BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE ALEX PADILLA, CHAIR - Blumenfield Hearing Date: June 29, 2010 A As Amended: June 17, 2010 FISCAL B 2 7 2 4 DESCRIPTION Current law requires the Department of General Services (DGS) to identify state buildings where it is feasible to produce onsite electrical generation or reduce the level of peak demand electricity consumption using alternative energy, storage technologies, or cogeneration. Current Executive Order requires that state agencies, departments, and other entities under the direct executive authority of the Governor cooperate in taking measures to reduce grid-based energy purchases for state-owned buildings by 20% by 2015, through cost-effective efficiency measures and distributed generation technologies. Current law requires investor-owned and publicly owned utilities (IOUs and POUs) to develop a standard tariff (aka feed-in-tariff or FIT) for all retail customers to compensate those customers for excess renewable energy produced up to a maximum of 3 megawatts (MW). Statewide participation is capped at 1,500 MW which is split evenly between the territories of the large IOUs and POUs and then proportionally between the utilities. The tariff price is based on the market price referent plus renewable and other attributes. This bill requires a state agency participating in a FIT to consider the total annual amount of kilowatt hours exported to the grid in determining whether the state agency has achieved the policy goals and objectives established by law and executive order. Current law establishes the California Solar Initiative (CSI), a $3.3 billion program to subsidize the installation of photovoltaic (PV) systems for customers of the state's IOUs and POUs and caps the incentives awarded per customer to installations sized at 1 MW. This bill expands CSI eligibility for any state agency for incentive payments for facilities sized up to 5 MW with a cap of 26 MW. BACKGROUND In 2001, at the height of the energy crisis the Legislature directed the DGS to identify and retrofit state buildings to reduce energy consumption or produce its own electrical generation. (ABX1 29, Kehoe, Chapter 8, Statutes of 2001-02 1st Ex. Session) In 2004 the Governor issued a Green Building Executive Order (S-20-04) directing state agencies to implement a variety of actions to reduce electricity usage in state buildings by 20 percent by 2015. These actions include the retro-commissioning of existing state buildings to ensure that energy intensive systems are operating optimally and the implementation of cost-effective retrofits to achieve even higher energy savings. The order also directed agencies to reduce grid-based energy usage in its buildings by 20 percent by 2015. The DGS, as the state's real estate builder, planner, and manager, is spearheading the effort in partnership with the Green Action Team, an inter-agency group chaired by the Secretary of the State and Consumer Services Agency. Solar Generation on State Buildings - California state agencies are using on-site renewable energy at a growing number of facilities through the use of power purchase agreements (PPAs). Under these public-private partnerships, solar service providers finance, build and operate the systems, while the customers pay only for the electricity at prices equal to, or less than, utility tariff rates. The PPA receives CSI rebates and federal tax credits of 30%. According to the DGS Renewable Energy Directory, 46 state buildings have installed 13 MW of solar generation ranging in size from 5 kilowatts to 1.6 MW. More than 8 MW is in the planning stages at 17 state sites. California Solar Initiative (CSI) - Effective in 2007, the CSI calls for the installation of 3,000 megawatts (MW) of new, solar-produced electricity by 2016. Targeted expenditures under the CSI, funded by ratepayers, are $3.3 billion over ten years, distributed among three distinct program components: IOUs, $2.167 million/1940 MW; New Solar Homes Partnership, $400 million/360 MW; and POUs $784 million/700 MW. California now has over 736 MW of solar PV in the IOU territories at over 43,000 residential, commercial and governmental sites. This includes installed generation and pending applications. The POUs have installed 26 MW of generation at 7,712 sites and the NHSP reports 7.8 MW of solar PV at 3,002 sites. All CSI programs combined, California has approximately installed 770 MW of solar generation on the customer's side of the meter - 27% of goal. COMMENTS 1) Author's Purpose . State government facilities are required to reduce their grid based electricity purchases by 20% by 2017 and greenhouse gas (GHG) emissions to 1990 levels by 2020 under legislative and executive directives. While reducing consumption is a key strategy, energy efficiency in and of