SB 32 passed out of the Legislature and heads to the Governor’s desk. Some thoughts on what the bill would do, and implications.
The bill establishes a feed-in tariff for renewable energy facilities up to 3 MW in size. The feed-in tariff would be in effect until covered utilities–both investor-owned and public–install their proportion of a 750 MW statewide goal.
The price
The bill requires the California Public Utilities Commission to set a fixed price based on the market price, including the cost of current and anticipated compliance with environmental regulations, and allows the commission to consider additional adders such as time of delivery, and the value of offsetting peak demand on a distribution circuit. It also requires that the rate be set so that ratepayers are ‘indifferent’ to the existence of the program. The CPUC would establish this price through a proceeding that it expects would take 18 months.
What does this mean and how will it play out? Well, no one can say for sure. But one can make an educated guess, and here’s my best prognostication (in consultation with my betters):
The market price is the market price referent (MPR), an annual calculation of the 20 year levelized cost of energy for a combined cycle gas turbine (meant to be the proxy for the next marginal generation unit). It’s about 11.1 cents/kWh for a 20 year contract this year, but with the price of natural gas falling dramatically, it’s expected to drop 15 to 20% next year. So, call it 9.5 cents, optimistically. The MPR already contains an adder for greenhouse gases (starts at $10 per ton in 2012 and grows to $42.50 per ton in 2020 and $94 per ton in 2030 as per AB 32 compliance projections using Syanpse’s meta study of GHG modeling performed to date). The MPR also already includes emission reduction values for criteria pollutants (NOx, SOx, PM10), and I can’t think of any other values for ‘environmental compliance’ that might be added above deminimus amounts.
The time-of-delivery factor, on a levelized basis modeled for PV production, using PV WATTS and assuming Sacramento as a proxy for statewide insolation, comes out as follows: PG&E – 1.13, SDG&E – 1.24, SCE – 1.35. Let’s use SCE’s value, on the high side. That’s 9.5 c/kWh* 1.35, and now we are up to 12.8 cents/kWh.
Now for the last bit. The Commission “may establish a value for an electric generation facility located on a distribution circuit that generates electricity at a time and in a manner so as to offset the peak demand on the distribution circuit.” Now, the value of avoided cost is the subject of a 30 Years War before the Commission, and you can expect this metric to be hotly debated by diverse interests as flank fight in the QF proceeding. But using E3′s methodology, experts say we can’t expect more than 2-4 cents. If we take the optimistic scenario and add 4 cents, we are up to 16.8 cents per kWh, total, best case, SCE territory only.
Note that that’s best case, plus or minus a smidge–the proceeding could very well come out significantly less. And values in PG&E territory will definitely be much less.
Another important point to note is that this best-case pricing may only apply to specific distribution circuits where the offset of peak is highest. Facilities on other circuits may very well obtain less value, and the tariff might be less. Same goes for the ‘cost of compliance’. There are 35 air districts in California, and if the values baked into the MPR are not accepted in the CPUC proceeding, we could end up with a situation where every air district has a different tariff.
Bounding all of this speculative calculation is the provision that “ratepayers that do not receive service pursuant to the tariff are indifferent to whether a ratepayer with an electric generation facility receives service pursuant to the tariff.” It’s hard to know what the Commission will interpret the provision to mean. I think we can expect that some ratepayer advocates to argue that the tariff should not be above any other renewable contract (many of which are under MPR). The counter, of course, is that to date (and who knows what the circumstances will be at the time of the proceeding) regulated utilities are not in compliance with RPS goals, clearly any Commission proceeding should not countenance non-compliance, so a tariff higher than other contract amounts is warranted and ratepayers are indifferent. But who knows?
Where might this be useful
Most retail rates in the state are above 16.8 cents, and it is a sure bet that retail rates are more likely to rise than fall over the next 20 to 25 years. Presented with a choice of a tariff at 16.8 cents/kWh fixed for 20 years, any customer with on-site load will be much better off, financially speaking, using their production to serve on-site load and offsetting retail utility bills.
But anyone that chooses the tariff instead of net metering better be sure that that’s the way they want to go–the bill explicitly prohibits anyone that elects to use the tariff from ever participating in a net metering program, now or in the future.
My guess is that tariff will primarily be utilized in situations where there is no or minimal load to serve. Think 3 MW solar farms near jammed substations.
Some additional factors
The bill allows current installations performed under the California Solar Initiative to participate, pending a Commission decision on whether or how much of the CSI incentive should be refunded. We would have much preferred that the tariff be available only apply to new installations–our preference would be to add new installations and create new business opportunities.
The blanket anti-net metering provision forces an unnecessary and unwelcome choice. The prohibition against net metering should apply at a system, not customer level. While it makes a certain amount of sense to require systems installed under a wholesale contract to remain dedicated to wholesale production, there’s no reason why individual customers shouldn’t be able to simultaneously net meter with one system and sell wholesale to the utility with another. It should be clear to everyone that there is a conspiracy of interests in Sacramento to undercut net metering. This provision will limit siting opportunities.
The price may or may not be sufficient to get deals done. 16.8 cents/kWh (again, that’s the high side) is an aggressive price point. While the pricing approach follows a path we initially pursued in the CPUC feed-in tariff proceeding, and is clearly better than what we had before, at this point I prefer the CPUC’s current staff proposal–which guarantees a market, and lets competition find the right price. How this will interact with with the current CPUC proceeding is another big unknown. In previous proceedings the CPUC has steered clear of areas where the Legislature has spoken. If that precedent is followed, the Commission may elect to have the SB 32 FiT apply to systems under 3 MW, and have the staff proposal–the market-based FiT–apply from 3-10 MW. If this happens, the 0-3 MW market will have to wait 18 months for the pricing proceeding to conclude, while the 3-10 MW market goes forward in the first half of next year. Again, this is all speculation.
There are a lot of factors involved, and how this will all play out is anyone’s guess. These are our best guesses–your mileage may vary. If you think we’ve gotten any of this wrong, let us know–
**ADDED**
A couple of people have asked if it is really true that the MPR already contains compliance costs of criteria pollutants (NOx, SOx, PM). The answer is yes. This has been triple-verified with the CPUC staff that actually develop the MPR. Levelized over 20 years, it’s also a very small component to the overall cost, so even if it were added in again, the impact would be measured by small fractions of a penny. The MPR also already assumes dry-cooling, which would account for any future changes in water regulations.
What’s also becoming more clear is that the CPUC staff sees SB 32 and the CPUC proceeding as functionally and practically incompatible, due to market design and staff resource issues combined.
SB 32 became effective on January 1, 2010 and needs to be implemented through a CPUC proceeding before projects can utilize the new tariff. Do you know when this will be an Agenda item in 2010 so we can begin projects up to 3MW under the PG&E SGIP?