New Law Creates Central Procurement Mechanism to Enable Offshore Wind Development

Energy Law  

October 12, 2023

Governor Newsom, on October 7, 2023, signed AB 1373 into law. The bill authorizes the Department of Water Resources (DWR) to serve as a central procurement entity to procure diverse clean energy resources in order to help the state meet its clean energy and reliability goals. AB 1373 could play a pivotal role in assisting development of California’s first offshore wind farms.

The rationale behind creating a central procurement entity is that some long-lead time electric generation resources, like offshore wind, are too costly and too risky for any single provider of electricity (load serving entity (LSE)), or small collection of LSEs, to take on. A centralized procurement mechanism aggregates the buying power and dilutes the development risk associated with such resources, spreading costs and risks across all LSE customers.

Under AB 1373, the California Public Utilities Commission (CPUC) can request DWR to act as a centralized procurement entity if the CPUC’s energy planning efforts show that certain “eligible energy resources” are needed to meet the state’s clean energy goals, but the state‘s existing LSEs are unable to procure them. “Eligible energy resources” include those new resources that (1) support the State’s clean energy goals without increasing the State’s dependence on any fossil fuel-based resource; (2) are not under contract at sufficient levels; (3) have a construction and development lead time of at least five years; (4) do not generate electricity using fossil fuels or fuels derived from fossil fuels; and (5) do not use combustion to generate electricity (unless ancillary and necessary to facilitate geothermal electricity generation).

The CPUC, in consultation with the California Energy Commission and the California Independent System Operator, must determine if there is a need for procurement of eligible energy resources by September 1, 2024. If the CPUC determines that there is a need, it must, within six months, request that DWR exercise its central procurement function to procure eligible energy resources identified by the CPUC. If DWR obliges this request, it can exercise its central procurement function to conduct one or more competitive solicitations and enter into contracts to procure eligible energy resources.

Industry leaders believe that the central procurement mechanism created by AB 1373 will reduce project development risks and allow offshore wind development to move forward in California.