CalPERS has faith in imperiled energy status quo

Is the California Public Employees’ Retirement System about to make another big mistake with a mistimed investment strategy, this time in the industrial solar sector?

Beginning 13 years ago, CalPERS invested heavily in real estate at the height of the housing bubble. From 2003 to 2006, the pension fund committed $46 billion to real estate investments, including ambitious projects in New York City and Sacramento that eventually went haywire. The result: In the year ending Sept. 30, 2009, CalPERS lost a stunning 49 percent of the value of its real estate portfolio. A November story in the Los Angeles Times depicted the nation’s largest pension system as only now digging its way out its disastrous investment choices in real estate.

Last week, CalPERS announced it would buy up to a 25 percent ownership stake in the 550-megawatt Desert Sunlight solar project near Joshua Tree National Park in eastern Riverside County, which was until recently the world’s largest solar plant.

CalPERS did so despite taking a bath on its clean energy investments in the 2014-15 fiscal year. However, analysts said that year was an outlier because of the abundance of cheap oil distorting energy markets. Meanwhile, there are many reasons investors are attracted to major solar projects, starting with the fact that state laws require utilities to buy steadily more renewable energy and that solar power technology used in large projects steadily grows more advanced.

Utility think tank warns of ‘potential obsolescence’

But the downside is that making such investments amounts to betting that the status quo of electricity distribution won’t change much in coming years. Among those who question that premise are those with the most to lose from a change in the status quo: the nation’s utility companies. As solar power technology steadily grows more advanced on a small-scale as well as an industrial scale, the huge surge in solar panels on homes and businesses has led a think tank financed by energy utilities to question to issue a harsh warning:

If demand for residential solar continues to soar, traditional utilities could soon face serious problems, from “declining retail sales” and a “loss of customers” to “potential obsolescence,” according to a presentation prepared for the group. “Industry must prepare an action plan to address the challenges,” it said.

That’s from a Washington Post story last year headlined “Utilities wage campaign against rooftop solar.”

A September report in Forbes magazine included an interview with John Berger, CEO of Houston-based solar company Sunnova, who said utilities have plenty to worry about. “Residential solar has already become conventional energy,” Berger told Forbes. “The future will be baseload natural gas and residential solar. The coming solar boom will be just as big and important as the shale gas boom.”

Meanwhile, at least eight battery technologies offer the promise of storing solar power by day for use at night — the biggest obstacle to rooftop power largely supplanting the conventional electricity grid.

CalPERS’ investment in the Riverside County project may look safe now. But in coming years, it may look like a “solar bubble” mistake as small-scale solar takes off.