BILL ANALYSIS
AB 1106
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Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
AB 1106 (Fuentes) - As Introduced: February 27, 2009
SUBJECT : Renewable electric generation facilities:
feed-in-tariffs.
SUMMARY : Requires the California Public Utilities Commission
(PUC) to develop a feed-in tariff for eligible renewable
electric generation that is less than 20 MW in size.
EXISTING LAW :
1)Requires investor owned utilities (IOUs) to offer customers
with solar electricity or wind generation a net-metered tariff
where the customer can sell back electricity produced from the
solar or wind facility that exceeds that customer's demand at
that moment in time as a bill credit against electricity that
the customer receives from the utility when their renewable
facility produces less than the customer is consuming.
2)Provides that an electricity utility must purchase all
electricity from an eligible renewable resource that is no
larger than 1.5 megawatt (MW) at a rate determined by the PUC.
The rate is the Market Price Referent (MPR), which represents
the average cost of natural gas fired generation plus the
added costs of carbon emissions from a natural gas generator.
3)Requires electric corporations to meet a Renewable Portfolio
Standard (RPS) where at least 20% of their electricity
production comes from renewable resources by 2010.
THIS BILL :
1)Provides that all IOUs must purchase all electricity produced
by eligible renewable generation that is less than 20 MW in
size and is located on property that is owned or under the
control of the customer and pay the customer a price
determined by the PUC.
2)Provides that rate paid for the generation is the MPR, which
represents the average cost natural gas fired generation plus
the added costs of carbon emissions from a natural gas
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generator.
3)Provides that each kWh generated from the electric generation
facility shall count toward the IOUs RPS obligations including
generation used to offset the customer's own usage.
4)Requires the PUC, in consultation with the CEC, to develop
feed-in tariffs for eligible renewable energy resources of
more than 20 megawatts that value a diverse mix of sources of
renewable energy based upon the most successful feed-in
tariffs utilized in Europe.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to ensure that renewables are properly valued for their
locations' benefits, time-of-delivery attributes, and further
the goals of the RPS. The author believes that California is
missing opportunities to expand the use of solar energy because
"excellent sites with space and interest in installing solar
energy equipment cannot use solar because they cannot
participate in either the CSI incentive program or the RPS
solicitation program."
1) Background : In 2006, AB 1969 (Yee), Chapter 731, Statutes of
2006, mandated that the IOUs purchase all electricity generated
from renewable facilities that are owned by water and waste
water agencies that are smaller than 1 MW in size at specified
rates set by the PUC. The AB 1969 program was expanded by the
PUC to allow ANY customer of an IOU to take part of the program
and to allow for renewable generators up to 1.5 MWs in size.
Programs like this, which require an electric utility to
purchase all the electricity produced by a specified type of
generator at a fixed price are known as feed-in tariffs (FITs).
These programs are really a standard contract offered by each
electric utility where the utility is required to purchase all
of the output of the generators that want to sign the standard
offer contracts.
Supporters of FITs believe they can be an effective way to
promote the development of new renewable resources by
guaranteeing the developer a set price for their generation at
standard contract terms and eliminate the need for the
generators to negotiate with the utility. FITs in Europe have
been credited for the rapid deployment of wind and solar energy
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in German and Spain. The European feed-in tariffs have set the
rate paid to the generator based on the cost of each renewable
technology plus a reasonable profit for the generator. The rate
meant there was little risk to developing new renewable
generation. The prices paid to renewable generation in Germany
and Spain have generally exceeded the price terms of renewable
contracts in California.
2) The size of things : While there is general acceptance of FITs
in principle, there are two parts of FIT proposals where there
is little agreement: size and price.
While the European FIT programs applies to both utility scale
generation projects and small projects, most advocates of FITs
in California suggest that FITs should be used to help promote
the development of smaller distributed generation sized units
that cannot afford the high transaction costs of the competitive
solicitation process required under the RPS.
