BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 2075 - Fong Hearing
Date: August 13, 2012 A
As Amended: August 6, 2012 FISCAL/Urgency B
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DESCRIPTION
Current law requires the state's investor-owned utilities
(IOUs), publicly owned utilities (POUs) (except the Los Angeles
Department of Water and Power), and other entities offering
retail electric service, to credit all electricity generated by
a customer-owned renewable electric generation facility against
the customer's usage of electricity sold by the utility, on a
kilowatt hour basis (kWh), a procedure known as "net energy
metering" (NEM). Participation by all utilities is capped at
five percent of each utility's aggregate peak electricity demand
and the size of individual renewable electric generation
facilities is limited to those that will offset all or part of
the customer's own electrical requirements to a maximum of 1
megawatt (MW). This program also exempts the customer from
paying transmission and distribution costs. This is commonly
referred to as full retail NEM. Fuel cells powered by biogas
are eligible for this tariff.
Current law requires the state's IOUs to credit all electricity
generated by customer-owned fuel cells against the customer's
usage of electricity sold by the utility, on a kWh basis, a
tariff referred to as fuel cell NEM. The customer credit is
based only on the electricity generated and does not include
non-generation costs such as transmission, distribution, and
public purpose charges. Eligible fuel cells can be powered by
renewable or fossil-fuel, are sized at 1 MW or less, and must at
least meet the emissions standards of combined heat and power
systems.
Current law requires large IOUs (Pacific Gas & Electric &
Southern California Edison) to offer the fuel cell NEM to its
fuel cell customer generators until the cumulative capacity of
all installed fuel cells reaches 45 MWs within each service
territory. Smaller IOUs (SDG&E and others) are subject to a cap
of 22.5 MWs within each service territory. All interconnections
are subject to a statewide cap of 112.5 MWs. The program
sunsets on January 1, 2014.
This bill increases the capacity of fuel cell electrical
generating facilities eligible for the fuel cell NEM tariff from
1 MW to 3 MWs.
BACKGROUND
What is a Fuel Cell? - A fuel cell is an electrochemical device
that combines hydrogen and oxygen to produce electricity, with
water and heat as its by-product. As long as fuel is supplied,
the fuel cell will continue to generate power. Since the
conversion of the fuel to energy takes place via an
electrochemical process, not combustion, the process is clean,
quiet and highly efficient - two to three times more efficient
than fuel burning.
The Issues of Net Metering - Utility customers that generate
power from a renewable facility are eligible for full retail NEM
under which the electricity purchases of the customer are netted
against the electricity generated by the customer's own
renewable electric facility. When the sun is shining or the
wind is blowing, for example, the generated electricity spins
the meter backward, making it financially equivalent to using
less electricity for the customer with the same effect as the
electric utility paying the customer the full retail price for
the electricity. When the sun stops shining and the wind stops
blowing, the customer draws electricity from the grid and their
meter spins forward using the credit on the meter. In theory,
depending on weather patterns, system size and customer
behavior, the customer will have a zero energy bill at the end
of a 12-month cycle.
The impacts of net energy metering have raised significant
concerns, such as:
At what point does net metering stop looking like energy
efficiency and start looking like a competitor who sells
higher priced electricity than could be found elsewhere?
Will other customers have to pay for these higher rates
and is that fair?
If net metering is adopted by a significant percentage
of customers in the future, how will the utility continue
to cover fixed costs as revenues decline?
Is the utility providing a storage service with the
electric grid, for which the costs aren't being
compensated?
Can renewable energy be acquired elsewhere at lower
costs than through net metering?
At the same time, net energy metering can potentially provide
utility, social and generator benefits, such as:
Reduction of air emissions (social)
Lower costs of energy during some peak time periods
(utility)
Some peak capacity benefits (utility)
Avoiding transmission and distribution losses (utility)
Avoiding the need for batteries (generator)
Getting paid more for renewable electricity than
wholesale rates (generator)
These issues continue to be discussed but there are few
definitive answers and many opinions. The CPUC has initiated a
new study to examine the costs and benefits of full retail NEM
and the impacts of the program for nonparticipating customers.
The study will examine the costs and benefits by utility,
customer class, and income group and evaluate alternatives. The
study will form the basis for possible revisions to all NEM
tariffs.
Gen-to-Gen - Although all renewable resources sized up to 1 MW
which offset a customer's load are eligible for full retail NEM,
most of the facilities are solar photovoltaic (PV). Fuel cells
are eligible for full retail NEM if biogas is used to generate
the power. If a fuel cell is powered by natural gas it is
eligible for a more limited NEM program which credits the
customer only for the value of the kilowatt hours at the time
the electricity is generated. Under this program or tariff, the
customer pays for transmission and distribution costs as well as
public purpose programs, however the customer is exempt from
standby charges and some up-front costs such as those for
interconnection which translates to a subsidy for the fuel cell
NEM customer which is paid for by non-fuel cell customers. This
tariff is commonly referred to as "gen-to-gen."
Baseload Generation & NEM . The unique characteristic of wind
and solar, which are the primary beneficiaries of the full
retail NEM tariff, is the intermittency of the electrical
generation. Other renewables such as biomass and biogas
digesters can run to coincide with the customer's electrical
load. In doing so, the customer is able to avoid using the
electrical grid and incurring transmission and distribution
costs while running the generator. Consequently, the need for
full retail NEM is not the same as it is for solar and wind.
Although fuel cells are not intermittent and provide baseload
generation, the generators are generally not dispatchable and
lack ramping capability. Consequently, they run the fuel cells
full-time and when the load of the facility drops, such as in
the night or on weekends, the surplus electricity goes back to
the grid. The fuel cell NEM program allows that generation to
accumulate to the customer's credit so that the customer can
utilize that credit during business hours when the fuel cell is
offsetting load but the customer is also pulling generation from
the grid.
