BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 585 - Kehoe Hearing Date:
April 5, 2011 S
As Amended: March 29, 2011 FISCAL B
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DESCRIPTION
Current law establishes the California Solar Initiative (CSI), a
$3.3 billion program which provides incentives for the
installation of solar photovoltaic (PV) systems for customers of
the state's investor-owned utilities (IOUs) and publicly owned
utilities (POUs).
Current law requires the California Public Utilities Commission
(CPUC), in implementing the CSI, to adopt incentive payments
that decline not less than an average of 7% per year which shall
be zero as of December 31, 2016 and to adopt performance-based
incentives (e.g. payments based on the amount of electricity
produced) all PV systems over 100 kilowatts (kW) and for half of
all systems over 30 kW.
This bill authorizes the CPUC to utilize accrued interest from
CSI funds to meet the incentive payments for non-residential
installations and to increase collections from electric
ratepayers for any remaining shortfalls in funding.
BACKGROUND
California Solar Initiative (CSI) - Effective in 2007, the CSI
calls for the installation of 3,000 megawatts (MW) of new,
solar-produced electricity by 2016. Targeted expenditures under
the CSI, funded by ratepayers, are $3.3 billion over ten years,
distributed among three distinct program components:
IOUs - $2.167 million/1940 MW for existing residential
homes, as well as existing and new commercial, industrial,
government, non-profit, and agricultural properties;
New Solar Homes Partnership, $400 million/360 MW,
administered by the California Energy Commission and funded
by the Public Goods Charge for new residential homes; and
POUs $784 million/700 MW.
In July 2010, the CPUC reported that "three years into the
state's 10-year solar program, California is already 42 percent
of the way towards its general market program goal in the
territories of the IOUs. This figure included both projects
already installed and those holding reservations for incentives
and in the process of being installed. As of last summer,
California had over 600 MW of solar connected to the electric
grid at nearly 65,000 customer sites. Of the 598 MW of capacity
installed in investor-owned utility territories, 342 MW were
installed under the CSI Program at 31,000 sites, as well as 256
MW installed through other programs."
Solar Level Incentive Design - The CSI Program is designed to be
responsive to economies of scale in the California solar market
- as the solar market grows, it was expected that solar system
costs would drop and incentives offered through the program to
decline. The CPUC divided the overall megawatt goal for the
incentive program into 10 programmatic incentive level steps
(aka buckets), and assigned a target amount of capacity in each
step to receive an incentive based on dollars per-watt or cents
per-kilowatt-hour. The MW targets in each incentive step level
are assigned to particular customer classes (residential,
commercial, and government/non-profit) and allocated across the
three IOU service territories, in proportion with each group's
contribution to overall state electricity sales.
Once all the MW targets in a particular incentive step level are
reserved via a CSI application, which can occur at different
times for each customer class in each utility service territory,
the incentive level offered by the CSI Program automatically
reduces to the next lower incentive step level. This creates a
demand-driven incentive program that adjusts solar incentive
levels based on local solar market conditions.
The CSI Program pays solar consumers their incentive either all
at once for smaller systems or over the course of five years for
larger systems. Smaller systems receive an upfront,
capacity-based incentive that is adjusted based on expected
system performance, called the Expected Performance-Based
Buy-down (EPBB). Larger systems receive incentives based on
their actual performance over the course of five years, called
the Performance Based Incentive (PBI).
The purpose of the PBI was to create a greater incentive to
install a solar system in a way to maximize production and to
maintain the system to achieve optimum performance.
Funding Shortfall - In the summer of 2010 the CPUC announced
that sufficient funding would not be available to meet the
capacity goals for non-residential solar PV installations. To
address the shortfall, the CPUC suspended reservations for
non-residential installation on July 9th, 2010 so that it could
analyze the program status and take comment on how to address
the anticipated shortfall. By July 28th the CPUC lifted the
suspension without a remedy for the shortfall. Last fall
funding was depleted in the territories of PG&E and SDG&E when
non-residential installations hit step 8. Edison is still at
step 7 and is expected to have to suspend installations later
this year.
At its Sept. 23, 2010, business meeting, the CPUC unanimously
approved the transfer of $40 million from the CSI program's
administrative budget to the non-residential program. It is
estimated that the shortfall is still as much as $200 million.
