* Uncertain climate in California hurts investment
* Votes could change California's rep as renewables leader
By Sarah McBride
LOS ANGELES, Sept 22 (Reuters) - A regulation that would increase California's renewable energy target to a third of state electricity looks set to win approval on Thursday, but few people in the renewable energy business are cheering.
That's because they question how long the regulation will stay on the books.
Throw in a dead heat in the governor's race and a ballot initiative that could undo a key alternative energy law, and it adds up to a very cloudy outlook in California, the nation's leading alternative-energy market.
With national climate change legislation on hold and scant hopes for federal action on renewable energy targets this year, that is bad news for the U.S. renewables industry.
"California has become more risky," said Julie Blunden, vice president at SunPower Corp <SPWRA.O>, a manufacturer of solar cells and panels and one of the nation's largest solar power companies.
As a result, the company is rethinking its investment strategy, such as where in the country SunPower should add facilities and jobs, she said.
The regulation to be voted on Thursday by the California Air Resources Board is a prime example. If it passes as expected, it would increase the state's target for renewable energy to 33 percent of electricity in 2020, from 20 percent by 2010. The current target of 20 percent has built-in flexibility which allows for full compliance by 2013.
Under the 20 percent target, "billions of dollars have been going into California," said Jan Smutny-Jones, executive director of the Independent Energy Producers Association, a trade group. "To sustain that in the long term, it's important to have a 33 percent law so people know California is a good place to invest for renewable energy."
But the new regulation will not be a law in and of itself -- legislators failed to pass such a measure in the session, which just ended.
The 33 percent target expected on Thursday will be set under a broad 2006 climate change law, called AB 32, and the catch is that the law allows the governor to put measures on hold in the event of "significant economic harm."
GOVERNOR'S RACE A KEY FOR SOLAR
That is why renewable energy companies are closely watching the state's gubernatorial race, between Democrat Jerry Brown and Republican Meg Whitman.
Both have said they support a 33 percent goal for renewable energy, but Whitman has said she plans to suspend parts of the 2006 law for a year to cut regulations, undermining her credentials with the alternative energy industry.
Attorney General Brown, by contrast, would support the 2006 law, and in his previous terms as governor, from 1975-1983, showed a strong track record on environmental issues.
There is yet another threat to renewable power plans.
On Nov. 2, voters will consider a proposition that goes one step further and puts the entire 2006 law on hold until the current double-digit state unemployment rate drops to 5.5 percent or less for four quarters, a process likely to take years.
So far, polls show the initiative, known as Proposition 23, has little chance of passing. But simply having it on the ballot contributes to the uncertain climate.
"It has a chilling effect on business," says Neil Auerbach, managing partner at Hudson Clean Energy, a private equity firm with several hundred million dollars invested in California.
Brown says he opposes Proposition 23, while Whitman told a radio station in August that she was leaning against it and a spokeswoman said she would release her final position on that and other initiatives later this week or early next.
Meanwhile, alternative energy companies are "confused and waiting," said Rhonda Mills, Southern California program director at the Center for Energy Efficiency and Renewable Technologies.
For companies in an industry where projects can cost $1 billion or more, if "you're not sure if the policy will still be in place that helped you with your financing, your project plans, you're very nervous right now." (Reporting by Sarah McBride, editing by Peter Henderson and Matthew Lewis) (sarah.mcbride@thomsonreuters.com; + 1 213 955 6776)
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