BILL ANALYSIS Ó
AB 1150
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Date of Hearing: May 5, 2011
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 1150 (V. Manuel Perez) - As Amended: April 28, 2011
SUBJECT : Self-generation incentive program
SUMMARY : Extends funding and administration of the
Self-Generation Incentive Program (SGIP), authorizing the Public
Utilities Commission (PUC) to collect at least $415 million more
from electric utility ratepayers to fund payments to
customer-owned distributed electricity generation projects and
related expenses through 2018 pursuant to the SGIP.
EXISTING LAW :
1)Authorizes the PUC to authorize investor-owned electric
utilities to collect up to $83 million per year from their
customers through distribution rates until December 31, 2011
to fund SGIP.
2)Requires the PUC to administer the SGIP program until 2016
(spending a surplus accumulated from prior years). Under the
SGIP, utilities provide ratepayer-funded rebates for
distributed generation projects up to five megawatts in size.
3)Requires the PUC to administer a separate program for solar
technologies pursuant to the California Solar Initiative.
4)Provides that eligibility is limited to distributed energy
resources that the PUC, in consultation with the Air Resources
Board (ARB), determines will achieve reductions in greenhouse
gas (GHG) emissions pursuant to AB 32.
5)Requires fossil fuel combustion projects to meet specified
emission standards.
6)Requires the PUC to ensure that distributed generation
resources are made available for all ratepayers.
7)Requires the PUC to provide a 20 percent higher payment for
installation of projects manufactured by a California
supplier, as defined.
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8)Prohibits recovery of SGIP costs from customers participating
in the California Alternate Rates for Energy program, a
utility discount for low-income customers.
THIS BILL :
1)Extends SGIP funding authorization for five years, through
2016, and fixes annual collection amount at $83 million, but
permits the PUC to increase this amount, for a total
authorization of at least $415 million.
2)Requires the PUC to administer the SGIP program until 2018.
3)Requires the PUC to periodically evaluate SGIP and adjust
rebates and other design elements to achieve the following
goals:
a) Cost-effective use of ratepayer funds to stimulate
deployment of eligible technologies.
b) Meeting environmental objectives, including reduction of
emissions of greenhouse gases.
c) In-state job growth.
d) Development of market signals to provide incentives for
private investment in California.
e) Market transformation of most, if not all, eligible
technologies by driving down prices and increasing
performance of these technologies.
f) Energy efficiency, peak load reduction, and load
management.
g) Equitable distribution of rebates to all eligible
technologies and program participants.
h) Assessment of technology penetration into underserved
areas of the state that are environmentally blighted and
economically stressed.
4)Expresses intent that SGIP increase deployment of distributed
generation and storage systems to facilitate integration of
those resources into the electrical grid and reduce ratepayer
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costs.
FISCAL EFFECT : Collection of at least $415 million through 2016
from electric utility customers. Approximately 10 percent is
budgeted for administration by utilities and the PUC.
COMMENTS :
1)Background. The PUC established the SGIP in 2001, pursuant to
energy crisis legislation AB 970 (Ducheny), to offer
incentives for renewable and "super clean" distributed
generation resources. SGIP has been extended and/or modified
by at least five bills since then. Over the last 10 years,
the SGIP has offered rebates for installation of solar, wind,
fuel cell, and, until 2008, certain renewable and fossil fuel
combustion resources meeting specified emissions and
efficiency standards. As of late 2010, SGIP had committed
$865 million for 1489 projects totaling 437 megawatts (MW)
capacity.
In 2006, the CPUC adopted the California Solar Initiative,
which established a rebate program for photovoltaic
technologies. As a consequence, solar was severed from the
SGIP, leaving a much smaller program for wind, fuel cells and
combustion projects which was to continue until 2008. In
2006, AB 2778 (Lieber) extended SGIP for wind and fuel cells
only until 2012. For non-photovoltaic projects, SGIP had
committed $406 million for 600 projects totaling 300MW through
late 2010 - an average project award of $677,000 and
subsidized capacity cost of $1.35 million/MW (or $1.35/watt).
Biogas fuels cells are the most expensive projects funded by
SGIP by far - with an average project award of $2.54 million
(@$4.63/watt).
Until SGIP was suspended by the PUC (as explained below),
rebates were available for wind, fuel cell and storage
projects up to five megawatts - the electric load of a fairly
large industrial facility. Based on current incentive levels,
eligible projects can receive payments up to $2.625 million
each for wind, $4.425 million each for fossil gas fuel cells
and $8.75 million each for "renewable" gas fuel cells.