Shortfall Causes - Basically the CPUC budget which was adopted
four to five years ago didn't pencil out. At the time the
budget was constructed the CPUC acknowledged that CSI budget
planning is complicated because of uncertainty from many sources
including how much electricity individual PBI systems would
actually produce and earn in incentive payments over the five
year PBI payment period and the rate of participation and
incentive payments for government and nonprofit entities.
Because non-profits and government entities are not eligible for
the 30% federal tax grants and credits, the CSI program has
provided incentive payments 15% higher than other commercial and
residential systems whose owners could take advantage of the
federal funding.
The most significant factor affecting the shortfall was likely
the decision of the CPUC to include a discount rate of 8% when
calculating the incentives for systems that would have to wait
five years to receive the full incentive payout under the PBI
mechanism. This adjustment was intended to ensure that customers
receiving PBI incentives would be indifferent to receiving an
upfront incentive versus an incentive paid out over five years.
However, a rate of 8%, the commencement of which coincided with
the timing of the recession, is questionable.
COMMENTS
1. Author's Purpose . Funding for non-residential
incentives in the CSI's 10-tier'd, performance based
declining incentive program, is exhausted in two IOU
service territories - PG&E & SDG&E. At the 8th tier
incentives make up about 5% of the total costs for
non-residential solar installation. SB 585 is needed to
ensure that the goals of the program are met and seeks to
provide a means to identify additional funding for that
purpose.
2. Will it Really Make a Difference ? The incentive
provided for systems in step 8 represents less than 5% of
the installed costs of a solar PV system. Arguably this
amount should not affect the decision to install a system.
At steps 9 and 10 the amount will drop even more. The true
impact for CSI participation comes from net metering and
the 30% federal tax grants and credits available. However,
collectively, the funds necessary to cover buckets 8, 9,
and 10 is as much as $200 million. Approximately $30
million is available from accrued interest leaving as much
as $170 million to be collected from electric ratepayers.
The California Center for Sustainable Energy, which acts as
the administrator for SDG&E's customer programs, opines
that "�a]lteration to the incentive structure would
introduce uncertainty into the market and would likely have
a detrimental impact on the continued growth of
California's solar industry."
3. Cost/Benefit Allocation . The Utility Reform Network
(TURN) has not opposed an additional collection to address
the shortfall but is concerned that the collection would be
assessed across the board on all ratepayers, including
residential, for a program incentive that would only
benefit non-residential customers. They report that
residential ratepayers cover approximately 50% of the
collections but that "�w]hen the CPUC allocated the
incentives to the residential, non-residential, and
government/non-profit sectors, the original intent was that
about 33% of the incentives would fund residential systems,
about 47% would fund the commercial/industrial systems, and
about 20% would fund government/non-profit systems?" To
correct the inequity TURN argues that revenues should be
"collected from customer classes in proportion to the
allocation of the incentives among customer classes" and
that any "incremental collections for funding the
nonresidential incentive steps shall be collected in rates
from non-residential customers only."
4. Will It Be Enough ? Several factors contributed to the
shortfall but it is troublesome that the CPUC did not hold
to its original July 9th decision to suspend reservations
until it could find a more equitable remedy than just
continuing the same funding levels and discount rates until
funds were exhausted. The CPUC now has a proceeding open
to address the shortfall going forward but the outcome is
not clear.
Should this bill pass it is not apparent that the CPUC
would address the causes of the shortfalls going forward or
just continue to use the additional fund revenue under the
same policies that contributed to the problem. The author
and committee may wish to consider, as a condition of
additional funding, prohibiting the CPUC from using a
discount rate on the PBI through the end of the program.
This would help to ensure that the funds are used
judiciously.
POSITIONS
Sponsor:
California Solar Energy Industry Association
Solar Alliance
Support:
AEE Solar, Inc.
Coalition for Adequate School Housing
KyotoUSA
Mainstream Energy Corp.
REC Solar, Inc.
School Innovations & Advocacy
Sharp Solar Electricity
Solar Alliance
SolarCity
Solaria Corporation
SPG Solar Inc.
TerraVerde Renewable Partners
The Vote Solar Initiative
Oppose:
The Utility Reform Network (unless amended)
Kellie Smith
SB 585 Analysis
Hearing Date: April 5, 2011