BILL ANALYSIS Ó AB 1637 Page 1 Date of Hearing: August 30, 2016 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Das Williams, Chair AB 1637 (Low) - As Amended August 18, 2016 SUBJECT: Energy: greenhouse gas reduction SUMMARY: Doubles the annual funding authorization for the Self-Generation Incentive Program (SGIP), which permits the Public Utilities Commission (PUC) to collect an additional $83 million/year from utility customers to fund payments to distributed energy resources (DER) until 2019 ($249 million total). Extends the net energy metering program for fuel cells (NEMFC) for five years, increases the individual project cap from one megawatt (MW) to five MW, increases the statewide cap of 500 MW by subtracting existing facilities, and updates emission standards applicable to each fuel cell participating in NEMFC. Specifically, this bill: 1)Doubles the funding authorized for SGIP for the program's remaining three years. 2)Extends the NEMFC program for five years, including fuel cells AB 1637 Page 2 that commence operation on or before December 31, 2021. a) Increases the individual project cap from one to five MW. b) Increases the statewide cap of 500MW by subtracting projects installed as of January 1, 2017. c) Requires eligible projects to comply with the Air Resources Board (ARB) distributed generation certification standards (establishing emission limits for oxides of nitrogen and other criteria pollutants). d) Requires ARB to establish and update greenhouse gas (GHG) standards applicable each year to assure that each eligible fuel cell reduces GHG emissions compared to the electrical grid. Fuel cells must continue to meet the applicable annual standard during operation to maintain eligibility for NEMFC. EXISTING LAW: 1)Authorizes the PUC to authorize investor-owned electric utilities (IOUs) to collect up to $83 million per year from their customers through distribution rates through 2019 to fund SGIP. Under SGIP, utilities provide ratepayer-funded incentives for eligible DER, including advanced energy storage and generation technologies that the PUC, in consultation with ARB, determines will achieve reductions in GHG emissions. Under a PUC decision adopted earlier this year, 75% of SGIP funds are allocated to storage technologies. 2)Requires each IOU, until January 1, 2017, to offer a NEM AB 1637 Page 3 tariff for a customer who generates electricity using an onsite fuel cell electrical generating facility not greater than one MW until total installed fuel cell electrical generation resources reaches the IOU's proportional share of 500 MW. FISCAL EFFECT: Unknown COMMENTS: 1)Author's statement: In 2001, the Legislature created SGIP as a peak load reduction program in response to the energy crisis. Since then, the program has undergone several revisions and is now an essential market development tool for customer sited clean-energy technologies like energy storage and wind energy. The SGIP provides incentives for installation of distributed energy resources that are located at a customer's site and sized no larger than what is needed to meet on-site energy needs. The SGIP program has been recently (in June of this year) reformed and will be much more effective and accountable to ratepayers. Most of the incentives under the SGIP program will now be provided to energy storage systems which are crucial to managing our integration of electric vehicles and clean energy into the power grid. AB 1637 would double the amount of money the PUC is authorized to require the IOUs to collect from ratepayers through program's sunset in 2019. In 2003, the Legislature created the NEMFC program out of recognition of the benefits associated with the increased deployment of advanced fuel cell technology for clean distributed energy generation. This existing policy is set AB 1637 Page 4 to expire at the end of 2016. AB 1637 extends the 2016 sunset date for FC NEM by 5 years and expands the law to enable larger fuel cell projects to be installed at customer facilities while ensuring that stringent GHG reduction requirements are met. Continuing policies such as SGIP and NEMFC help achieve the State's ambitious clean energy goals by reducing GHG emissions and supporting renewable energy integration and technological innovation. The state's continued investment in these technologies will complement the rest of the state's suite of policies that drive clean energy investments, create jobs, and protect our environment. 