itself will not be sufficient to meet these reduction goals. Increasing use of renewable energy generation is among the accepted and encouraged practices to contribute to achieve these reductions. However, many state agencies do not have the necessary funding to implement renewable energy generating technologies. The state has successfully employed third party financing through a power purchase agreement at no cost to the state, but is limited in the size of the renewable energy generating system implemented under this public-private partnership, even if the state host facility has a larger demand and energy usage profile. Current law limits the state in maximizing renewable electricity generation potential at existing state facilities that are large consumers of electricity and have sufficient real estate for large solar photovoltaic energy generating systems. Third party financers are willing to finance solar PV systems only to the extent that there are available state solar incentives. In this case, the limit is 1 megawatt, resulting in underserved load that is not conducive to achieving the reduction goals. 2) State's Solar Plans . The DGS wants to utilize the FIT previously authorized by the Legislature to increase the amount of solar generation at state facilities. They note that some properties such as prisons have very high electrical load and a great deal of roof and ground space - enough to accommodate the significant footprint of large solar arrays of up to 5 MW. Recent PPAs secured by the state have reduced electricity costs for those participating facilities by 20% to 40% over traditional electric service. The solar installations are generally less than 1 MW on an individual basis allowing the solar contractor to secure a rebate for the full size of the installation. The DGS reports however that the state cannot secure a PPA for these large installations without additional incentive payments from the CSI program and so they are proposing to allow the state to receive rebates for installations sized up to 5MW. However, the DGS bases this report on anecdotal information and has not attempted to take a large project out to bid. Although a larger project may receive a proportionally smaller rebate due to the 1 MW CSI cap, that is not a legal barrier to the agreement. The inference is that the project would not produce enough savings to the state in its electric rates without the CSI rebate up to 5 MW. Although the PPA can realize a savings as high as 40%, there appears to be enough room in the savings to accommodate a proportional reduction in the CSI rebate. Additionally, the cost of solar has come down significantly in the past few years and as much as 50% in the last year alone for installations in the range of 5 MW. 3) Ratepayer Impact - Inequity . This bill proposes that state agencies be given a special preference under the CSI and increase rebate eligibility up to 5 MW rather than the current cap of 1 MW. The author reports that this inequity is justified because taxpayers would benefit from the reduced electrical rates as a result of the project. However the CPUC writes in opposition to the bill noting that the current program is "customer neutral and does not include set asides for specific customer classes." They opine that if the state is permitted to go to 5MW then all other customers should be as well. The CSI program was not funded nor were the authorized facilities sized to a level that will serve all customers' needs. The program was provided with a limited amount of funding, for a limited time, with a limit on capacity to jump-start the solar industry and start to introduce customers to self-generation. The CPUC reports that the CSI program has seen an unprecedented level of demand in March and April of this year with a total of 146 MW of reservations. The opine that "given the current demand level, there is reason to be extremely concerned that introducing 5MW projects at this stage in the program will allow a handful of large MW-sized projects to 'hold a reservation, and perhaps no ultimately get developed. If so, many subsequently smaller projects could be forced into lower-step incentive reservations." 4) Author's Amendments . The author intends to amend the bill to strike page 4, lines 17 to 22. 5) Technical Amendments . The definition of state agency in this measure should be consistent with current law that requires DGS to identify and achieve energy retrofits and self-generation for state under Government Code Section 14710 et seq. ASSEMBLY VOTES Assembly Utilities & Commerce 10-0 Assembly Natural Resources 8-0 Assembly Appropriations 17-0 Assembly Floor 73-0 POSITIONS Support: None on file Oppose: California Public Utilities Commission (unless amended) Kellie Smith AB 2724 Analysis Hearing Date: June 29, 2010