BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIRMAN
SB 32 - Negrete McLeod Hearing Date:
April 21, 2009 S
As Amended: April 14, 2009 FISCAL B
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DESCRIPTION
Current law requires all electrical corporations to develop a
standard tariff (aka feed-in-tariff or FIT) for all retail
customers to compensate those customers for excess renewable
energy produced up to a maximum of 1.5 megawatts (MW). Statewide
participation is capped at 500 MW and the paid is the market
price referent.
Current law establishes the California Solar Initiative, which
provides $3.2 billion in ratepayer-funded incentives to
encourage the deployment of solar photovoltaic (PV) panels.
Current law requires the state's investor-owned utilities (IOUs)
to increase procurement from renewable energy resources until
they reach 20% by 2010. To achieve that goal, the IOUs rely on a
competitive wholesale market for generation and issue annual
solicitations for renewable energy. Renewable energy may also be
procured through bilateral and standardized contracts.
This bill requires the California Public Utilities Commission
(CPUC) to increase the 1.5 MW FIT to 3 MW and modify the related
standardized contract. New contract terms would remove the
requirement that the contracting party be a customer of the IOU,
allow the CPUC to adjust the rate of the FIT to include
time-of-delivery, the attributes of renewable generation and the
locational value of the renewable resource relative to the
distribution circuit.
This bill requires publicly-owned utilities (POUs) that serve
more than 75,000 retail customers to make a renewable energy FIT
available for facilities up to 3 MW. Each POU would be limited
to its proportional share of a 250 MW statewide cap. The
contract available would be required to include rates based on
time-of-delivery and allow those rates to be adjusted based on
other attributes of renewable generation.
This bill permits a customer that received installation
subsidies under the California Solar Initiative or Self
Generation Incentive Program to leave those programs and
participate in the feed-in-tariff if the customer received the
subsidies before the effective date of this bill.
This bill requires the CPUC, in consultation with the California
Independent System Operator to monitor and examine the impacts
of the FITs established by this measure on the transmission and
distribution grid.
BACKGROUND
What is a feed-in-tariff? - A FIT is a simple, comprehensible,
transparent mechanism for small renewable generators to sell
power to a utility at predefined terms and conditions, without
contract negotiations. For the IOUs, the FIT operates as a
"must-take" contract in its portfolio. If the participant
generates the power, the IOU must take it.
Small renewable generator FITs are available to customers of the
three largest IOUs and provide a 10, 15, or 20-year fixed-price,
non-negotiable contract for systems sized up to 1.5 MW.
The FIT option is distinct from net metering and direct
financial incentives offered to customers to generate
electricity onsite to offset their own electrical load. Under
the CSI and the Self Generation Incentive Program, customers are
offered upfront incentives to install solar, wind, and fuel cell
generating capacity that can offset their customer load.
Market Price Referent (MPR) - The market price referent (MPR) is
an annual calculation done by the CPUC to determine the market
cost of power from combined cycle natural gas facilities for
baseload and peak power. The MPR was designed as a benchmark or
dividing line for bids submitted to the CPUC by the IOUs for
contracts for renewable energy. Contract prices at or below the
MPR are generally accepted as reasonable by the CPUC. Bids
priced above the MPR may face a stronger burden of proof in
justifying the reasonableness of the contract price. The CPUC
calculates and announces a new MPR annually for each RPS
solicitation cycle. The MPR is used as the base rate for the
current 1.5 MW FIT.
Grid Implications - The need for a "Smart Grid" for the delivery
of electricity is a top priority for policy makers. Why? Because
we have a "dumb grid" in the United States. Our entire
transmission and distribution grid infrastructure was developed
in a pre-digital era for a completely different system of
delivering electricity than is required for renewable resources.
This is acutely felt at the distribution level where the grid is
still largely in the same form it was decades ago when it was
designed to move electrons from a generator, to a transmission
line, to a substation, to a distribution line, to the customer's
home when they flip the lights on. The structure and technology
of the distribution grid is so ancient that the utilities still
have little or no ability to determine when the lights go out
and still largely rely on phone calls from customers to pinpoint
the outage.
Today congestion and bottlenecks hurt the reliability of the
grid overall, and particularly where it is needed to move large
volumes of new power from remote generation sites to major load
centers. Additionally monitoring and control technology on both
transmission and distribution networks is weak. The lack of
smart technology to provide utilities and consumers with better
information in real time hurts the security and efficiency of
the entire electricity system. The lack of such a modern,
smart-grid network slows the spread of new technology such as
small-scale solar installations as proposed by this bill.
Efforts to make the grid smarter are underway by the smallest
utilities all the way to the White House but until that grid is
developed, it is not in the shape necessary to send any great
amount of electricity backwards on the distribution system as
this bill proposes.
Generation from small-scale renewable facilities such as PV,
when strategically placed, can be valuable to the distribution
grid. An example would be an inland area with high heat and
high air conditioning use. PV can mitigate the peak load and
reduce the congestion. However, if not strategically placed, PV
systems can have the reverse affect and actually shut down the
grid due to congestion. Most FIT contracts are "must-take" and
restrict the ability of a utility to manage the distribution
grid and maintain reliability.
COMMENTS
1. Author's Goal - The author opines that California is
missing opportunities to expand the use of solar PV because
excellent sites (e.g. warehouses, public storage,
agricultural 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. This is particularly important
because it means missed opportunities to develop
distributed generation within the communities where
electricity is needed. This further increases the State's
reliance on an electricity transmission and distribution
system that is already congested. The author further opines
that current law does not recognize the value that these
sites can contribute to increasing renewable energy
generation in state, reducing transmission congestion, peak
electricity demand, and greenhouse gas emissions or
development of the market for renewable energy
technologies.
