BILL ANALYSIS
SB 412
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Date of Hearing: July 6, 2009
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Nancy Skinner, Chair
SB 412 (Kehoe) - As Amended: May 28, 2009
SENATE VOTE : 37-0
SUBJECT : Self-generation incentive program
SUMMARY : Extends the Public Utilities Commission's
self-generation incentive program (SGIP) and expands
eligibility, currently limited to wind and fuel cell
technologies, by giving the PUC discretion to authorize
subsidies for technologies it determines support the state's
greenhouse gas (GHG) emission reduction goals.
EXISTING LAW :
1)Requires the PUC to administer the SGIP program until 2012 and
limits eligibility to fuel cell and wind technologies
beginning in 2008. Under the SGIP, utilities provide
ratepayer-funded rebates for distributed generation projects
up to five megawatts in size.
2)Requires the PUC to administer a separate program for solar
technologies pursuant to the California Solar Initiative.
3)Requires the Air Resources Board (ARB) to adopt a statewide
GHG emissions limit equivalent to 1990 levels by 2020 and
adopt regulations to achieve maximum technologically feasible
and cost-effective GHG emission reductions pursuant to the
California Global Warming Solutions Act (AB 32).
THIS BILL :
1)Replaces the authorization to the PUC to administer SGIP until
2012 with a requirement to collect funding through 2011 and
administer the program until all funds have been allocated.
2)Repeals provisions limiting eligibility to fuel cell and wind
technologies, and instead provides that eligibility is limited
to technologies the PUC determines support greenhouse gas
emission reduction goals pursuant to AB 32.
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3)Requires combined heat and power (CHP) units to meet an
existing GHG emission performance standard that applies to
utility investments in power plants.
4)Requires customers receiving incentives to maintain CHP units
so the unit continues to meet efficiency and emissions
standards.
5)Requires the PUC to ensure that distributed generation
resources are made available for all ratepayers.
6)Prohibits recovery of SGIP costs from customers participating
in the California Alternate Rates for Energy program, a
utility discount for low-income customers.
FISCAL EFFECT : According to the Senate Appropriations
Committee, regulatory oversight of the program would cost
$50,000 annually from the PUC Utilities Reimbursement Account.
COMMENTS :
1)Background. The PUC established the SGIP in 2001 to offer
incentives for renewable and "super clean" distributed
generation resources. The SGIP has offered rebates for
installation of photovoltaics, wind, fuel cells, and, until
2008, certain renewable and fossil fuel combustion resources
meeting specified emissions and efficiency standards.
In 2006, the CPUC adopted the California Solar Initiative,
which established a much larger rebate program for
photovoltaic technologies. As a consequence, solar was
severed from the SGIP, leaving a much smaller program for
wind, fuel cells and combustion projects which was to continue
until 2008. In 2006, AB 2778 extended SGIP for wind and fuel
cells only until 2012.
Currently, rebates are available for wind and fuel cell
projects up to five megawatts - the electric load of a fairly
large industrial facility. Based on current incentive levels,
eligible projects can receive payments up to $2.625 million
each for wind, $4.375 million each for conventional fuel cells
and $7.875 million each for renewable fuel cells. Based on
previous incentive levels for combustion projects, those
project could receive payments up to $3 million each if they
were rendered eligible by this bill. SGIP's current annual
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cost to ratepayers is $83 million and approximately $200
million in unspent funds have accumulated from prior years.
A 2005 report commissioned by the PUC to study the
cost-effectiveness of the SGIP program concluded that the SGIP
program is marginally cost-effective for participants (i.e.
recipients of funding), but is not cost-effective to
non-participants (i.e. those who pay for it). Because SGIP is
funded by distribution rates, its costs are disproportionately
borne by residential ratepayers. However, because only larger
projects have been eligible for SGIP, residential ratepayers
haven't been able to access the incentives.
2)Is restoring subsidies for fossil fuel combustion necessary
and beneficial? New fossil fuel combustion generators will
increase emissions of criteria air pollutants and GHG. The
range of emissions depends on the efficiency of the generator,
but none are zero. Like any other incremental addition to the
electric supply (or efficiency), an environmental benefit
would result if the new power displaces existing dirtier
power. Whether the payment of a subsidy is necessary to
achieve this benefit is unclear, and no evidence has been
presented to support the need to subsidize fossil fuel
generators.
In general, new distributed generation turbines appear
somewhat less efficient than recently-built central-station
power plants in terms of direct electrical efficiency.
