Good News: Renewable Energy Potential in the North State

by David Gallo, staff economist for the Center for Economic Development and faculty emeritus, Department of Economics

In a report released on Jan. 14 and produced by the Center for Economic Development, we concluded that Northern California has the potential to make a major contribution to achieving the state’s renewable energy goals. The report was funded by the Department of Labor and the affiliated organization Workforce Innovation and Regional Economic Development (WIRED), with the participation of the Northern Rural Training and Employment Consortium (NRTEC).

The 20-county Northern California area (also called Upstate California) is a significant producer of electricity from renewable resources. If it were a separate utility service area, subject to the state Renewables Portfolio Standard, it would have already exceeded the requirements imposed that required each utitility company to generate at least 20 percent of its electricity from renewable resources by 2010, and the stricter, proposed 33 percent 2020 standard. As of 2006, the area generated an amount of electricity from renewable resources equivalent to 43 percent of area consumption.

With 43 percent of the area’s electricity demand offset with generation from renewable energy sources, Upstate California far exceeds the 11.4 percent achieved for PG&E’s service area as a whole. The area’s current generation from renewable energy is less than 25 percent of undeveloped potential. Even accounting for demand growth, development of 100 percent of Upstate California’s resources over the next 20 years would lead to renewable electricity generation equal to 92 percent of area electricity demand.

Renewable electricity generation resources in the Upstate area include geothermal, wind, small hydroelectric, biomass, and solar photovoltaic (PV). While the development of many of the available renewable resources is constrained by their geographical distribution and the availability of grid capacity, rooftop solar photovoltaic installations are not subject to these constraints and provide the majority of the untapped potential. This is particularly true in the northern valley where abundant sunshine makes the economics of solar PV attractive.

We defined full utilization of the area’s solar potential as the installation of (1) an average of one kilowatt of capacity on all existing homes, (2) utilization of one-half of the roof area of all non-residential structures, (3) and two and one-half kilowatts of capacity on all new single-family homes. While this may appear overly aggressive, all of the proposed energy development is cost-competitive. For example, a two-and-one-half kilowatt solar PV system on a new home, financed with a conventional 30-year mortgage would result in a decrease in the homeowner’s utility bill (based on present electricity rates) that is larger than the increase in the mortgage payment. Of course, any increase in future electricity rates would further enhance the economic advantage of solar PV installation.

We also determined that, in addition to the environmental benefits of reducing dependence on non-renewable energy resources, pursuit of renewable electricity development offers significant economic advantages for Upstate California. Based on a 20-year development period, construction of renewable electricity generation facilities would produce an annual impact on local business sales of over $2.7 billion. Those additional sales would increase annual area income by $1.6 billion and create over 23,000 new full- and part-time jobs.

The area impact of the plant operation phase would increase over the 20-year scenario as 5 percent of potential capacity is added annually. In the first year, local spending would be increased by $46.5 million, adding 364 jobs and $25.0 million to local income. Area spending, income, and employment would continue to grow, reaching levels of $930 million, $520 million, and 7,300 jobs, respectively, at the end of the 20th year.

We concluded that an aggressive program of renewable resource utilization would not only assist in meeting the statewide Renewables Portfolio Standard, but would also be a major driver of economic development in Northern California. At a time when the area’s economy is being forced to wean itself from excessive dependence on residential construction, construction of renewable electricity facilities can provide employment and income in the construction sector, and thereby can support the currently weakened local retail and service sectors.

—David Gallo