1. Questions? Please contact the Office of Governmental Affairs at (916) 327-3277 California Public Utilities Commission Legislative Briefing November 17, 2008 Distributed Generation and California Solar Initiative: Policies, Programs, and Progress!

2. 2 Presentation Overview What is Distributed Generation? CPUC Policies & Programs Customer-Side Distributed Generation Net energy metering and interconnection policies CSI SGIP Wholesale Distributed Generation Interconnection Policies RPS QFs Utility ownership Feed-in-Tariffs Summary of challenges and opportunities

3. 3 Energy Action Plan: “ Loading Order ”  Energy efficiency  Demand response  Distributed generation  Renewable generation  Cleanest available fossil resources Source: http://www.cpuc.ca.gov/PUC/energy/electric/energy+action+plan/

4. 4 What is Distributed Generation? DG Technologies include: Solar Photovoltaics (PV) Solar thermal Electric generating Concentrated solar power (CSP) Stirling Electric displacing Water heating and cooling Space heating and cooling Process heat Wind Fuel Cells Fuel = natural gas/biogas/hydrogen Combined Heat & Power applications Combustion technologies Microturbines Internal Combustion Engines Fuel = natural gas/biogas/hydrogen Combined Heat & Power applications Distributed storage DG is: Generation connected at distribution voltage (not transmission voltage) Size options: 1 kW to 20 MW Location options Customer-sited generation Wholesale generation Merchant owned Utility owned Customer owned Can provide voltage support Can provide local reliability & system capacity Can provide Transmission & Distribution deferral option for utility

5. 5 Why DG Matters Reduces GHG Helps meet RPS Can enhance grid reliability Empowers consumers Hastens the grid of the future

6. 6 Distributed Generation Policies & Programs DG TypePoliciesPrograms Customer-Side Generation Upfront Incentives Projects sized to customer load DG projects reduce demand (like EE) RECs retained by customer (kWh user) Exempt from many interconnection charges Net Energy Metering Solar: California Solar Initiative & CEC New Solar Homes Program Self Generation Incentive Program Emerging Renewables Program Utility side of the Meter -- Wholesale Generation/ Utility Procurement Various contract paths, price depends on contract Projects designed as net export to grid Energy and Capacity used for utility procurement obligations RECs owned by energy buyer Projects interconnect with CPUC Rule 21 and/or FERC SGIP rules Utility owned and Independently owned Renewable Portfolio Standard Competitive Solicitations Bilateral Contracts Standard Offer Contracts Feed-In Tariffs (< 1.5 MW) Power Purchase Agreements Utility Ownership Proposals Qualifying Facility Contracts Standard Offer Contract * Note: There are other customer-side generation programs not overseen by the CPUC; including the New Solar Homes Partnership and programs sponsored at Publicly Owned Utilities

7. 7 Solar - Installations and Pipeline Sources: CEC Grid Tied PV Summary (April 2008), CEC Power Plant Database (2007), CPUC Staff Progress Report on CSI (October 2008), CPUC 20% by 2010 RPS Project Tracking Spreadsheet (3rd Quarter 2008) Solar Project TypeProgramInstalledIdentified Project Pipeline PVCSPPVCSP Customer -Side Generation California Solar Initiative (CSI)121 MW~169+ MW ~ Prior programs + rest of state271 MW~?~ Wholesale Generation/ Utility Procurement Renewable Portfolio Standard~~815 MW2800 MW Feed-In Tariffs < 1.5 MW~~~~ Utility Ownership Proposals2 MWn/a300 + MW n/a Qualifying Facility Contracts~356 MW~ ~ Total (4832 MW) 750 MW4084+ MW The CSI program has a 10 year CPUC goal of 1,940 MW – of which 15% of the 10 year goal has been installed or identified. The RPS and QF solar projects and contracts noted here are mostly not DG, but are solar.

8. 8 Net Energy Metering and Interconnection Policy California Solar Initiative Self Generation Incentive Program Customer-Side Distributed Generation

9. 9 Net Energy Metering Net Energy Metering: Customers may offset utility charges with credits from onsite power production. NEM customers are exempt from standby charges and interconnection fees. NEM Rates: Full retail NEM - credit based on the full retail rate (PUC Section 2827) Solar up to 1MW; Wind up to 50kW Capped at 2.5% of utility’s peak demand* Generation only NEM - credit based on generation portion of the rate Wind between 50kW and 1MW (PUC Section 2827.8) Biogas generation up to 1MW (PUC Section 2827.9) Fuel Cells up to 1MW (PUC Section 2827.10) Investor Owned UtilityPG&ESCESDG&E NEM penetration (MW)231.9 MWNA43.6 MW Total Peak Demand (MW)20,258 MWNA4,318 MW %1.14%NA1.01% *NEM penetration by Investor Owned Utility (as of 10/2008)

