BILL ANALYSIS Ó 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE ALEX PADILLA, CHAIR AB 796 - Muratsuchi Hearing Date: August 30, 2013 A As Amended: August 26, 2013 FISCAL/Urgency B 7 9 6 DESCRIPTION Current law mandates that every electrical corporation provide for net energy metering for eligible fuel cell customers. The tariff is available to customers until the cumulative rated capacity of those receiving the tariff reaches its proportionate share of 500 megawatts capacity based on the ratio of the corporation's peak demand compared to the total statewide peak demand. The California Public Utilities Commission (CPUC) may raise the limitation in order to promote the growth of the fuel cell market. (PUC §2827.10) Current law defines "advanced electrical distributed generation technology" (fuel cells) and establishes eligibility for the same natural gas fuel rates as cogeneration technology. Only facilities that are first operational at a site before January 1, 2014 qualify for the specified rates. (PUC §379.8) This bill extends eligibility for cogeneration natural gas rates to fuel cells that become operational before January 1, 2016. BACKGROUND What is a Fuel Cell? - Fuel cells use an electrochemical reaction to produce electricity from fuels such as hydrogen, natural gas, or biogas. The majority of stationary fuel cells that are currently deployed use natural gas. Unlike a typical natural gas power plant, the fuel cell does not burn or combust the gas in the process of producing electricity. This process significantly reduces some the emissions of fuel cells compared to combustion generation. The primary reductions occur for nitrogen oxide (NOx) and sulfur oxide (SOx) compounds, which contribute to acid rain, that are produced during the generation of electricity. However, a fuel cell using natural gas continues to produce carbon dioxide (CO2) as a waste product, which is a greenhouse gas (GHG). Fuel Cells in PG&E Territory - The Legislature mandated (AB 1110, Fuentes, 2009) that certain fuel cell models be eligible for natural gas at rates available to cogeneration and electrical generation facilities. At that time the special rate was offered by other gas utilities but not by Pacific Gas & Electric (PG&E) which refers to this rate as the "G-EG" rate. The original argument to allow fuel cells to qualify for the G-EG rate was based on the reasoning that fuel cells are an efficient method of electrical production, but certain models do not qualify as cogeneration technologies, also known as combined-heat-and-power (CHP). While CHP technologies recycle the waste heat from the primary cycle in a secondary process to provide heating for the facility, some fuel cells do not. These non-CHP models of fuel cells recycle excess heat internally to increase the efficiency of electricity production, but this does not qualify as cogeneration since the excess heat is not used for a separate heating purpose. According to PG&E there are 69 individual customer fuel cell units providing 35 megawatts (MW) of capacity within their territory that benefit from the G-EG rate for natural gas. Most of these customers use non-CHP fuel cell models produced by Bloom Energy, who reports that the CO2 emission rates from their fuel cells are 738-886 pounds (lbs) of CO2 per megawatt-hour (MWh) of electricity produced. This is comparable to some of the more modern and efficient natural gas plants. The Bloom Energy models recycle excess heat internally, so do not qualify as cogeneration. PG&E reports that these customers have received a total annual natural gas subsidy of $4.7 million. Bloom Energy has additional fuel cells outside of PG&E territory. Greenhouse Gas Emissions - An analysis from the National Fuel Cell Research Center (NFCRC) at University of California, Irvine found that fuel cells produce 980-1080 lbs CO2/MWh.<1> The fuel cell emission rate can be compared to that of the average natural gas-fired generator in California, which produces 960-980 lbs CO2/MWh, according to the NFCRC analysis. Directed Biogas - The Legislature took steps to develop the biogas market last year (AB 2196, Chesbro, 2012) and expand its eligibility as a fuel source under the Renewables Portfolio Standard. The bill clarified that biogas procured under contracts for electrical generation on-site, off-site via a dedicated pipeline, or off-site via a common carrier pipeline that flows within the state or toward the generation site would be eligible for RPS credit. Assembly Bill 1900 (Gatto, 2012) further directed the CPUC to develop standards for biogas that is injected into common carrier pipelines in order to ensure the health and safety of the public and the pipelines. The CPUC was also directed to adopt programs that promote the use of biogas within the state. COMMENTS 1. Author's Purpose . Non-CHP fuel cell models that are installed after the end of this year will no longer qualify for the G-EG rate. The author argues the program has been successful for customers using non-CHP fuel cells to provide on-site electricity by reducing their fuel costs. Therefore, the author argues that the program should be extended to a January 1, 2016 sunset. The original intention for the statute was to balance the market for all models and manufacturers of fuel cells by granting them all the same rates for natural gas, even though some models do not operate in a CHP mode. Specifically, utility customers that purchase CHP fuel cell models receive the benefit of the G-EG rate, but these same rates were not offered to customers with non-CHP fuel cells. By qualifying the non-CHP fuel cells for the G-EG rate, the playing field was leveled. ------------------------- <1>Build-Up of Distributed Fuel Cell Value in California: 2011 Update, NFCRC, UC Irvine http://www.nfcrc.uci.edu/2/FUEL_CELL_INFORMATION/MonetaryValueOfF uelCells/ 2. Are Fuel Cells Clean ? This bill primarily impacts stationary fuel cell technologies that generate power for large institutions or facilities and use natural gas for fuel. (Fuel cells utilizing biogas are eligible under the RPS program and not affected by this bill.) In comparison to natural gas plants, fuel cells generate lower amounts of criteria pollutants including NOx, SOx, and particulate matter. However, all fuel cells that run on natural gas continue to produce CO2 emissions at levels similar to a natural gas plant. The benefits from an emissions standpoint of non-CHP fuel cells are the de minimis NOx, SOx, and particulate matter emissions, not the CO2 emissions. Many programs have been established to incent clean generation and transportation technologies in an effort to reach California's aggressive GHG reduction goals. The special gas rate required under current law and extended by this bill does not further those goals. These fuel cells have fewer criteria pollutants than natural gas combustion generators, but do little to reduce the state's GHG emissions. Additionally the Legislature has directed the CPUC to take the steps necessary to develop a market for biogas. The incentive to utilize natural gas to power fuel cells extended by this bill is not consistent with those goals. Moreover, the cost shift to other ratepayers for the incentive is reported by PG&E to be $4.7 million annually for existing fuel cells. That number would grow under the provisions of this bill. ASSEMBLY VOTES Previous votes are irrelevant, because this is a new bill. POSITIONS Sponsor: Author Support: National Fuel Cell Research Center TechNet Oppose: None on file Kyle Hiner AB 796 Analysis Hearing Date: August 30, 2013