BILL ANALYSIS
SB 1
Page 1
Date of Hearing: July 6, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
SB 1 (Murray and Campbell) - As Amended: June 23, 2005
As proposed to be amended, RN 17080
SENATE VOTE : 30-5
SUBJECT : Energy: renewable energy resources: Million Solar
Roofs Initiative.
SUMMARY : This bill establishes the Million Solar Roofs
Initiative (MSRI), the goal of which is to place one million
solar energy systems, or the equivalent 3,000 megawatts of
capacity, on new or existing residential and commercial
buildings by 2018. Specifically, this bill :
1)Requires the California Energy Commission (CEC) to develop,
implement, and fund the MSRI, and establish an incentive
program for solar energy systems, as follows:
a) The incentives shall not exceed the subsidy level in
existence on January 1, 2006 ($2.80/watt, or $7,000 for a
2.5kW residential system).
b) The incentives will decline by 7% per year until the
rebate is zero in 2016.
c) The incentives can be increased by 50% for zero energy
homes or zero energy commercial structures. The CEC shall
develop definitions for zero energy homes or zero energy
commercial structures.
d) The incentives can be increased by 25% for solar energy
systems that are installed on structures that that exceed
the CEC's established energy efficiency building standards.
e) Incentives shall not be granted for eligible solar
energy systems installed on the premises of individuals or
entities that are not contributing to the MSRI, except that
incentives can be granted to CARE customers and to an
electrical corporation.
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f) By 2010, 50% of all incentive money shall be spent on
performance incentives that are based on the actual output
of the solar energy system.
2)Requires the CEC to develop eligibility criteria for solar
energy systems to qualify for the rebate, including:
a) That the incentives only be used for distributed
generation installations and not for large facilities
that are owned by the electric utility or by companies
that sell the electricity directly to the utility.
b) The solar energy system must have at least a 10 year
manufacturer's warranty.
3)Requires the CEC to develop incentives that require siting and
installation of solar energy systems to maximize the
performance of the systems during peak demand periods and
energy efficiency improvements in the structure where the
solar energy system is to be placed.
4)Authorizes the CEC to develop a solar energy subsidy program
for affordable housing projects.
5)Requires the CEC in developing the MSRI to:
a) Implement, to the extent appropriate, financing
options to lower the financing costs of solar energy
systems.
b) Provide educational materials and assistance to
builders to help them understand how to integrate solar
energy systems into new construction.
c) Conduct random audits of installed solar energy
systems to evaluate their operational performance.
d) Evaluate the costs and benefits of having an
increased number of solar energy systems as part of
California's electrical system with respect to the solar
energy systems impact on distribution, transmission, and
supply of electricity.
6)Requires the PUC to open a new proceeding to determine the
level of additional funding needed to finance the MSRI.
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Requires cost of this program to be recovered from all
investor owned utilities (IOUs) ratepayers, except ratepayers
participating in the California Alternate Rates for Energy
(CARE) program. (To be eligible to participate in CARE the
household income must be below 175% of the federal poverty
level.)
7)Caps the total amount of money that can be collect from
customers of the three largest IOUs to fund the program at
$1.8 billion.
8)Requires the PUC to require time-variant pricing for all
ratepayers with a solar energy system.
9)Raises the net metering cap from 0.5% to 2%. After the PUC
has developed a time-variant net metering rate, the cap will
be increase to 5%.
10)Provides that a specified rate structure, in effect as of
January 1, 2006, shall remain in effect for non-residential
customers.
11)Requires the CEC to commence a proceeding by July 1, 2006,
and conclude that proceeding within 3 years, to consider if
and when solar energy systems should be required on new
residential and commercial buildings.
12)Requires the CEC to issue an assessment of the success of the
MSRI to the Legislature by January 1, 2009, and every third
year thereafter.
13)Requires sellers of production homes, as defined, to offer
solar energy systems on new homes for which tentative
subdivision maps are completed on or after January 1, 2010.
14)Requires that existing photovoltaic (PV) programs
administered by the PUC and the CEC be terminated when the
MSRI is funded and that all money that would have funded the
programs at the PUC and CEC be deposited in the MSRI Trust
Fund.
15)Requires municipal utilities to adopt a similar program with
proportionate expenditures.
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EXISTING LAW
1)Requires the implementation of a public goods surcharge to
fund energy efficiency; renewable energy; and research,
development and demonstration programs from January 1, 2002,
to January 1, 2012. The surcharge is a nonbypassable element
of the local distribution service and collected on the basis
of usage.
2)Establishes a program of assistance for low-income electric
and gas customers called the California Alternate Rates for
Energy (CARE) program that establishes a discount on electric
and gas bills for eligible customers.
3)Establishes a net metering program whereby residential and
other customers can receive credits to their monthly
electricity bills for up to 12 months for producing and
placing electricity on the grid from PV or other renewable
sources as specified in statute.
4)Establishes incentive programs for PV technologies within the
CEC and PUC. These programs offer varying degrees of
incentive payments per kilowatt-hour for residential or
commercial customers purchasing certain types of renewable
technology like PV cells.