10. 10 Virtual Net Metering for Multifamily Affordable Housing VNM for MASH: one solar system, one building, multiple tenants Allows for allocation of NEM benefits from a single solar system to all meters on an individually metered multifamily affordable housing property PV Gen Meter Tenant Comm. Area Tenant Utility Meters How it works: Solar output flows to utility grid and tracked by utility Utility provides energy credit according to NEM rules to each individually metered account (common area and tenant) Credit at OAT rate for each account

11. 11 NEM Challenges and Opportunities Challenges: 2.5% cap will be reached before CSI funds/goals reached – potentially as soon as 2010 Challenges for multi-tenant properties Virtual Net Metering concept to be considered in CPUC proceeding for expansion beyond affordable housing Opportunities: Legislative action required to address 2.5% cap.

12. 12 California Solar Initiative Goals 3,000 MW of new customer-owned distributed solar Self-sustaining solar industry free from ratepayer funded incentives Budget $3.3 billion budget (2007-2016) Split between different utility areas Long-term policy framework Uniform incentive eligibility guidelines statewide Provides incentives that encourage solar performance Incentives decline based on program demand Funds customer-side PV and other solar Other Program Components Low Income Program Research & Development Program Solar Hot Water Pilot program Photo: Don Schramm, P-H-D EnterprisesStadt, 7.74kw STC, May 06, 2008, Stevenson Ranch

13. 13 CSI by Program Component, 2007-2016 Program Authority California Public Utilities Commission California Energy Commission Publicly Owned Utilities (POU) Budget$2,167 million$400 million$784 million Solar Goals (MW) 1,940 MW360 MW700 MW ScopeAll systems in IOU areas except new homes New homes, IOU territories All systems in POU areas AudienceVariousBuilders, home buyers Various Start DateJanuary 2007 January 2008

14. 14 CPUC CSI Budget 2007-2016 Program Category Budget ($ Million) General Market Program Subtotal$1,897 Direct Incentives to Consumers$1,707 Program Administration, Marketing & Outreach, Evaluation (10%)$190 Low-Income Programs (10%)$217 Research, Development, Deployment and Demonstration (RD&D)$50 San Diego Regional Energy Office Solar Hot Water Pilot$2.6 Total CPUC CSI Budget$2,167 3 CPUC Program Administrators Pacific Gas & Electric Southern California Edison California Center for Sustainable Energy (CCSE) [In SDG&E territory] CPUC 1,940 MW Goal 1,750 MW from general market program 190 MW from low-income program

15. 15 Incentives decline as demand grows: CPUC part of program has a goal of 1,750 MW

16. 16 California installed 392 MW PV at 40,000+ sites thru October 2008

17. 17 California Solar Initiative - 2008 Progress Staff Progress Report available at: www.GoSolarCalifornia.ca.gov

18. 18 CSI Applications By IOU Territory

19. 19 Current Incentive Levels in CA - Oct 2008 Incentive Levels $1.90/watt - Residential Except SCE: $2.20/watt $1.55/watt - Commercial $2.30/watt - Non-Profit/Govt Always available at csi.trigger.com

20. 20 CaliforniaSolarStatistics.org

21. 21 Federal Tax LiabilityCARE-Eligible ($ / W) Not CARE Eligible $0$7.00$5.75 $1 - $1,000$6.50$5.25 $1,001 - $2,000$6.00$4.75 Statewide Program Manager expected to be under contract in Nov. 2008 Applications for incentives will be available in early 2009 Single-Family Low-Income Program Established by Commission decision November 2007, $108 million budget Provides fully subsidized 1kW systems to applicants who qualify Provides two higher incentives to other low income households, according to tax liability:

22. 22 Established by Commission decision October 2008, $108 million budget Goals: Stimulate adoption of solar power in the affordable housing sector Decrease electricity use and costs w/o increasing monthly expenses Two approaches to receive solar incentives through MASH: Track 1 - $/watt incentives that vary depending on whether the system offsets common area usage of the property or individual tenant usage: Track 2 – competitive grant process for higher incentives for innovative projects that demonstrate direct tenant benefits Multifamily Affordable Solar Housing (MASH) Track 1A: PV System Offsetting Common Area Load Track 1B: PV System Offsetting Tenant Load $3.30/watt$4.00/watt

