BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE MARTHA M. ESCUTIA, CHAIRWOMAN AB 1383 - Pavley Hearing Date: June 30, 2005 A As Amended: June 22, 2005 FISCAL B 1 3 8 3 DESCRIPTION Current law establishes several programs to subsidize the cost of photovoltaic (PV) systems used by retail electric customers. These subsidies are up-front discounts on the installed cost of such systems. This bill creates a revolving loan program, administered by the California Energy Commission (CEC), for use by affordable housing developers to finance up to 75% of the cost of photovoltaic systems. The program is funded out of existing funds set aside for photovoltaic subsidies. The program sunsets on January 1, 2016. BACKGROUND What's a Photovoltaic System? A photovoltaic, or PV, system has two main parts, the roof-mounted PV panels which transform sunlight into electricity and the inverter which transforms the direct current created by the PV panels into alternating current which is usable in the home or on the electric grid. The orientation of the PV panels is crucial to the success of the system; they must be south- or west-facing. The panels must not be shaded and should be angled to capture the most sunlight. A typical residential PV system is 2kw - 4kw. The installed cost is about $9000/kw so a 3kw system would cost $27,000. Rebates have been as high as $4500/kw and are now at $2,800/kw, so the 3kw system would today cost $18,600 after rebates. A state tax credit would further reduce the price by 7.5% to $17,205. For commercial customers the final after-tax cost is much lower because of greatly accelerated depreciation and a 10% federal tax credit. Current Subsidies California has several subsidy programs targeted specifically at PV systems. The CEC administers a program for residential- and small commercial-sized PV systems that provides a rebate for a portion of the installed cost of a PV system. That rebate was initially $4.50/watt, or about 50% of the system cost, and has since been lowered to $2.80/watt. This program is funded through the Public Goods Charge (PGC), which is a surcharge on all IOU electric customers, and is budgeted at about $30 million annually, though in 2004 the program spent $70 million on PV. The CPUC administers a similar program for commercial-sized customer-owned generation, including PV systems. This program, known as the Self-Generation Incentive Program (SGIP), costs $125 million annually and is paid for out of electric rates. The SGIP PV subsidy is $3.50/watt and is oversubscribed. In addition to these two subsidy programs there are numerous other state and federal programs which substantially reduce the after-tax cost of PV systems, particularly for commercial customers. These include a 10% federal tax credit, accelerated depreciation, a 7.5% state tax credit, accelerated depreciation for state taxes, and favorable property tax treatment. By themselves these tax benefits for commercial customers are worth more than the state subsidy, according to CEC estimates. Other state subsidies are net metering, which reverses the electric meter as electricity is produced, and an exemption from exit fees. Affordable Housing Of the 20,000 affordable housing units built annually in California, about 5000 are financed through tax credits. The tax credit financing, which is administered by the California Tax Credit Allocation Committee, an arm of state government whose voting members include the Governor, Treasurer, and Controller, uses the funds from the sales of tax credits to investors. The amount of tax credits allocated to any affordable housing project is reduced by any revenue received by the project, which includes rebates for PV systems. For this reason solar rebates do not encourage the use of PV systems in affordable housing projects that rely on tax credit financing. COMMENTS 1. Program Funding -- If SB 1 (Murray and Campbell), the Governor's Million Solar Roofs proposal that is working its way through the Legislature, is enacted, this program will be funded from the same sources of funding as that used in SB 1, the CPUC's SGIP program and the CEC's PGC-funded program. The level of funding is determined by the CEC, but not to exceed 10% of overall funds. If SB 1 is not enacted then the CEC determines how much is needed and obtains half each from the CPUC program and CEC program, the total not exceeding 10% of either programs fund balance as of July 1, 2005. There are two technical issues regarding the funding of the program in the event that SB 1 is not enacted. The first is that the bill appears to require only a one-time infusion of capital, rather than ongoing funding, and the second is that the transfer of funds is based on the balance as of a specific date, rather than program expenditures over a fiscal year. The author and committee may wish to consider making these changes. In the event that SB 1 is not enacted, the SGIP program and the PGC program expire in 2007 and 2008 respectively, leaving this program without a long-term funding source. 2. Program Construction -- The CEC has provided the author with technical assistance by making this program administratively very similar to an existing CEC revolving loan program. 3. Interest Rate -- The bill gives the CEC the authority to establish the interest rate for this loan program. (The interest rate for an existing CEC revolving loan program is currently 4.5%.) The bill requires a lower interest rate for buildings which exceed existing energy efficiency standards. 4. Vague Goal -- The program does not establish numeric goals. It simply states that the goal is to place solar energy systems on affordable housing units in the first year of the program. 5. Continuous Appropriation -- The funds for this program are continuously appropriated. 6. Pending legislation -- Several PV bills are pending this session. SB 1 establishes a comprehensive PV program and is pending in the Assembly Utilities and Commerce Committee. SB 816 (Kehoe) expands net metering in the service territory of San Diego Gas and Electric Company and is pending in the Assembly Appropriations Committee. 7. Technical amendment - Page 11, lines 27 and 29. Replace "To" with "The commission may" ASSEMBLY VOTES Assembly Floor (47-32) Assembly Appropriations Committee (13-5) Assembly Utilities and Commerce Committee (7-3) Assembly Housing and Community Development Committee (5-1) POSITIONS Sponsor: Global Green Support: American Federation of State, County, and Municipal Employees Sierra Club California Western Center on Law and Poverty Oppose: None on file Randy Chinn AB 1383 Analysis Hearing Date: June 30, 2005