5)Establishes tax exemptions for property tax, interest on
loans, or personal or corporate income tax credits for
customers as a result of increasing energy efficiency or
purchasing renewable technology like solar or wind.
6)Requires IOUs to increase their existing level of renewable
resources by one percent of sales per year until a portfolio
of 20 percent renewable resources is achieved by no later than
2017. Municipal electric utilities are not subject to these
standards, but are required to implement and enforce their own
renewable resource procurement programs.
FISCAL EFFECT : Unknown.
COMMENTS : This is the Governor's MSRI. It establishes the
ambitious goal of installing solar energy systems on one million
residential and commercial properties by 2018. Additionally,
the bill requires builders of new production homes to offer
solar energy systems on all homes at some point after 2010.
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1) 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 installation 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 charges (PGC),
which is a surcharge on all IOU electric customers. Currently,
the program is allocated $125 million per year.
The PUC 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.
Both programs are oversubscribed with the demand for subsidy far
exceeding the available rebate money. Solar advocates believe
that this has made it difficult for a larger number of consumers
to benefit from the rebate programs and is a reason why the MSRI
is needed.
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, a 7.5% state
tax credit, and favorable property tax treatment. According to
CEC estimates, these tax benefits for commercial customers are
worth more than the state subsidy. Other state subsidies are net
metering, which reverses the electric meter as electricity is
produced, and an exemption from exit fees.
2) The results of the current programs : As of the end of 2004,
there were 12,000 PV systems in California with an aggregate
rated capacity of 93 megawatts (MW) (this includes the PV
capacity in municipal utility territory). Both of the current
solar programs are oversubscribed and the programs currently are
borrowing money from future years to help meet the demand for
rebates today. Under, these solar programs over 85% of the
total installed solar capacity in the United States is located
in California. According to a recent PUC staff report on the
MSRI, even with California's leading role in promoting solar
energy, "After eight years and close to $1 billion of subsidies,
installed solar costs in California have decreased only
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slightly, and the industry has made little progress in reaching
a self-sustaining market."
Compared to the worldwide market, in 2004 California installed
51 MW of new solar capacity. This represents 5.5% of the total
solar capacity installed worldwide in 2004. The two countries
that have aggressive solar energy programs, Japan and Germany,
accounted for 30% and 39% of the total world market
installations in 2004. Overall, Japan leads the world with 39%
of the total installed solar capacity, compared to 25% for
Germany and 11% for the United States (using 2003 figures).
3) Programs outside of California : The State of Washington
recently passed a solar subsidy bill. It provides a
production-based incentive where customers can earn a credit of
15 cents per kWh of electricity generated by renewables up to
$2,000 annually. With a production-based incentive, the rebate
is paid over time, promoting maximum efficiency of the solar
projects over the 20-year life expectancy of the solar panels.
Washington's program also provided for higher incentives for
solar energy systems that are manufactured in Washington.
Japan initiated a solar rebate program in 1994 that started at
$9.00 per watt and declined to $0.45 per watt in 2004. The
rebates are set to expire in 2006. As the rebate levels
declined so did the average system cost. In 1994, average
installation costs were close to $20.00 per watt; in 2004 the
cost was $6.12 per watt (as compared to $9.00 per watt in
California today). The combination of declining rebates and
declining system costs has meant that the out of pocket expenses
for customers has remained about the same. The eleven-year
program budget exceeds $1.5 billion.
Residential electricity rates in Japan are substantially higher
than California. These higher rates make solar electricity more
cost competitive than in California.
Germany's solar incentive program is a performance-based
program. Incentives are based on the actual energy produced by
the solar energy system over a 20-year period. To help offset
the initial installation costs, the program provides low
interest loans. The per kilowatthour (kWh) incentives vary from
$0.70 for residential customers to $0.55 for large industrial
customers.
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4) What the MSRI means to solar customers: A typical
residential PV system is between 2kW - 4kW. The installation
cost is about $9,000/kW ($9/watt), so a 2.5 kW system would cost
$22,500. With the current rebate of $2,800 per kW ($2.80/watt)
the rebate would bring the cost of the system to $15,500. A
7.5% state tax credit would bring the system cost down to
$14,338. The state tax credit is set to expire at the end of
this year.
At best, under the current rebate structure and the net metering
program that credits consumers electric bills for selling excess
electricity back to the utility, over the life of solar energy
system the customer would break even on their investment. For
commercial customers, the final after-tax cost is much lower
because of greatly accelerated depreciation and a 10% federal
tax credit which does not apply to residential installations.
As the rebates decline under the MSRI, the customer cost may
increase. However, the proponents of the measure believe that as
the solar market grows prices will decrease, and even with the
smaller rebates customers will continue to break even on their
investments.