Distribution Grid Impacts Study - Under current law the CPUC is
required to report on the impacts of distributed generation (DG)
on the distribution grid every two years. The first study
commissioned by the CPUC for the report was released in January
2010<1> and provided an overview of the status of California's
distributed energy generation resources and highlighted some of
the challenges observed at that time and activities around
interconnecting these resources to the grid. The study noted
that "while DG had not yet begun to have a significant impact on
the grid, it soon would."
The Itron study further found that:
?every connected generation source affects the system and
is affected by the system, even if it does not export
-------------------------
<1> Impacts of Distributed Generation, Itron, Inc., Prepared for
the California Public Utilities Commission, Energy Division
Staff, January 2010.
power. Additionally, the variety of DG technologies, the
different ways in which they interact with customer load
and the intermittent nature of some of the renewable DG
sources (e.g., wind and solar) make it difficult to
integrate these resources while maintaining high system
reliability and power quality? DG facilities by themselves
pose little direct impact to the transmission
system?however, with increased growth in DG facilities?the
cumulative penetration of DG resources may potentially
impact transmission within California?.for DG technologies
to provide successively greater benefits to the electricity
system, they must provide capacity when it is needed most
(e.g., to help defer peak demand or help reduce T&D line
loadings).
In March of this year the CPUC issued a request for proposals
for another DG impacts study. That study is intended to provide
a "discussion of the current and potential impacts of
distributed generation or local energy resources (< 20MW) on the
reliable delivery of electricity over transmission and
distribution systems?and a detailed discussion about the grid
operation challenges that accompanies growing deployment of DG."
COMMENTS
1. Author's Purpose . The author reports that when the NEM
program was structured, fuel cell technologies were limited
in their ability to serve larger scale projects. Now that
the industry is growing and technology is advancing,
multi-megawatt projects can improve the economics and
environmental attributes of the market overall. This bill
will allow fuel cell generating facilities up to 3 MW to
qualify for the NEM program. Increasing the fuel cell
electrical generating facility capacity from one (1)
megawatt to three (3) megawatts will enhance competition
among California's fuel cell developers and will engender
high-value, multi-megawatt projects. These projects will
allow corporate campuses, agricultural facilities, colleges
and universities and similar facilities with fluctuating
load to participate in this program. In so doing, sites
with more variable onsite load (e.g. campuses that shut
down on weekends or agricultural facilities that fluctuate
seasonally) will be able to send clean, reliable excess
energy back to the electric grid when onsite load is low.
Thus, more facilities and employment centers can make the
switch to clean distributed energy. This is an important
step toward growing the market for fuel cells in
California.
2. It's a Physics Problem . The author argues that the fuel
cell NEM tariff should be revised to allow the program to
keep up with the market. However, physics is in the way.
The 1 MW capacity cap for fuel cells is not a unique
program element and is consistent across all NEM programs
for all technologies for all customers. History provides
two reasons for the 1 MW cap both related to the
reliability of the electric grid.
First, the ISO requires that generation exported to the
grid be scheduled in advance of delivery - customer
generators are not trained or equipped to work effectively
with the ISO to schedule the excess generation that they
put out on to the grid. Second, the NEM programs all have
total capacity caps and/or sunset clauses along with the 1
MW generator size cap so that the impacts of the growing
use of DG resources on the customer's side of the meter can
be managed and evaluated with a focus on maintaining grid
reliability.
The grid has just not kept up with the other technologies
in the market place. While this bill may in fact be
beneficial to the market development for fuel cells that
doesn't mean that the grid is ready to support the 3 MW
capacity. It's a physics challenge. We still have a
basically dumb grid that was designed to move electricity
one way - from the generator to transmission to substation
to distribution to the end user. The grid was never
designed for generation to go backwards. Federal and state
law (SB 17, Padilla, 2009) have called for the electric
utilities to begin to build out a "smart grid" but for the
most part those efforts are still in the planning stages
with the exception of the deployment of smart meters.
3. Grid Impacts . The California Independent System
Operator generally reports that generation that is not
scheduled and is on the customer side of the meter can
create distribution system issues with "back flow" onto the
distribution grid. That back flow can then hit the
transmission grid and adversely impact flow on the ISO grid
and other scheduled generation resources. Even without
backflow DG can substantially reduce the net load at any
location and thereby degrade the deliverability of ISO-grid
connected generators.
These issues are among those being studied by the CPUC in
the DG impacts study referenced in the comments section
above. Customer generators have been limited in the size
of the facilities that they interconnect to the grid to 1
MW to mitigate the potential operating impacts (e.g.
reliability) of the distribution and transmission grids as
the grid managers learn more about the integration of DG
and the grid gets smarter.
4. Disparate Utility Impact . The mandates of this program
only apply to the IOUs. There are no comparable
requirements on POUs which may create barriers to growth of
the industry and use of the technologies in very
significant portions of the state since the POUs serve as
much as 23% of the electric load in California.
5. Related Legislation . AB 2165 (Hill) expands the
cumulate capacity cap for the fuel cell NEM program to 500
MWs from 112.5 MWs and extends the sunset one year to
January 1, 2015.
ASSEMBLY VOTES *
Assembly Floor (74-0)
Assembly Natural Resources Committee
(9-0)
*Prior votes not relevant
POSITIONS
Sponsor:
Clean Power Campaign
Support:
Agricultural Energy Consumers Association
Oppose:
San Diego Gas & Electric Company
Southern California Edison
Kellie Smith
AB 2075 Analysis
Hearing Date: August 13, 2012