Community Choice
Energy Cluster
Meeting Summary
San Francisco
March 25, 2005

Leaders from the energy industry met in San Francisco City Hall on Friday, March 25, 2005 to learn about San Francisco’s Energy Independence Ordinance and the renewable energy growth potential emerging in California with Community Choice Aggre-gation. The leaders also explored the feasibility of launching an energy industry cluster to meet the emerging challenge.

The meeting was convened by San Francisco Supervisor Tom Ammiano and facilitated by Paul Fenn (Local Power) and Dr. Eric Hansen (Economic Transformations Group).

Paul Fenn, Founder and Director of Local Power, authored San Francisco’s historic Energy Independence Ordinance and San Francisco’s “Solar Bond” or “H Bond” authority which together establish a model for implementing Community Choice Aggregation (CCA) in SF and 48 other California cities now interested in CCA.

Paul estimated that the 48 California cities now interested in implementing Community Choice Aggregation will generate $2 billion/year in revenue (starting in 2006), complemented by over $10 billion in capital spending on renewable energy projects in these California jurisdictions. Specifically, there are now 22 California CCA cities that have adopted 40% Renewables Portfolio Standard (RPS) goals.
 

The energy industry leaders who attended the meeting represent large electric service provi-ders, renewable energy producers, solar installers, wind turbine developers along with municipal bond specialists and experts from the wireless industry—all of whom see an  emerging market opportunity stemming from California’s cities movement toward Energy Independence and Community Choice Aggregation.

 

 The purpose of the initial planning meeting:

Ø      Understand the scope and opportunity of California’s renewable energy growth potential with Community Choice Aggregation

Ø      Assess how clustering can accelerate the   growth of a renewable energy industry

Ø      Develop the next steps for launching a Community Choice Energy Cluster

The demand for renewable electricity by California cities who like San Francisco are adopting or moving towards adopting Community Choice Aggregation is enormous—estimated at more than 17% of statewide energy delivery.  (see table below)

Community Choice Aggregation
What is CCA?
Paul Fenn
 

• Community Choice laws give cities and counties the right to bundle or aggregate their residential, business and governmental power needs into group buying contracts and put them out to bid in a long term contract with an energy supplier, aka ESP, Electric Service Provider.

• These group contracts marshal enough collective financial clout and resource blending to facilitate the largest mix of renewable energy and efficiency technologies at the lowest prices possible in their region.

• Cities determine a renewable portfolio standard (RPS) level above the state RPS.

• City Councils are authorized to approve an implementation plan, issue an RFP, select the provider, and issue H bonds.

• ESP designs, builds, operates, maintains and owns the facilities during power contract after which title transfers to CCA and/or CCA customers.

• CCA is the energy equivalent of cable TV or a city waste management franchise.

• States that are using Community Choice: Massachusetts, Ohio, New Jersey, Rhode Island, and California. Legislation is pending in Illinois and Maryland. Approximately 2 million custo-mers benefit from CCA nationwide, following the adoption of the first law in 1997.
 

Twenty–two California CCA cities have adopted 40% Renewables Portfolio Standard (RPS) goals. The most notable of these include:

 

·          LA County and CCA municipalities in LA County with 40% RPS Goal includes over 1 million residents, a larger market than San Francisco

·          San Diego County and CCA municipalities in San Diego County with 40% RPS Goal includes 750,000 residents, also a larger market than San Francisco

·          Alameda County CCA municipalities with 40% RPS Goal include 600,000 residents, a market approximately as large as San Francisco

·          Marin County CCA municipalities with 40% RPS Goal include 247,289 residents

·          Contra Costa County CCA municipalities with 40% RPS Goal: 100,000 residents

·          Solano County CCA municipalities with 40% RPS Goal: 117,000 residents

San Francisco Supervisor Tom Ammiano provided an overview of the current status of San Francisco’s implementation of its Energy Independence Ordinance. San Francisco is in the process of developing the implementation plan and will issue the RFP to electric service providers (ESPs) later this year. He strongly supported the industry’s efforts to create a cluster

 Question & Answer Session

Clustering the Energy Cluster

Dr. Eric Hansen introduced the concepts of clusters and the processes of economic clus-tering—a proven methodology for harnessing the leadership and talent of emerging industries and developing breakthrough strategies, promoting networking and alliances, and motivating leaders to take collaborative actions that benefit companies and the industry at large. He described how clustering helped grow the optics in Arizona, computers and biotech in Silicon Valley, aquaculture in Mexico, and IT in Austin, Texas.

