BILL ANALYSIS �
AB 864
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Date of Hearing: April 25, 2011
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 864 (Huffman) - As Amended: April 13, 2011
SUBJECT : Self Generation Incentive Program
SUMMARY : This bill would allow distributed energy resources
with a nameplate generating capacity of up to 10 megawatts
eligible for incentives, but would limit the award of incentives
to not more than 5 megawatts of that capacity.
EXISTING LAW:
1)Authorizes the California Public Utilities Commission (PUC) to
administer the Self
Generation Incentive Program (SGIP) to provide rebates for fuel
cells and wind distributed generation (DG) technologies through
2012.
2)Restricts SGIP-eligible technologies to wind and fuel cell DG
technologies that meet or
exceed specific emissions standards.
3)Requires the California Energy Commission (CEC), on or before
November 1, 2008, in
consultation with the California Air Resources Board (CARB), to
evaluate the costs and benefits of providing ratepayer subsidies
for renewable and specific fossil fuels, and make
recommendations for the changes in the eligibility of
technologies and fuels under the program and whether the level
of subsidy should be adjusted.
4)Requires the PUC to provide an additional incentive of 20
percent for the installation of
eligible DG resources from a California supplier.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to direct the PUC to increase the maximum project size from
eligible for SGIP funding from 5MW to 10MW. This will allow
larger electricity consumers who have significant potential for
on-site DG resources to receive SGIP funding for larger projects
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than those currently permitted by the PUC. It would also allow
incentives for up to 5 MW of the total project, in contrast to
the current PUC limit of 3 MW.
There are electricity consumers who have the potential to
install projects using eligible technologies larger than 5 MW,
and such larger projects will provide greater greenhouse gas
(GHG) reduction benefits. The circumstances for the customer to
determine that there is value in participating in
self-generation are as varied as the technologies used to
generate the power. For example, a microchip processor or
cement plant may see value reducing peak load usage and having
reliable power on site; whereas a refinery or hospital may see
value in using thermal energy to cogenerate electricity.
The SGIP provides incentives for DG to support existing, new,
and emerging distributed energy resources. The SGIP provides
rebates for qualifying distributed energy systems installed on
the customer's side of the utility meter. Qualifying
technologies include wind turbines, fuel cells, solar thermal,
and storage systems. The incentives are funded by a monthly
surcharge on customer utility bills with the exception of CARE
customers.
Governor Brown has recently expressed a desire for California to
develop 12,000 megawatts of localized energy by 2020.
Self-generation refers to distributed generation (DG) installed
on the customer's side of the utility meter that provides
electricity for a portion of that customer's entire electric
load.
Background : As a result of the 1999-2000 energy crisis, the
Legislature passed AB 970 (Ducheny), Chapter 329, Statutes of
2000, to encourage investment in new, environmentally superior
electricity generation. Originally, this program was designed
to complement the CEC's Emerging Renewables Program (ERP) by
providing incentive funding to larger renewable and
non-renewable self generation units up to the first 1.0 MW in
capacity. However, in 2008 a PUC decision (Decision 08-04-049)
increased the incentive cap to 3.0 MW on a pilot basis,
contingent on available budget, while retaining the overall 5 MW
size cap. The following December, pursuant to PUC Decision
09-12-047, the requirement for available carry over funding was
eliminated; thus allowing all projects regardless of proposed
capacity to be funded from the current program year budget. At
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present, SGIP provides subsidies for up to 50% of the project
cost for the installation of DG technologies, no greater than
3MW, on a utility customer's premises and that the projects are
sized to meet a customer's onsite-load up to a 5 MW size.
Within that 3 MW capped incentive program, participants receive
their incentives on a declining structure for the portion of a
system over 1 MW in order to account for economies of scale.
SB 412 Implementation: SB 412 (Kehoe), Chapter 182 Statutes of
2009, authorized the PUC, in consultation with the CARB, to
determine eligible technologies for the SGIP based on the
requirement that they "achieve reductions of greenhouse gas
emissions pursuant to the California Global Warming Solutions
Act of 2006." SB 412 also extends the sunset date of the SGIP
from January 1, 2012 to January 1, 2016.
