The bankruptcy of the Californian utility Pacific Gas and Electric (PG&E) could set back renewables years, if its requests to a local court are granted. It wants to renegotiate previously secure power purchasing deals, based on today’s pricing, rather than contracts struck 20 years ago.
This creates a cost difference for PG&E of something like $30 per MWh, compared with almost $200 that its oldest deals were placed for. This single step would make entire portfolios of renewables unprofitable and may lead to a series of domino-like bankruptcies across the US.
This would be hugely unfair given that it is not the renewable contracts which put PG&E in trouble, but its shoddy electrical connections which have been blamed for the forest fires that have brought legal actions where the payouts might be as high as $30 billion.
The thing about a US bankruptcy court is that it protects against all creditors, and while coal and gas deals may also be attacked, they are much closer to the same prices they had years ago, and are being de-emphasized throughout California anyway.
So far, all that has been decided is that it is the bankruptcy court and not the Federal Energy Regulatory Commission (FERC) which has final jurisdiction close to $42 billion in power purchase agreements. The renewable contracts would suffer the most, because their incredible cost cuts over the past 20 years.
Observers point to the renewable energy units of Consolidated Edison, Berkshire Hathaway and NextEra Energy, which each seem at significant risk. Presumably a court would not force them to operate at a loss, and it might allow them to sell the electricity to the highest bidder, but it would be unlikely to be any higher than $30 per MWh.
US financial analyst are now cutting forecasts for each of the companies doing large chunks of business with PG&E. Already some of the projects have had their credit ratings cut to junk status by credit agencies.
But if the judge goes ahead, they may decimate old solar contracts and this might save PG&E as much as $2 billion a year, which on its own would pay for many of its legal claims. At that point would any of these players be keen to cut a new renewables deal with PG&E? Probably not, until its wildfires record was dramatically improved, which might be in a couple of years. And if no renewable groups want to sell to PG&E, how would California manage to reach 100% renewable energy by 2045?
Given the huge amount of future renewables which this involves, a bad decision by one judge will potentially single-handedly prevent California from being the leading renewables state in the US.
Of course, there is also the issue that a variety of state laws were passed to force the uptake of renewables in the first place. And can a bankruptcy court overrule those as well? Possibly – this is going to be a fraught judgement, and we would hope a compromise in the public interest if possible for California.