spawning development of the independent power industry in the U.S. High avoided cost rates, particularly in California, and favorable federal tax policy for renewable energy projects provided the impetus under PURPA for explosive growth for the state’s biomass power industry.
NREL states that many of the facilities that entered service during the late 1980s had what’s called Interim Standard Offer No. 4 PPAs with California’s two major electric utility companies, Pacific Gas and Electric Co. and Southern California Edison Co. Only available for signing in 1984-‘85, standard offer No. 4 allowed pricing of biomass power based on energy price forecasts for the first 10 years of facility operations—a much more attractive option than using fluctuating, short-term prices. Forecasts were based on the high avoided cost rates of the time, 5 to 6 cents per kWh. After the 10-year fixed-price period was up, biomass power plants were compensated based on the then-current market price, referred to as the short-run avoided cost (SRAC). Most of the contracts were written with 30-year terms.
As energy prices dropped in the early 1990s, SRAC rates dropped. Many biomass power plants were immune since they were locked into 10-year fixed prices, but increased biomass demand led to high feedstock prices. Since then, the industry has gone back and forth with unfavorable regulations such as the California Public Utilities Commission’s Blue Book Proposal, which prompted PPA buyouts as biomass power plant owners grew concerned about their 30-year performance obligations amidst higher feedstock costs and lower SRAC pricing, and favorable short-term legislative fixes such as AB 1890, which superseded CPUC’s Blue Book Proposal and recognized the waste disposal benefits of biomass power. AB 1890 directed the state EPA to study policies that would shift some costs of biomass energy production away from the electric ratepayer and onto the beneficiaries of the waste disposal services it provides. Even though biomass power plants that were unable to secure fixed pricing under a standard offer No. 4 PPA received a short-lived 1.5-cent-per-kWh subsidy from a renewable transition fund established by AB 1890, enactment of cost-shifting regulations never came to fruition.
Industry, Jobs, Air Quality in Jeopardy
Today, despite a strong renewable portfolio standard (RPS), the most aggressive greenhouse gas (GHG) reduction efforts in the nation, bans on open-burning and various landfill diversion regulations, the California biomass power industry teeters on extinction, leaving untold tons of waste biomass—and a significant number of jobs tied to the collection, transport and preparation of this material—in limbo.
