On May 16, 2016, California Public Utilities Commission (CPUC or Commission) President Michael Picker issued a proposed decision, "Re Revising the Self-Generation Incentive Program Pursuant to Senate Bill 861, Assembly Bill 1478, and Implementing Other Changes" (Proposed Decision). This proposal would restructure California's Self-Generation Incentive Program (SGIP) in numerous significant ways, including allocating 75 percent of program funds to energy storage projects, making all incentive dollars available under a declining incentive "step" structure, changing the previous manufacturer concentration limit to a 20 percent statewide developer cap, and allocating incentives under a lottery system. These changes are intended to better align the program with its statutory goals.
Background
The SGIP program began in 2001 and currently provides financial incentives for the development of distributed energy technologies that meet all or a portion of the electricity needs of a customer of one of the state's three large investor-owned utilities.1 The purpose of this program is to "increase deployment of distributed generation and energy storage systems to facilitate the integration of those resources into the electrical grid, improve efficiency and reliability of the distribution and transmission system, and reduce emissions of greenhouse gases, peak demand, and ratepayer costs."2 Current technologies supported by the program include behind-the-meter wind, waste heat to power, pressure reduction turbines, combined heat and power projects, advanced energy storage projects, and fuel cells. As of the end of 2014, SGIP had incentivized 354 MW of distributed energy across 769 projects throughout California.3
In 2014, the California legislature enacted several changes to the SGIP program in Senate Bill 861 and Assembly Bill 1478, including authorizing ratepayer funding through 2019, restricting the program to technologies that reduce load and air pollution and are commercially available and safe, and requiring program success to be measured based on program goals, such as reducing greenhouse gas emissions and improving grid reliability. The legislature directed the Commission to implement these changes. After several rounds of public comment, workshops, and a proposal by CPUC staff regarding ways in which the SGIP could be improved to better carry out its legislative purposes, on May 16, 2016, Commission President Michael Picker issued the Proposed Decision.
Policy Highlights of the Proposed Decision
Incentive Step Decline. Under the Proposed Decision, the approximately $270 million in remaining incentives authorized for the SGIP will become available once the revised program is implemented, rather than allocating portions of this amount over the next 4 years. Similar to the successful California Solar Initiative, the incentive amounts will be subject to step-downs, where incentive amounts decline upon reservation of a dollar-based budget for each step, as set forth below.
Proposed Incentives for Generation Technologies ($/W)4
Proposed Incentives for Energy Storage Technologies ($/Wh)5
Revised Technology-Based Budget Allocations. Currently, 75 percent of available SGIP incentive dollars is available to wind, waste heat to power, pressure reduction turbines, advanced energy storage, and fuel cells, and 25 percent is allocated to non-renewable fueled CHP projects. In light of SGIP program goals, the Proposed Decision would now allocate 75 percent of incentives to energy storage and 25 percent to generation technologies. Of the 75 percent of the budget for energy storage, the Proposed Decision would reserve 15 percent for projects less than 10kW in size.
Natural Gas-Fired Technologies. Although a prior CPUC staff proposal had recommended ending the allocation of incentives to natural gas-fired electric-only fuel cells and microturbines, the Proposed Decision would allow these technologies to remain in the SGIP program. Of the 25 percent of the total SGIP budget set aside for generation projects, 10 percent is reserved for renewables, however, and gas-fired technologies must be at least 10 percent biogas-fueled beginning in 2017, increasing to 100 percent by 2020.
Energy Storage Incentive Rates and Requirements. The Proposed Decision would decrease the incentive amounts currently allocated to storage projects, which was $1.31/Watt at the beginning of 2016. These incentives would now begin at $0.50/Wh and decline to $0.30/Wh over the five steps. The rationale for this change provided in the Proposed Decision was the extremely rapid reservation of incentives at the current rates. Furthermore, energy storage incentives will now be awarded based on energy produced (measured in Watt-hours), rather than the prior capacity-based awards (which are measured in Watts). In addition, commercial energy storage projects will be required to discharge at least 260 hours per year under the Proposed Decision.
DC-Based Technologies. The Proposed Decision would make clear that SGIP incentives are available for DC-based generation and storage components of a DC microgrid, and that the SGIP program is AC/DC "agnostic." The Proposed Decision declines, however, to approve an incentive "adder" for the energy savings through reductions in power conversion losses made possible by DC microgrids. The capacity of energy storage systems paired with generation technologies will now be capped based on the host customer's load, rather than the size of the generation system, which will resolve certain ambiguities regarding the treatment of DC-based microgrids.
Lottery-Based Reservations. If the Proposed Decision is approved, SGIP incentives will be reserved based on a lottery system, with additional priority given to projects that reduce greenhouse gases or provide grid support. This change is intended to avoid the "opening day stampede" that has persisted in the SGIP program.
Developer Cap. The current SGIP program limits the amount of incentives that can be received by any one technology manufacturer at 40 percent of the annual statewide SGIP budget. The Proposed Decision would lower and revise this cap, such that any single project developer/installer (or any combination of affiliated developers/installers under the same majority ownership) will be capped at 20 percent of the budget in each incentive step, on a statewide basis. To enable program administrators to implement this requirement, SGIP applications will now be required to disclose the parent company of the developer/installer (defined as "an entity with a majority ownership interest in the developer/installer (direct parent and ultimate parent, if applicable)."
Application Fee. In order to attempt to reduce the number of SGIP applications, which has overwhelmed available funds in recent years, and to increase the likelihood that adequate due diligence has been conducted on such projects, the Proposed Decision would raise the current 1 percent application fee to 5 percent of the requested incentive amount. This fee will now be due at application submission, whereas it is currently due within 15 days of application submission. Currently, application fees are refunded once the project is completed and verified, but are non-refundable after an applicant receives a conditional reservation or confirmed reservation, and unless and until completion. The Proposed Decision does not alter this rule.
Minimum Customer Investment. Currently, the SGIP program rules require the customer to bear at least 40 percent of total project costs. This meant that the total project costs that could be supported by SGIP, the Investment Tax Credit, or other incentives are limited to 60 percent. The Proposed Decision would do away with this minimum customer investment requirement, in light of the reduced incentive levels and increased application fees.
The Proposed Decision contains several other changes to the SGIP program, as well as responses to stakeholder proposals. Under the proposal, the SGIP program administrators would be required to file a Tier 2 Advice Letter with the CPUC Energy Division within 120 days of Commission approval of the decision, incorporating these changes into SGIP. In addition, the Proposed Decision would order the program administrators to hold a public workshop within 60 days of the effective date of the decision to develop the details of the new lottery-based incentive allocation system. Allocation of SGIP incentives under the new program rules would occur after further Commission order thereafter.
The Proposed Decision represents a balance among numerous industry, utility, environmental, and ratepayer interests. After receiving a round of comments, the full Commission is expected to vote on the Proposed Decision at its meeting on June 23, 2016.