23. 23 Research, Development and Deployment (RD&D) Program CSI RD&D Program: $50 million budget CSI RD&D is a portfolio based grant-making program that focuses on overcoming technological barriers to the widespread adoption of solar distributed generation RD&D Program progress to-date and timeline: Selected Itron, Inc. as Program Manager Next steps: Finalize RD&D grant-making strategy (Q4 of 2008) Stakeholder meeting (Q1 of 2009) First RD&D grant RFP released (Q3/Q4 2009) note that all above dates are targets not set deadlines

24. 24 Solar Water Heating - CSI Pilot Current Solar Water Heating Pilot Program in San Diego Gas & Electric Area (Administered by CCSE) Budget of $1.5 million; Target of 750 systems Funds gas and electric displacing solar water heating systems Future Further CPUC policy decisions that will be informed by evaluation of current pilot Gas Displacing Systems AB 1470 (Huffman, 2007) authorizes the CPUC to develop a statewide Solar Water Heating incentive program Budget of $250 million; Target of 200,000 systems Funded by gas ratepayers Electric Displacing Systems CSI program could fund SWH under “Non-PV” portion of CSI Funded by electric ratepayers

25. 25 Solar Water Heating – AB 1470 Evaluation of Solar Water Heating Pilot CCSE and Itron Inc. have completed a white paper outlining analytical methods of evaluation of Solar Water Heating Pilot Program Interim evaluation report to be released late- November Next Step is for CPUC to assess cost-effectiveness of statewide solar water heating incentives CPUC and AB 1470 CPUC will issue a staff proposal on AB 1470 CPUC will hold a public workshop to consider staff proposal and AB 1470 implementation

26. 26 Self Generation Incentive Program Overview One of the largest DG incentive programs in US Represents over $1.5 billion in total project costs 320 MW of installed capacity 1,200+ clean DG systems Provides capacity-based incentives for clean DG at customer sites History Started in 2001 in response to CA peak demand problems Solar PV moved from SGIP to CSI in 2007 AB 2778 (Lieber, 2006) extended SGIP through 2011, limited technologies to only wind and fuel cells as of 2008 Incentive cap increased from 1 MW to 3 MW (April ‘08) Storage (bundled with wind or fuel cells) included (Nov. ‘08)

27. 27 SGIP Technologies SGIP TechnologyFuel TypeEligibility Status Fuel cellNatural Gas/ BiogasCurrently Eligible Wind turbinesWindCurrently Eligible Internal-combustion enginesNatural Gas/ BiogasRemoved from SGIP 1/1/2008 MicroturbinesNatural Gas/ BiogasRemoved from SGIP 1/1/2008 Small gas turbinesNatural Gas/ BiogasRemoved from SGIP 1/1/2008 Solar PVSunMoved from SGIP to CSI 1/1/2007 Eligible technologies include both renewable and fossil fuel powered systems Currently, only wind and fuel cells are eligible for SGIP, per statute

28. 28 SGIP – Greenhouse Gas Emissions Impacts Technology Tons of CO2 eq. Reduced Annual Energy Impact (MWh) CO2 eq. Factor (tons/MWh) Combustion Technologies - Renewable38,12744,0710.87 Solar96,621161,7700.60 Wind1,4542,4260.60 Fuel Cells - Renewable6025,5400.24 Fuel Cells - Nonrenewable11,09849,5990.22 CHP Combustion Technologies – Nonrenewable-26,492460,852-0.06 Total121,410724,2580.17 2007 GHG reductions (tons CO2 equivalent) from all installed SGIP systems

29. 29 Advanced Energy Storage (AES) Recent CPUC Proposed Decision to add AES to SGIP AES must be bundled with wind or fuel cell generating technology AES would receive $2/watt incentive AES as a Distributed Energy Resource: Renewables support – enables supply to be coincident with demand Permanent Load Shifting – shifts demand from on peak to off peak Economic – replaces high cost power with low cost power

30. 30 SGIP Challenges and Opportunities Challenges: SGIP limitation in statute excludes biogas generation and other clean distributed energy resources (DER) AES has potential as stand alone DER and also as compliment to solar Opportunities: Flexibility to determine eligibile technologies for SGIP would encourage development of clean distributed energy resources SGIP could support biogas generation, stand alone AES, clean CHP, other clean DG Ability for CSI to support solar coupled with AES

31. 31 Renewable Portfolio Standard Qualifying Facility contracts Feed-in-Tariffs Utility ownership proposals Wholesale Distributed Generation

32. 32 California’s Renewables Portfolio Standard (RPS) All retail electricity sellers (utilities & ESPs) must procure renewables 20% renewables by 2010 – by law 33% renewables by 2020 – as a policy goal CPUC oversees IOU RPS procurement and compliance Builds upon California’s strong history of renewables procurement through QF Std. Offer contracts in 1980s e.g. 356 MW of concentrated solar installed in early 1980s RPS is technology neutral No specific solar goal Many solar projects are in pipeline And in 2007 – we saw large increase in solar projects bidding on RPS contracts