A 2005 report commissioned by the PUC to study the
cost-effectiveness of the SGIP program concluded that the SGIP
program is marginally cost-effective for participants (i.e.
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recipients of funding), but is not cost-effective to
non-participants (i.e. ratepayers who pay for it). Because
SGIP is funded from distribution rates, its costs are
disproportionately borne by residential ratepayers. However,
historically only larger projects have been eligible for SGIP,
so residential ratepayers haven't been able to access the
incentives.
In 2009, SB 412 (Kehoe) extended SGIP collection through 2011,
modified eligibility to include fossil fuel projects that
reduce GHG emissions, and required the PUC to administer the
program until 2016 (based on spending a $200+ million surplus
accumulated from prior years). SB 412 is in the process of
implementation by the PUC (a staff proposal outlining program
eligibility and rebate levels was released April 21, 2011). A
decision adopting the SB 412 program is expected later this
year.
In response to a December 22, 2010 request from the SGIP
program administrators, SGIP was suspended by a PUC ruling
issued February 10, 2011, freezing applications received on or
after January 1, 2011. The reason for the suspension was that
a rush of awards and applications, mostly from a single
vendor, had nearly exhausted both the current budget and the
accumulated surplus, leaving less funding than expected for
future awards under SB 412.
2)SGIP's environmental results have been mixed. The large
majority of emission reductions achieved over time by SGIP are
attributable to photovoltaic projects, which are no longer
eligible for SGIP. New fossil fuel combustion generators
funded by SGIP have resulted in increased emissions of
criteria air pollutants and GHG. SB 412's condition that
projects achieve GHG reductions is intended to address this
problem, although it will not be applied to SGIP applications
until the PUC issues a decision implementing SB 412 and
lifting the suspension.
AB 2778 required the California Energy Commission (CEC), in
consultation with the PUC and ARB, to evaluate the costs and
benefits of providing ratepayer subsidies for renewable and
fossil fuel distributed generation, including recommendations
for eligibility and subsidy levels. The evaluation was
included in the CEC's 2008 energy report. According to the
report, "(SGIP) installations have net emissions of air
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quality pollutants including (volatile organic compounds),
(oxides of nitrogen/NOx), and (carbon monoxide)."
The report showed small increases in emissions for
non-renewable micro-turbines and gas turbines, and significant
increases in emissions for internal combustion engines. The
combined increases in GHG emissions attributable to
non-renewable combustion cogeneration projects offset all of
the GHG benefits achieved by photovoltaics funded by SGIP. In
contrast, projects using renewable fuels, including
combustion, showed emissions benefits across the board.
In general, new distributed generation turbines appear
somewhat less efficient than recently-built central-station
power plants in terms of direct electrical efficiency.
However, distributed generators in combined heat and power
(CHP) installations, where waste heat is recovered and put to
use in a way that saves natural gas, overall efficiency
improves significantly. Actual efficiency varies widely by
system. The best systems can achieve efficiencies between 80
and 90 percent. Minimum efficiency required for SGIP
eligibility is 60 percent Ýtotal energy output (electricity
plus heat) divided by fuel input].
The NOx emission limit in the statute (0.07 lbs/MWhr) is
comparable to NOx emission levels achieved by new
central-station power plants, although the central-station
plants also must obtain offsets from other stationary sources
to mitigate the NOx they do emit. This NOx limit is based on
emission standards adopted by ARB and was placed in the SGIP
statute in 2003 as an incentive for early compliance with the
ARB standards. Eight years later, ARB's 2007 limit is now in
effect, so this provision reflects the standard for
distributed generation subject to ARB certification, rather
than a step forward. The author and the committee may wish to
consider deleting the outdated emissions criteria in the bill
and instead require that SGIP-funded projects comply with the
applicable ARB certification standard and air district
permitting requirements under the Clean Air Act, as
applicable, and that the program's emission reduction goal be
confirmed through periodic evaluation by the PUC and ARB.
3)Everybody pays a little, some take a lot. The SGIP has
operated as a vendor-driven free-for-all. This is evidenced
by the inequitable and arbitrary distribution of funds, which
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bears no direct relationship to electric system needs or other
general ratepayer or public benefit.
According to data maintained by SGIP administrator California
Center for Sustainable Energy, over 56 percent of 2010 SGIP
funds went to four counties - Los Angeles, San Diego, Santa
Clara and San Bernardino. In 27 counties, no SGIP projects
were funded at all, including Del Norte, Trinity, Humboldt,
Mendocino, Lake, Sacramento and Imperial. Nine more counties,
including Monterey and Santa Cruz, received just one award.