Industry Clusters
Industry clusters are geographic concentrations of similar industries that share technical, skill, financial, or distributional advantages. Well-functioning industry clusters cultivate specia-lized buyer-supplier relationships and depen-dencies. Companies compete intensely while at the same time learning from each other about changing markets and technologies through informal communications and collaborative practices.
Within strong clusters, firms form strategic alliances with suppliers and even competitors. They also draw on a common labor pool, which serves to diffuse new knowledge and skills rapidly throughout the cluster. Firms, in turn, form strong links with local institutions, particularly universities and research insti-tutions.
 

The purpose of “Clustering” energy industry players around the Community Choice oppor-tunities in California (starting with San Francisco) is to accelerate the strategic alignment, networking, collaboration, and competitiveness among energy companies in responding to these opportunities. The re-newable energy industry remains emergent and highly fragmented—and the technical and financial processes for providing electricity to CCA cities are yet to be worked out. Clustering significantly accelerates the process of information flow, networking, strategic allian-ce building, attracting venture capital, and fostering innovation. Clustering generates a strong shared vision and united public voice for an emerging industry.

Key Issues
A number of key issues were raised by leaders at the meeting about the orientation and scope of the clustering process:
• Is the cluster geographically limited to San Francisco, Northern California, or the entire state?

• Will the cluster focus on the current San Francisco opportunity or include the other cities that will ultimately become part of the Community Choice “market”?

Key Conclusions

1. Clustering Makes Sense—Leaders at the meeting strongly endorsed the goal of bringing together a diverse set of energy industry players in a clustering process. There is a high need for greater coherence among industry players in response to Community Choice Aggregation opportunities. Clustering will accelerate the ability of a fragmented industry to network and build strategic alliances capable of responding to the new demand for renewable energy by SF and other California cities.

2. Involve a Diverse Set of Energy-related Industries—It was widely agreed that it is important to engage a diverse range of players from the energy industry in the clustering process: e.g. conventional energy providers, renewable energy providers, aggregators, producers, installers, R&D, Universities, etc.

3. Initial Focus on San Francisco CCA Opportunity—Industry leaders’ most imme-diate interest is in the SF CCA opportunity.

4. Use Clustering Process to Coordinate Industry Input to Implementation Plans
—Leaders agreed that the clustering process offers a neutral venue for industry leaders to offer input and feedback to San Francisco and other cities as cities adopt Implementation Plans and structure RFPs.

5. Funding Strategy for Clustering to focus on Company Sponsorships—large industry players interested in financially supporting the clustering process are needed during the initial phase. In addition to large energy companies and energy venture capital companies, other energy industry associations need to be engaged.

Feedback from Leaders at the Meeting

Leaders were asked for their feedback at the conclusion of the meeting. Overall, the feedback shows
very high level of interest in Community Choice and in participation in the proposed Cluster.

• All were either interested or very interested in learning more about Community Choice Aggregation, including the bond and funding for CCA.

• 100% of the leaders were personally highly interested or interested in participating in the proposed Community Choice Energy Cluster.

• More than 75% of leaders believed their company would want to participate in the cluster.

• More than half of the participants said they would take on a leadership position in the cluster if they had the support of their company

• The leaders emphasized that the most important potential outcomes of the clustering process include:

o Growing human capital—by identifying leaders and champions

o Attracting investment capital to an emerging industry

o Fostering strategic partnerships and alliances

For more information, contact:
Paul Fenn. Local Power,
510.451.1727, paulfenn@local.org

Eric Hansen, Economic Transformations Group.
415.602.9007, Eric@ETGNow.com