Great ideas and glaring omissions: Analyzing BCG’s California climate report
Although California has made significant climate progress, there is growing evidence of implementation barriers such as financing, procurement and permitting bottlenecks that are slowing clean energy deployment. This is the focus of a recent report by Boston Consulting Group (BCG) – developed in partnership with former Governor Newsom advisor and state energy czar Ana Matosantos – which details a series of policy recommendations to overcome these barriers and keep the state on track towards in 2030 and 2045 climate goals.
While the BCG report identifies multiple important potential reforms, its exclusive focus on investor-owned utilities (IOUs) neglects some key opportunities. In this blog we summarize the report recommendations and highlight three overlooked policies, including: the role of IOUs in slowing transmission deployment and ideas to overcome this delay; how increasing competition for transmission can increase speed and reduce ratepayer costs; and how alternative financing and deployment models such as public-private partnerships may be more effective for facilitating rapid and low-cost clean energy infrastructure delivery in California.
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For all of its progress, California still faces significant hurdles to meeting its climate goals. A growing list of clean energy implementation barriers, including permitting delays, financing hurdles, material shortages, worker shortages, public opposition to projects, environmental opposition to certain clean technologies, and similar, threaten to undermine the state’s 2030 and 2045 targets.
These emerging challenges are not limited to California. Just last month, New York and Colorado acknowledged that they were likely to fall short of key climate goals. Across the EU and UK, climate policies are being undone by the messy and complex reality of overhauling energy systems.
This need to enable deployment is a key message in Boston Consulting Group’s (BCG’s) recent report: Unlocking California’s Climate Ambitions. In a detailed assessment, the report identifies current barriers and proposes a comprehensive set of reforms to increase the pace and scale of clean electricity, clean fuels, carbon capture and associated infrastructure deployment.
Although the study outlines a number of excellent policy ideas, it overlooks key opportunities that could be influential for driving faster and lower-cost clean energy development. Here we summarize the main findings from BCG’s study as well as identify these missed opportunities.
Summary of BCG report
The BCG report outlines four key barriers to clean energy deployment in California, including:
#1: Current electric planning processes are inconsistent across agencies, not granular enough and not conducted over long enough time frames, and related cost recovery processes are not flexible enough, to deliver new renewables and transmission consistent with the state’s goals;
#2: Insufficient support for clean firm technologies, notably hydrogen combustion in turbines and natural gas with carbon capture and storage (CCS);
#3: Lack of supportive policies for clean fuels and carbon management as well as an unclear cost recovery model for the development of associated infrastructure; and
#4: Complex siting and permitting processes for clean energy projects, including primarily lengthy state agency review processes and overly complex environmental document requirements.
BCG argues that a failure to address these barriers will increase energy costs, reduce grid reliability and ultimately undermine the state’s climate goals. The report then outlines three key solutions, each comprised of multiple components, to address the above constraints:
#1: Develop an integrated statewide plan leveraging existing planning processes that spans the energy value chain, including electrons and molecules, to deliver on the energy transition.
Key recommendations include: extending the electric planning time horizon across agencies out to 2045; specific ideas to improve load (CEC) and resource (CPUC) forecast accuracy and coordination; ensuring all planning is aligned with SB 100; developing a new carbon and clean fuels blueprint and infrastructure plan.
#2: Eliminate permitting, investment, and procurement bottlenecks to accelerate clean infrastructure deployment.
Key recommendations include: expand opt-in centralized permitting (AB 205) to include transmission; establish designated clean energy zones; increase use of programmatic permitting; establish more flexible and rapid cost recovery for grid investments (i.e., if projects meet certain criteria can get automatic approval); establish supportive policies and cost recovery (ratemaking) for fuels and carbon infrastructure; expand DWR central procurement to include clean firm options.
#3: Leverage new sources and structures to equitably fund the clean energy transition.
Key recommendations include: remove specific costs from customer bills (CARE, FERA); establish a continuous appropriation from Greenhouse Gas Reduction Fund; adopt strategies to reduce near-term rate impacts (fixed charges, securitization); repurpose infrastructure and expand use of new grid-enhancing technologies.
Missed opportunities
The BCG report is an excellent resource that identifies multiple important policy ideas including the various improvements to electric planning, developing new fuels and carbon plans, siting and permitting reforms, and dedicating a portion of GGRF to grid infrastructure. However, there is an emphasis on expanding and streamlining current IOU cost recovery processes when it is unclear that this would be the fastest and lowest-cost approach to enabling new infrastructure. Additionally, there are other policies not mentioned in the report that would also be effective at driving clean energy deployment.
We outline three key missed opportunities below.
The first is the role of incumbent IOUs in slowing permitting and project approvals. The BCG report emphasizes the state’s lengthy and complex environmental review process but fails to mention that developer delay in submitting permits is similarly, and in some cases more, problematic (Fig. 1). A reform opportunity could include requiring developers to submit permits within a certain time period (or otherwise face penalties or relinquish the project to competitive bid), or providing an incentive that faster submission would then enable access to expedited environmental review.
Figure 1. This diagram shows how Pre-Application Planning (blue boxes), the period where an IOU has been awarded a transmission project from the CAISO TPP but is yet to submit permits to the CPUC, takes roughly the same amount of time as the CPUC’s permitting and environmental review process. Source: CPUC PAO (2023).
The second is the opportunity for competitive solicitation to lower ratepayer costs and increase speed of deployment. In a recent study The Brattle Group found opening transmission projects up to competitive bid, as opposed to automatically awarding them to IOUs, could reduce costs by 20-30%. On a $1 billion project, this equates to $200-300 million in savings. CATF separately found that third party developers tended to submit permit applications faster than IOUs. Yet between 2013-17, less than 7% of California transmission projects were subject to competitive bid. Other regions including the Southwest Power Pool and New York ISO subject many more projects to competitive bid. California could reduce ratepayer costs and increase speed by subjecting more transmission projects to competition.
The third is potential for alternative financing and development models to deliver clean energy infrastructure. The BCG report emphasizes the role of existing financing and cost recovery processes, whereby IOUs finance and develop infrastructure and pass these costs on to ratepayers. But there is growing evidence that alternative models, notably public financing of infrastructure coupled with a public-private partnership (“PPP”) development model, could generate significant savings for ratepayers. [A forthcoming report from CSG and CATF estimates that a public financing strategy could reduce transmission costs by up to 57%, or tens of billions of dollars, over the next two decades.] In the case of carbon, given the majority of this infrastructure (75%) is anticipated to support direct air capture and biomass carbon removal it is unclear whether it is appropriate to rate base CO2 pipeline investments. A broader assessment of options, such as those considered in the UK, seems warranted.
For more information on public financing and competitive solicitation, see CSG’s previous transmission analysis. For more information on carbon deployment models, see CSG’s previous carbon removal analysis and this briefing pack from the UK’s Department of Energy Security and Net-Zero.
Conclusion
It is uncommon to find a detailed resource that identifies clear policy recommendations for multiple technologies. The BCG report does that and is a valuable resource. However, it does omit some key policy opportunities that are likely to be less favored by incumbent investor-owned utilities. We highlight some of these in this blog, including the role of IOUs in delaying the transmission development process, the opportunity to increase the use of competitive solicitation to lower ratepayer costs as well as alternative potential financing and development models to deliver clean energy infrastructure at a pace and scale consistent with the state’s climate goals.
For more information, please contact Sam Uden (sam@csgcalifornia.com).
