Revisiting the 'Buy versus Build' decision for publicly owned utilities in California considering wind and geothermal resources

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The last two decades have seen a dramatic increase in the market share of independent, non-utility generators (NUGs) relative to traditional, utility-owned generation assets. Accordingly, the ''buy versus build'' decision facing utilities--i.e., whether a utility should sign a power purchase agreement (PPA) with a NUG, or develop and own the generation capacity itself--has gained prominence in the industry. Specific debates have revolved around the relative advantages of, the types of risk created by, and the regulatory incentives favoring each approach. Very little of this discussion has focused specifically on publicly owned electric utilities, however, perhaps due to the belief that ... continued below

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24 pages

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Bolinger, Mark; Wiser, Ryan & Golove, William October 1, 2001.

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Description

The last two decades have seen a dramatic increase in the market share of independent, non-utility generators (NUGs) relative to traditional, utility-owned generation assets. Accordingly, the ''buy versus build'' decision facing utilities--i.e., whether a utility should sign a power purchase agreement (PPA) with a NUG, or develop and own the generation capacity itself--has gained prominence in the industry. Specific debates have revolved around the relative advantages of, the types of risk created by, and the regulatory incentives favoring each approach. Very little of this discussion has focused specifically on publicly owned electric utilities, however, perhaps due to the belief that public power's tax-free financing status leaves little space in which NUGs can compete. With few exceptions (Wiser and Kahn 1996), renewable sources of supply have received similarly scant attention in the buy versus build debate. In this report, we revive the ''buy versus build'' debate and apply it to the two sectors of the industry traditionally underrepresented in the discussion: publicly owned utilities and renewable energy. Contrary to historical treatment, this debate is quite relevant to public utilities and renewables because publicly owned utilities are able to take advantage of some renewable energy incentives only in a ''buy'' situation, while others accrue only in a ''build'' situation. In particular, possible economic advantages of public utility ownership include: (1) the tax-free status of publicly owned utilities and the availability of low-cost debt, and (2) the renewable energy production incentive (REPI) available only to publicly owned utilities. Possible economic advantages to entering into a PPA with a NUG include: (1) the availability of federal tax credits and accelerated depreciation schedules for certain forms of NUG-owned renewable energy, and (2) the California state production incentives available to NUGs but not utilities. This report looks at a publicly owned utility's decision to buy or build new renewable energy capacity--specifically wind or geothermal power--in California. To examine the economic aspects of this decision, we modified and updated a 20-year financial cash-flow model to assess the levelized cost of electricity under four supply options: (1) public utility ownership of new geothermal capacity, (2) public utility ownership of new wind capacity, (3) a PPA for new geothermal capacity, and (4) a PPA for new wind capacity.

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24 pages

Notes

OSTI as DE00789168

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  • Other Information: PBD: 1 Oct 2001

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  • Report No.: LBNL--48831
  • Grant Number: AC03-76SF00098
  • DOI: 10.2172/789168 | External Link
  • Office of Scientific & Technical Information Report Number: 789168
  • Archival Resource Key: ark:/67531/metadc715477

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  • October 1, 2001

Added to The UNT Digital Library

  • Sept. 29, 2015, 5:31 a.m.

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  • Sept. 1, 2016, 6:53 p.m.

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Bolinger, Mark; Wiser, Ryan & Golove, William. Revisiting the 'Buy versus Build' decision for publicly owned utilities in California considering wind and geothermal resources, report, October 1, 2001; Berkeley, California. (digital.library.unt.edu/ark:/67531/metadc715477/: accessed August 18, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.