Although there is considerable frustration around the delayed
implementation of the SB 412 program, the PUC staff asserts that
progress is being made and a preliminary ruling is expected this
summer. As the PUC staff move closer to the ruling, some of the
issues that they are exploring are: 1) should SGIP continue to
offer technology differentiated incentives, or should the
program consider a single incentive structure based on
reductions in greenhouse gas emissions; 2) should the PUC
eliminate the maximum size restriction of 5MW for all
technologies participating in SGIP; 3) and should the commission
retain the program requirement that projects be sized to meet
on-site load. Considering the direction the PUC is going, the
goals of this bill may soon be met by way a ruling.
Rush to the finish line: Due to the concern regarding modest
fund levels remaining, and the fact that the proposed SB 412
program modifications would enlarge the range of eligible
technologies, projects using currently eligible technologies
could absorb all available SGIP funding before the PUC could act
to expand SGIP to allow other technologies to participate in
SGIP. On Feb 10, 2011 the PUC issued an Assigned Commissioner's
Ruling directing the SGIP Program Administrators (PAs) to
temporarily suspend accepting reservation requests for SGIP
incentives. Specifically, the motion sought to place a
moratorium on new SGIP applications until the decision
implementing SB 412 is approved by the PUC and takes effect.
Therefore, it appears presumptuous to expand the pool of
applicants to this program before its disposition has been
finalized.
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Why SGIP: In addition to the SGIP program, there are other
programs that provide a financial incentive to customers for
self-generating electricity. The Net Energy Metering (NEM)
program is an electricity tariff billing mechanism. It allows a
customer to place an electricity generation system on-site to
offset electricity usage. The benefits are realized at the end
of the year when the customer is either billed or credited for
the net energy usage or production.
Under the California feed-in tariffs program, customers are paid
for the cost of generation based on the value of electrical
generation, but are not intended to embed a subsidy or rebate in
the price offering.
The two main distinctions of note are, unlike the NEM and FIT
programs, the SGIP, offers upfront financial incentives.
Moreover, pursuant to PUC decision 05-05-011, the customer
generating the electron is allowed to keep the renewable energy
credit (REC); thus making this program very attractive under the
newly authorized RPS. This also has implications for the GHG
emissions trading market that has yet to be established. In an
effort to comply, many large energy users see value in reducing
their greenhouse gas footprint by implementing onsite electrical
generation technology. Because of the current size to load
requirement, the customers that will be participating in the
5-10MW range, prescribed by this bill, are very high energy
users; cement plants, steel mills; refineries etc. It should
be noted that, pursuant to the cap and trade regulations, these
entities will be afforded allowances that will assist them in
complying with AB 32.
Public good or good public money? :
The SGIP budget was initially set at $125 million per year in
2001, with cost responsibility allocated across Investor-Owned
Utilities' (IOUs) ratepayers, with the exception of CARE
participants. With the creation of the California Solar
Initiative (CSI) in 2006, the CPUC redirected the portion of the
SGIP budget that supported solar incentives into the CSI
program. SB 412 limited that collection of ratepayer dollars to
no more than $83 million per year. The average impact to a
residential ratepayer is around $5 per year.
According to critics of the SGIP program, this $83 million is
ratepayer money that is being used to subsidize large companies.
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The proponents argue that the program has substantial benefits
to ratepayers and raising the cap would further that benefit.
Some of the benefits include: 1) delaying or reducing the need
for new transmission and distribution lines; 2) creating
construction and operation jobs within the state; 3) reducing
stress on the grid during peak consumption hours; 4) and
incentivizes localized clean power near the load center.
Same pot more hands : Given the statutory budget limit of $83
million per year, raising the cap from 3MW to 5MW would not have
any more ratepayer impact; however, it could very well create a
situation where fewer participants can access the rebate. This
makes it very difficult to determine at what point the value to
the ratepayer ceases to exist. Moreover, it is unclear if the
author wishes to allow for the full 50% rebate up to the 5 MW
limit or provide for a graduated rebate system as is in place
currently. The committee may wish to consider an amendment to
allow rebates up 5MW, if the commission finds that the
technologies are cost effective using the methodology in the
Cost Effectiveness Study on the Self Generation Incentive
Program published in February 2011. Additionally, the committee
may wish to consider a tiered rebate for the portion of a system
over 3 MW.
REGISTERED SUPPORT / OPPOSITION :
Support
California Business Properties Association
California Large Energy Consumers Association (CLECA)
California Manufacturers & Technology Association (CMTA)
Sonoma County Water Agency
Opposition
None on file.
Analysis Prepared by : Awet P. Kidane / U. & C. / (916)
319-2083
AB 864
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