33. 33 RPS resource mix shifting: more bids and contracts from solar thermal and PV

34. 34 Solar RPS Projects 9 Solar Thermal - 2800 MW 1450 MW Approved 1350 Pending Approval 6 Solar PV = 815 MW 15 MW Approved 800 MW Pending Source: CPUC RPS Website; http://www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/

35. 35 RPS Procurement Process IOU issues solicitation and reviews bids IOU negotiates contracts with short- listed developers IOU submits contract for approval CPUC approves contract Permitting Barrier to 17% of 2010 RPS Energy Deliveries Municipal Agencies (authority to construct, re- zoning) County Agencies (conditional use permit, air permits, water permits, re-zoning, CEQA) Energy Commission (RPS certification, thermal facility certification, CEQA) BBureau of Land Management and other federal agencies (Use permits, NEPA) Site Control Barrier to 14% of 2010 RPS Energy Deliveries Bureau of Land Management, Other Federal Land Management Agencies may grant right-of- way/use permits based on studies (e.g., NEPA) OR Lease/ownership contract with private party Transmission Barrier to 31% of 2010 RPS Energy Deliveries CCAISO Generator Interconnection (Apply & enter queue; CAISO/utility performs studies; sign Interconnection Agreement) CCAISO Develops Overall Transmission Plan (CAISO-utility-stakeholder process; CAISO Board approval) CPUC Approval (CEQA, CPCN) Equipment Procurement & Construction Barrier to 2% of 2010 RPS Energy Deliveries Shortage of equipment (turbines, etc.) Escalating commodity costs (steel, concrete) Financing Barrier to 17% of 2010 RPS Energy Deliveries Extension of Production and Investment Tax Credits needed Project Development Process RPS Procurement + Development Process

36. 36 Qualifying Facilities Program QF program started in early 1980s Provided contracts to over 8,000 MW of CHP and renewables at CPUC adopted avoided cost QF contracts have been “expiring”, therefore: Decision in September 2007 revised avoided cost formula, i.e. set a new price for QFs Focus was on existing sites, but decision opened QF contract to new facilities IOUs are expected to have one uniform standard offer QF contract Contract has been in negotiations since 9/07 so not yet available

37. 37 AB 1613 – Feed In Tariff on CHP AB 1613 (Blakeslee, 2007) requires CPUC to adopt terms and conditions for utility procurement of Combined Heat and Power distributed generation via a Feed-in-Tariff Fixed or variable price to be determined by the CPUC Eligibility: CHP up to 20MW CHP systems must be sized to meet customer’s thermal load. Only new CHP systems (installed after January 1, 2008) are eligible. NOX emissions limit of 0.07 pounds per MWh CPUC Rulemaking (R.) 08-06-024 currently open is considering pricing, terms and conditions for feed-in- tariff

38. 38 Small Renewables Feed-in-Tariff Originally only for water/wastewater customers, expanded to include all customers All eligible RPS technologies, including solar Projects up to 1.5 MW; Considering expansion to 20 MW Price set by law at “market price referent” (MPR) Reference point of MPR is a new combined cycle gas plant MPR is adjusted for time and season * Solar produces largely on peak so receives a slightly higher average rate

39. 39 Small Renewables Feed-in-Tariff – Challenges and Opportunities Challenges: Price may be too low for some technologies (solar) Statutory change required Current size cap (1.5MW) may limit participation by small generators that can’t compete in RPS Expansion up to 20MW currently being considered in CPUC proceeding Opportunities: FiT could provide a “bridge” between customer-side DG and larger scale wholesale renewables procurement FiT that includes pricing flexibility could attract more renewable generation at a cost neutral for ratepayers Locational value – DG provides benefits to grid if sited appropriately Renewable value – Price should reflect that capacity counts toward utility RPS requirements

40. 40 Utility Owned DG Proposals In March 2008, SCE requested approval to spend $875M to install 250 MW of utility owned distributed rooftop solar Would be SCE owned Would serve its load at the distribution level ($3.50/Watt) Would use leased roof space Would contribute to RPS as utility procurement Would be included in ratebase Would be first of its kind utility scale investment Requires CPUC approval If approved, SCE would go out to bid to see if any suppliers could meet the price In July 2008, SDG&E filed similar application for 77 MW of solar.

41. 41 Summary of Challenges and Opportunities NEM Consideration of 2.5% cap SGIP Focus on distributed energy resources to provide technology flexibility Advanced Energy Storage coupled with solar Small Renewables Feed-in-Tariff Possible Expansion of AB 1969 FiT Price flexibility System size cap