2)Each eligible fuel cell must reduce GHG emissions compared to electrical grid. For NEMFC, this bill establishes more stringent GHG standards to assure eligible projects remain cleaner than the grid each year of operation. The bill establishes a new GHG standard, established by ARB, rather than the existing PUC/SGIP standard, which is expected to be lower than the existing standard at the outset, and get progressively lower each year as the overall GHG emissions from the grid decrease due to implementation of a 50% Renewables Portfolio Standard, reduction of coal imports, and other factors. The bill's new GHG standard applies to existing installed fuel cells, as well as future installed fuel cells, requiring all NEMFC participants to meet annual GHG reduction standards, to be adopted by ARB, to remain eligible for NEMFC. 3)Has SGIP been reformed enough to justify doubling its budget? As the author notes, SGIP has been "reformed" pursuant to SB 861, a 2014 budget trailer bill. In 2015, the PUC adopted more stringent GHG standards required by SB 861, as follows: a) 350 kilograms (kg)/Megawatts per hour (MWh) (down from 379 kg/MWh, the prior standard) as the maximum level AB 1637 Page 5 of CO2 emissions allowed for technologies participating in SGIP in 2016. b) Decreased GHG emission factors for each successive program year to reflect the increasing renewable energy targets imposed by SB 350, with a final GHG threshold of 337 kg/MWh in 2020. In June 2016, the PUC adopted additional changes to the program, including the following: c) Beginning in 2017, generation projects must use 10% biogas - this escalates up to 100% by 2020. d) Storage is allocated 75% of funds (15% carved out for residential projects). Generating technologies are allocated the remaining 25% (40% carved out for renewable generation). e) A lottery will replace the first-come first-served system, with lottery done by budget category. Energy storage projects paired with renewables or located in an Aliso Canyon-affected area will be given priority in the lottery. f) A 20% developer cap replaces the previous 40% manufacturer cap. As promising as these changes may be, they have yet to be fully implemented, much less evaluated. In addition, the recent round of SGIP funding (February 2016) was subject to allegations of "hacking" and misconduct on the part of an applicant who manipulated the online application process. Finally, some aspects of the program design, including the percentage allocation to storage and generation technologies AB 1637 Page 6 and the developer cap, are based on the current level of funding. Doubling funding requires these elements of program design be reevaluated. 4)Greater data transparency is necessary for evaluation of SGIP and NEMFC emissions performance. The lack of publicly-available in-use data on SGIP-funded projects makes determining their actual reliability and emissions performance difficult. Since emissions performance is essential to determine eligibility and measure the programs' performance, it is critical that each eligible customer report in-use emissions data to the PUC and ARB on a regular basis, and be subject to on-site inspection to verify equipment operations and performance, including capacity, thermal output, and usage, in order to verify criteria pollutant and GHG emissions performance. This bill lacks provisions to assure that each eligible customer has an obligation to report emissions data to ARB which was included in the language previously approved by this committee, which was later amended into AB 1530 (Levine). REGISTERED SUPPORT / OPPOSITION: Support Advanced Energy Economy Advanced Microgrid Solutions Asian Pacific Environmental Network Axiom Materials Berkeley City College Bloom Energy Brightline Defense Project California Energy Storage Alliance California Housing Partnership Corporation California Solar Energy Industries Association AB 1637 Page 7 Century Link Clean Power Campaign College of Alameda Core States Group County of Santa Cruz Doosan Equinix E2 Fuel Cell & Hydrogen Energy Association Fuel Cell Energy GreenbergFarrow Green Charge Networks I & D Consulting Ice Energy Inova Diagnostics Jabil Johnson Matthey Fuel Cells Laney College LG Lodi Unified School District Merritt College Monterey Peninsula Unified School District National Fuel Cell Research Center NLine Energy Oak Park Unified School District Plug Power Primate Healthcare School Energy Coalition Sharp Laboratories of America Sierra Nevada Silicon Valley Leadership Group Solar City Stem Sunpower Tech Net Tread Stone Technologies, Inc. We O'Neil AB 1637 Page 8 Opposition Capstone Turbine Corporation Caterpillar, Inc. Cummins DE Solutions ETAGEN Solar Turbines Tecogen, Inc. Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916) 319-2092