However, distributed generators in combined heat and power
(CHP) installations, where waste heat is recovered and put to
use in a way that saves natural gas, overall efficiency
improves significantly. Actual efficiency varies widely by
system. The best systems can achieve efficiencies between 80
and 90 percent. Minimum efficiency required for SGIP
eligibility is 60 percent [total energy output (electricity
plus heat) divided by fuel input].
The NOx emission limit in the statute (0.07 lbs/MWhr) is
comparable to NOx emission levels achieved by new
central-station power plants, although the central-station
plants also must obtain offsets from other stationary sources
to mitigate the NOx they do emit. This NOx limit is based on
emission standards adopted by ARB and was placed in the SGIP
statute in 2003 as an incentive for early compliance with the
ARB standards. Six years later, ARB's 2007 limit is now in
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effect, so this provision reflects the standard for
distributed generation subject to ARB certification, rather
than a step forward. The author and the committee may wish to
consider whether more stringent emission and efficiency
standards are justified for the program over the four years
authorized by this bill.
Another environmental consideration is that non-renewable
distributed generation displaces renewable energy developed
under the Renewables Portfolio Standard (RPS). Distributed
generation is exempt from the RPS, so at a 20 percent RPS,
every five megawatts of distributed generation reduces a
utility's obligation to buy renewable energy by one megawatt.
3)Recent study indicates air quality and climate change benefits
for renewable fuels, but not for non-renewable fuels. AB 2778
required the California Energy Commission (CEC), in
consultation with the PUC and ARB, to evaluate the costs and
benefits of providing ratepayer subsidies for renewable and
fossil fuel distributed generation, including recommendations
for eligibility and subsidy levels. The evaluation was
included in the CEC's 2008 energy report. According to the
report:
The environmental analysis indicates that the
self-generation installations yielded a net reduction
in both particulate matter (PM2.5) and GHGs when
compared to a baseline of natural gas fired combined
cycle combustion turbine power plant. However, the
reductions are small and largely attributable to
photovoltaic installations that are no longer eligible
for the program. Furthermore, the program's
installations have net emissions of air quality
pollutants including VOC, NOx, and CO.
The report showed small increases in emissions for
non-renewable micro-turbines and gas turbines, and significant
increases in emissions for internal combustion engines. The
combined increases in GHG emissions attributable to
non-renewable combustion cogeneration projects funded by SGIP
offsets all of the GHG benefits achieved by photovoltaics
funded by SGIP. (Total capacity installed under SGIP is
fairly evenly divided between cogeneration and photovoltaic
projects.) In contrast, projects using renewable fuels,
including combustion, showed emissions benefits across the
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board.
This bill expands eligibility to any technology if the PUC
determines that a distributed generation resource "supports
the state's goals for the reduction of emissions of (GHG)
pursuant to (AB 32)." This standard is unclear, as AB 32 does
not set objective "goals" that the PUC could apply. AB 32
requires ARB to adopt a statewide GHG emissions limit and
adopt regulations achieve GHG emission reductions. If SGIP
eligibility is to be extended to combustion projects using
non-renewable fuels, as this bill suggests, the author and the
committee may wish to consider giving guidance to the PUC to
select technologies that actually achieve reductions in air
pollution and GHGs, as determined in consultation with ARB.
The bill also applies a somewhat misplaced requirement that
CHP units meet an existing GHG performance standard developed
to prohibit the approval of utility long-term financial
commitments in dirty power plants. As such, the standard
itself reflects a relatively low bar for emissions
performance. The standard was never intended to apply to
self-generation projects or to be a benchmark to judge whether
subsidies should be paid. It operates as a minimum standard
to prevent continued reliance on dirty out-of-state coal
plants. The author and the committee may wish to consider
deleting this provision (page 4, lines 11-13).
4)Amendments recommended by Utilities and Commerce Committee.
When this bill was approved by the Utilities and Commerce
Committee June 29, the author and committee agreed to
amendments, with adoption deferred to this committee. The U&C
amendments require the PUC to collect funding through 2010,
rather than 2011, cap annual collection at the amount
collected in 2008 ($83 million), allow collected funds to be
spent until 2016, and require any remaining funds to be
returned to ratepayers.
5)Related legislation. AB 1536 (Blakeslee), approved by this
committee April 27 and pending in the Senate Energy, Utilities
and Communications Committee, expands SGIP eligibility to
include energy storage facilities. The two bills amend the
same section in inconsistent ways. If both bills proceed,
they will need to be reconciled to avoid a chaptering
conflict.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Manufacturers and Technology Association
California Pubic Utilities Commission
Engine Manufacturers Association
Opposition
None on file
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092