The author and the committee may wish to consider adding
"equitable geographic distribution" of SGIP rebates to the
program goals listed in the bill.
The rush on SGIP funds that led to suspension of the program
was dominated by one vendor, Bloom Energy. Bloom's fuel cell
projects stand to receive 2/3 (nearly $220 million) of total
2010 SGIP funds. The size of SGIP subsidies, combined with a
30 percent federal investment tax credit, represent the
majority, in some cases nearly all, costs of the fuel cell
projects. Rather than leveraging private investment to
achieve a public benefit, in this case the public seems to be
replacing private investment to achieve a private benefit.
4)Questionable expenses - from a utility office remodel to a
Louisiana landfill. A recent audit prepared for the PUC to
address discrepancies in the SGIP administrators' accounting
for funds revealed that PG&E spent $98,000 in SGIP funds to
remodel offices in its San Francisco headquarters.
More significant is the use of SGIP funds awarded for
"directed biogas" projects. Biogas fuel cells have been
eligible for an additional $2/watt rebate on the premise that
they are investing in a renewable fuel. Until 2009,
eligibility for this $2/watt bonus was limited to renewable
fuels that were produced on-site (e.g. a fuel cell sited at a
methane-producing facility such as a landfill, dairy, or
sewage treatment plant), although an exception allowed for
renewable fuels produced off-site, but delivered to the site
of the fuel cell.
However, in 2009 the PUC approved a Bloom Energy petition to
permit fuel cell projects to claim the $2/watt bonus by
purchasing off-site (including out-of-state) biogas through a
contract for 75 percent of fuel requirement of the project for
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five years. Under these rules, fuel cell projects have
claimed approximately $100 million in extra SGIP funds by
claiming to use biogas, even though the PUC doesn't require
the projects to deliver and use any biogas, and in practice
the rules encourage the opposite. As SGIP rules have been
applied by Bloom and others, a recipient need only to commit
to purchase less than 20 percent biogas over the project's
life to get 100 percent of the payment up front.
To obtain the biogas adder, applicants have contracted with
out-of-state landfills to inject captured biogas into natural
gas pipelines. A primary source is reportedly a landfill in
Louisiana. However, there's no accounting for the funds to
assure that they be spent on biogas or evidence that even the
limited commitment required has resulted in additional methane
capture, in Louisiana or elsewhere. The fuel cell itself
doesn't need to burn any biogas, and once the rebate funds are
paid out, there's no enforcement to confirm that the recipient
is actually buying any biogas. To assure that any SGIP
payments based on renewable fuel are more likely to produce
investment in new supplies of renewable fuels equivalent to
the fuel requirements of the projects that are funded, the
author and the committee may wish to consider adding a
condition requiring the confirmation of physical delivery of
the gas to the project or the California pipeline system for
the life of the project. The author and the committee may
also wish to consider whether the source of the fuel should be
limited to California, or the extent to which out-of-state
sources should be permitted.
5)Is SGIP as we know it worth a $415 million-plus investment?
The author and the committee may wish to consider whether a
commitment of $415 million-plus is justified at this time, or
whether a shorter extension would be more appropriate to
permit the PUC to implement SB 412, but provide for
legislative review at an earlier date to see if the program
has improved. The author and the committee may also wish to
consider directing the PUC to transition SGIP to
performance-based incentives, consistent with their approach
in the California Solar Initiative, so that rebates are based
on production of energy over the life of the project, rather
than paid entirely up front without regard to performance over
time.
REGISTERED SUPPORT / OPPOSITION :
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Support
A123 Systems
Associated General Contractors of America
California Business Properties Association
California Energy Storage Alliance
California Institute of Technology
California Large Energy Consumer Association
California League of Conservation Voters
California Manufacturers & Technology Association
CALMAC Manufacturing Corporation
CalWEA
Capstone Turbine Corporation
Clean Economy Network
Debenham Energy
Deeya Energy
EnerVault Corporation
Environmental Defense Fund
Fluidic
Foundation Windpower
Greensmith Energy Management Systems
Ice Energy
Industrial Environmental Association
LightSail Energy
Mitsubishi Cement Corporation
Mitsubishi Power Systems
Pacific Environment
Powergetics
Prudent Energy Corporation
RES Americas
Saft America
Samsung SDI America
Seeo
Silent Power
Solar Turbines
Sonoma County Water Agency
Sumitomo Electric
SunEdison
Sunverge Energy
SustainX
TechNet
Teichert Materials
Xtreme Power
Younicos
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Opposition
The Utility Reform Network (TURN) (unless amended)
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092