BILL ANALYSIS SB 82 Page 1 SENATE THIRD READING SB 82 (Hancock) As Amended September 4, 2009 Majority vote SENATE VOTE : Vote not relevant SUMMARY : Requires the Controller to establish a Solar School Subaccount in the State Energy Conservation Assistance Account to be used by the California Energy Commission (CEC) for loans to schools for energy efficiency projects and for the installation of solar energy systems. EXISTING LAW : 1)Creates the California Solar Initiative (CSI), SB 1 (Murray), Chapter 132, Statutes of 2006, which provides $3.3 billion in declining rebates for all applicants who install solar energy systems. The CSI provides schools a higher net-metering rate for energy generated. 2)Establishes the Energy Conservation Assistance Account (ECAA) to provide loans to schools, hospitals, public care institutions, and local government entities to finance energy conservation related projects. 3)Establishes the Local Jurisdiction Energy Assistance Account (LJEA) as a separate account within the General Fund as a depository for all money received from local jurisdictions from loan repayments, for energy project assistance. Permits the CEC to contract for project services including feasibility analyses, project design, field evaluation, and operation and training assistance. 4)Creates the Self Generation Incentive Program that provides $125 million annually for the installation of commercial-sized solar PV and wind systems. FISCAL EFFECT : Unknown COMMENTS : This bill may provide financial assistance for energy efficiency measures and to place solar panels on schools. 1)California Energy Commission Programs available for solar on schools: The state's energy policies over the past few years SB 82 Page 2 have endorsed retrofitting schools and providing financial assistance for the application of a portfolio of energy efficiency and self-generation measures, not exclusively a singular technology such as solar. For example, the ECAA provides loans for energy efficiency and conservation measures and requires the facility to pay the loan off using its savings derived from the energy efficiency applications. The payback is pretty quick for less-expensive measures that reduce energy consumption. These include replacing interior and exterior incandescent light bulbs with more efficient lamps, replacing mechanical thermostats with programmable thermostats, and installing or replacing other gadgets that automatically turn a system off when not in use. Some of the larger more expensive items require a longer payback period, such as upgrading heating ventilation and air conditioning (HVAC) systems, installing co-generation, combined heat and power systems that generate electricity and use the waste heat to preheat swimming pool water, and other large capital investments. Solar projects would also take a little longer to pay back due to the large initial capital outlay. Of the four examples provided on the CEC internet site, the average payback period is a little over 6 years. Because taxpayers pay for schools and public buildings, policies have encouraged the reduction of energy usage at schools and public buildings. In fact, All Californians benefit by reducing the amount of energy these facilities use, and promoting their zero-net energy usage. 2)California Public Utilities Commission (PUC) programs for solar on schools: The PUC requires the investor-owned utilities (IOUs), which serve about two-thirds of California's electricity customers, to collect a public goods surcharge to fund energy efficiency; renewable energy; and, research, development, and demonstration programs from January 1, 2002, January 1, 2012. The surcharge is a nonbypassable element of the local distribution service and is collected on the basis of usage. The Renewable energy portion was separated into three subaccounts: existing, new, and emerging energy technology systems. The accounts were administered by the CEC, and the solar programs were funded at about $147 million per year from SB 82 Page 3 the "new" account. In 2006, SB 1 created the CSI which obviated the need for a duplicative and much smaller CEC program. The funds from the "new" account were transferred to the PUC to compensate the utilities for above-market costs for renewable energy contracts. 3)The CSI program available for solar on schools : The CSI provides $3.3 billion over a 10-year period. The goal of the CSI is to facilitate a self-sustaining solar energy market by encouraging private-sector installations and precluding the utilities from dominating the funds. The CSI is available to all customers, including schools and nonprofits. All schools within the investor-owned utility territory are eligible to apply for these funds. The CSI directs the municipal utilities to offer similar programs in their own districts. The CSI provides performance based incentives that reward systems that generate the most megawatts of power. At least 50% of CSI rebate funds are expended on performance based incentives. AB 1027 seeks to encourage the greatest number of installations, "while effectively generating electricity." For solar panels to provide a quicker pay-back period, the CSI provides for a "net-metering" allowance that permits an installer to sell unused power back to the utility. The CSI establishes a net-metering program whereby electric customers receive credits to their monthly electricity bills for up to 12 months for producing and placing electricity on the grid via solar PV. Schools are provided a greater credit per kilowatt hour to compensate the school for being ineligible for the federal tax credits allowed for non-municipal solar installers. 4)The California Alternative Energy and Advanced Transportation Financing Authority financial assistance for solar on schools: Last year, State Treasurer Bill Lockyer sponsored SB 1754 (Kehoe) Chapter 543, Statutes of 2008, to enable the Financing Authority to reduce the cost of building on-site renewable energy through the use of prepayment bonds. The State Treasurer stated that he would like to substantially increase the use of renewable energy by state agencies, as well as public schools, through power purchase agreements (PPAs) and prepayment bonds. SB 82 Page 4 PPAs can be used by public and private entities to finance the construction of onsite renewable power generation. Under a typical PPA, a private third party finances the up-front costs of building the renewable energy generation facility through a loan provided by a bank. The bank provides a loan to cover the up-front financing for the project, and the energy company will build and operate the renewable facility that provides electricity to the building owner. The building owner, in turn, promises to make specified payments for that power for a certain number of years which pays off the loan, as well as creates a profit stream for the energy company. Recently, schools have started using PPAs for the installation of solar photovoltaic panels under the California Solar Initiative. The private third party can build the power generation more economically than a public entity because it can take advantage of federal tax credits, depreciation and other incentives for businesses that don't extend to public entities. By using bonds to finance the solar energy projects, the costs of capital are cheaper than a loan from a private bank. These cost savings could lower the overall costs of a private developer selling electricity to the school, which would enable the school or public building to achieve a lower monthly energy bill. 5)Other state benefits provided for solar on schools: A school with solar generation is eligible for net-metering. Net-metering allows excess energy generated to be sold back to the utility at the customer's retail rate, which is substantially higher than the wholesale rate at which the utility normally procures electricity. Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083 FN: 0002994