The RPS is designed to be technology neutral and to let market
forces determine the price. The RPS requires all renewable
generators to bid into a competitive solution for renewable
power. The utility then signs contracts for the offers that are
the least costly and best fit to their needs. This bidding
process is difficult for individuals that want to build smaller
generation. Smaller generators lack the expertise and up front
economic resources to participate in the complex bidding
process.
A FIT could allow smaller generators to produce renewable power
without having to participate in the bidding process. However,
there is little agreement on how big a generator can be and
still be considered small enough for the FIT program. The CEC
has proposed that the maximum size should be set at 20 MW. This
cap is based on the fact that any generation unit larger than 20
MW is subject to interconnection rules set by the Federal Energy
Regulatory Commission and not the PUC's interconnection rules.
The PUC has recently released a proposal to cap the size of FIT
at 10 MWs. The PUC's proposal states that developers building
units larger than 10 MWs have the expertise and resources to
compete in the RPS.
A review of all renewable contracts signed by the IOUs under the
RPS show that 47% of the signed contracts are for projects that
are less than 20 MW in size, 35% of the contracts are for
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projects less than 10 MW in capacity, 18 % of the contracts are
for contracts less than 5 MW in size.
3) You get what you pay for : The current feed-in tariff program
caps the price paid to renewable developers to the MPR, which is
price used within the RPS program to measure above market costs
of renewable generation. The MPR may be less than the actual
cost of production of most smaller scale renewable technologies.
In fact, even many large RPS contracts actually exceed the MPR
today. Because the MPR is less than the cost of the renewable
generation, the current FIT program may not create the needed
incentives to develop more renewable generation.
A number of environmental groups and solar industry
representatives have suggested that the California FIT program
should follow the European model and set the tariff rate based
on the actually cost of production of each specific technology
plus a reasonable profit for the generator. They believe these
high prices would lead to a rapid expansion of small-scale
renewable generation.
The utilities and consumer groups oppose this cost based
approach and believe that the rate should be set to represent
the actual benefit ratepayers receive from the renewable
resources. If all the quantifiable benefits of small scale
renewable resources were added together it is likely they would
exceed the MPR, but in some cases, they still may be less than
the cost of production of some renewable technologies.
4) Publicly Owned Utilities : The current AB 1969 program does
not apply to publicly owned utilities (POUs) and this bill does
not expand the scope of FITs to apply to POUs. A FIT program
that is not applied equally statewide runs the risk of resulting
in major cost shifts from the utilities that do not offer FITs
to the utilities that do. Since a FIT requires the utility to
purchase all eligible generation if one utility offers the
program and another does not, marketers of eligible renewable
resources will simply focus all of their attention on the
service territories where FITS are offered and potentially over
burden those utilities.
5) How this bill addresses the issues : AB 1106 adopts the CEC's
proposal and allows for FITs for eligible renewable resources up
to 20 MW in capacity. The bill also provides that the rate for
FITs will be at the MPR.
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6) Going big : This bill also requires the PUC to develop a
feed-in tariff for generation units larger than 20 MWs. The
recommendations from the CEC and PUC both focus on FITs for
generation under 20MW and not the larger units. The RPS already
focuses on large, utility scale generation and creating a FIT on
top of the RPS competitive solicitation process could create
unintended consequences. Given this conflict with the RPS, the
committee and the author may wish to consider amending the bill
to delete the provisions relating to renewable generation larger
than 20MW.
Related Legislation :
AB 432 (Nestande), AB 1023 (Ruskin), SB 32 (Negrete McCloud),
and SB 523 (Pavley) all create FIT programs of varying sizes and
rates.
SB 14 (Simitian) and AB 64 expand the current RPS program to 33%
by 2020.
AB 560 (Skinner) increase the current cap on the solar and wind
net-metering programs
AB 920 (Huffman) and SB 2 (Wiggins) create programs requiring
the IOUS to purchase surplus electricity from net-metered
customers.
REGISTERED SUPPORT / OPPOSITION :
Support
Bloom Energy Corporation
Sierra Club California (if amended)
Opposition
California Association of Small and Multi-jurisdictional
Utilities (CASMU) (unless amended)
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Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083