2. But Germany Does It - California policy makers involved
in the RPS program from the Legislature to the California
Energy Commission to the CPUC and others have been
extensively lobbied by advocates of a strong FIT to
increase renewable generation in California. In fact
Germany has brought a great deal of PV generation onto its
grid and other renewable technologies as a result of the
FIT. But what is rarely discussed is the cost paid for
those resources which is exorbitant. Rates for solar PV
range from $0.47 to $0.62 a kilowatt hour (kWh). In
comparison, contracts for renewable resources in
California's RPS program are running between $0.08 to $0.15
kWh. In 2008 Germany generated 14.4 percent of its
electricity from renewable resources. Not including the
POUs, at the end of 2007, California was at 12.7 percent
and is anticipated to reach 20 percent by 2013.
It appears that Germany's only renewable generation program
is a FIT. They do not have a CSI program, a 30 percent
federal tax credit, or an RPS mandate which have been
California's chosen means for greening the grid. The RPS
program is fundamentally different from a FIT since is
relies on a competitive wholesale market in which
developers bid to deliver renewables.
Advocates are correct that small-scale renewable facilities
can reduce transmission requirements and, when properly
located, assist with reliability on the distribution grid.
They further point to a lack of renewable facilities at 1
to 5 MW capacities as a necessity for a FIT. This latter
argument is hollow since there is no technical difference
between an electron from a 1-5 MW generator or a 500 MW
generator.
3. Is Another Program Needed? - Each of the three IOUs have
applications pending before the CPUC to offer standardized
contracts and/or utility-owned small-scale PV
installations. Southern California Edison proposes 1 to 2
MW installations, at 50 MW per year for five years totaling
500 MW. The rate under debate is $0.274 kWh plus rate of
return. Pacific Gas & Electric's application is for 500 MW
of PV in 1 to 20 MW increments. The rate under debate is
$0.246 kWh plus rate of return. Additionally, San Diego
Gas & Electric has an application under review for 70-80 MW
of PV all of which would be competitively bid with a
portion owned by the utility and a portion owned by a third
party. Installations would range from 1 to 2 MW.
The cumulative small scale PV capacity from these three
programs is at least 1,080 MW; more than twice that called
for in this bill. Although this bill applies to all
renewables the primary driver is for solar PV. It is not
clear what niche this bill will serve in the IOU
territories that is not already being addressed through the
applications of the three IOUs.
4. At What Price/Ratepayer Impacts? - Of great debate this
year is legislation to increase the state's RPS requirement
to 33 percent by 2020 but the cost of reaching this target
has been a priority topic for members. To date contracts
for renewable resources are between $0.08 to $0.15 kWh.
This does not include the IOU PV applications referenced in
comment #3.
The base contract price under this bill would be the MPR
(now at approximately $.010 kWh). However the author's
intent is to ensure that the CPUC increases the base price
to reflect the environmental attributes of the renewable
resource and the time-of-delivery but at the same time hold
ratepayers "indifferent" as a result of the tariff. It
appears that the author intends to have this provision
operate as some type of cost control. However "ratepayer
indifference" could be interpreted as requiring that the
"avoided cost" be used as a base payment which is a lower
rate than the MPR. The author and committee may wish to
consider striking "ratepayer indifference" and including
the costs of this program in the RPS which does have a cost
cap and also limiting contract costs to the average rate
paid under the current RPS program.
The IOUs would be required to offer the FIT for contracts
lengths of 10, 15 and 20 years and to provide the generator
the option of automatically renewing a contract at its
conclusion. This provision does not make sense for
ratepayers. In 10 to 20 years the delivery and cost of
renewable electricity is likely to look much different than
it does now. The author and committee may wish to consider
striking this provision.
5. Publicly-Owned-Utilities - This bill also requires that
POUs serving a population of 75,000 customers or more make
a FIT available to solar developers in those territories.
The affected POUs are: Anaheim, Glendale, Imperial, Los
Angeles, Merced, Modesto, Riverside, Turlock, and
Sacramento. Broad parameters for the tariff are included
in the bill but rates are not mandated as they are for the
IOU tariffs.
6. Distribution Grid Impact - The author intends that this
contract be a "must-take" on the part of the affected
utilities. If an owner/operator builds a 3 MW renewable
generator, in any location within the utility's service
territory, it must buy the power. However the bill also
indicates that the renewable must be "strategically
located." It is not clear how the generator can be
strategically located if the owner/operator is not working
with the utility which manages the grid to ensure proper
placement. Doing so would ensure that additional
generation coming on to the grid in that location does not
create undue congestion. In order to ensure grid
reliability, the author and committee may wish to consider
amending this bill to ensure that the utility has a role in
the placement of the renewable generator.
7. CSI vs. FIT - The Agricultural Energy Consumers
Association indicates that many of its members might have
taken advantage of the tariff in this bill had it been
available when they first chose to install renewables under
the CSI and Self Generation Incentive Program. To address
this the bill allows a customer who has received incentive
payments for installations under those programs to shift to
the FIT in this bill if the CSI or SGIP generator was
installed prior to the effective date of this bill.
POSITIONS
Sponsor:
California Solar Energy Industries Association
Support:
Agricultural Energy Consumers Association
Pacific Gas and Electric Company (if amended)
Sempra Energy (if amended)
Oppose:
State Association of Electrical Workers (unless amended)
Kellie Smith
SB 32 Analysis
Hearing Date: April 21, 2009