5) What the MSRI will cost ratepayers : The total costs of the
MSRI are indeterminable, and depend on a number of factors, such
as participation; mix of residential to small commercial and
industrial; and the future costs of solar energy systems. The
costs will not only include the direct incentive programs
created in SB 1 but also potentially include other indirect
subsidies such as net metering which requires the utilities to
credit customer bills for excess power produce at a rate that
will far exceed the utility's generation costs. Actual
estimates on costs offered by supporters and opponents of the
bill range from between $2 billion and $7 billion over the life
of the program.
6) What is net metering : SB 1 increases the current cap on the
number of residential solar customers that can be eligible for
net metering from half of 1% (0.5%) of total peak load to 3.0%
of total peak load and eventually to 5.0% of peak load.
Under net metering, all electric utilities are required to buy
back any electricity generated by a customer-owned solar system.
This buy back works by having the generated electricity spin
the meter backwards. By spinning the meter backwards the excess
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solar power offsets the power the customer already consumed from
the utility. The end result of a net metered transaction is
equivalent to the utility buying the excess solar power at the
utilities retail rate (which includes the utility's transmission
and distribution costs, PGCs, taxes, and the utility's return on
equity) instead of the average generation costs of the utility.
By requiring the utility to buy the power at the retail rate,
the utility's remaining customers subsidize these net metered
customers. The higher utility costs are passed on to all
ratepayers.
Additionally, net metering allows most solar customers to avoid
paying PGC associated with the electricity they consume from the
utility. This means they do not contribute to PGC funds used to
fund low income assistance programs or used to fund the energy
efficiency and renewable power programs. This creates a cost
shift to all other utility ratepayers since they are left to pay
a greater share of the programs.
It appears that the intent of the net metering provision is to
raise the net metering cap for all retail sellers of electricity
including California's investor owned utilities (IOUs),
municipal utilities, and energy service providers. However, as
drafted, the bill could be read to only raise the net metering
cap for energy service providers. If the intent of this bill is
to raise the cap for all retail sellers of electricity, the
committee may want to consider amending the bill to clarify that
it will also raise the cap on the IOUs and municipal utilities .
7) Is this a peak load reduction program : Advocates for SB 1
argue that solar power will benefit all Californians because of
its ability to meet peak demand. They argue that because solar
power is most abundant at the times of the year when the weather
is hot and demand for electricity is highest and consequently
costliest, installing solar power will ultimately lead to lower
rates for all ratepayers. The solar panel will replace the need
to procure peaking power, which generally comes from the most
expensive power plants that only operate at times of peak
demand.
Currently, California's solar electricity production is at its
peak between 1:00 pm and 2:00 pm in the afternoon, while total
peak demand is generally later in the day between 3:00 pm and
7:00 pm when people come home from work and turn on their air
conditioners. This means that while solar helps reduce peak
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demand, solar does not currently maximize the reduction in peak
demand and there will still be a need to operate a large number
of peaker plants on hot days.
Most solar panels in California are installed to maximize total
electricity production (generally facing south) and not to
maximize production at the time of day power is needed the most.
A solar panel facing south will produce more total electricity
than any other configuration, but it will not maximize
electricity when the state needs it the most, at times of peak
demand. If however, the panels are configured so they point
southwest; their peak production will coincide with peak demand
and may offset the need to operate peaker plants.
Recent amendments to the bill will require at least 50% of all
MSRI funds be used for performance based incentives that will
place a higher value production at times of peak demand and will
require that all solar customers are billed on a time-of-use
basis. These amends will create strong incentives for customers
to optimize their solar panels for peak load production.
8) Builder's Must Offer Mandate: This bill requires all
builders of new home developments with 50 or more units
(production homes) to give potential home buyers the option of
purchasing a solar energy system when the customer purchases the
house (a must-offer requirement). The author believes this
must-offer requirement will work in the same way new home buyers
choose what type of flooring or cabinets to have installed: when
they buy the house they will go down a list of optional features
in the house, and solar energy will be one of the options.
Currently, this bill provides that the must-offer requirement
apply to all production homes for which a subdivision tentative
map is completed on or after January 1, 2010. A subdivision
tentative map must be approved before construction can begin and
it can be years after a subdivision tentative map is approved
before a production home is offered for sale. While the time
lag can vary, on average it takes three years between the
approval of the map and the first production home being offered
for sale. This average time lag means that the must offer
provision in the bill will not go into full effect until 2013, 7
years after the MSRI is implemented and only 4 years before the
incentives will terminate.
This delay in implementation of the must offer provision means
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that the provision will likely have little impact on the success
of the MSRI, since it will not take effect until very late in
the program. To assure that the must-offer requirements start to
have actual impact by 2010, the committee may want to consider
amending the bill to advance the applicable date for completion
of the subdivision tentative maps to 2007 .
9) Utility Participation in the MSRI : Recent amendments to this
bill allow the IOUs to receive rebates for solar energy systems
they install on a customer's premises if the electrical
corporation does not recover the value of the incentive in rates
and the solar energy system is designed to only meet the
customer's load.
As drafted this provision would allow the IOU to recover its
cost beyond the incentives in rebates from its ratepayers.
However, the value to ratepayers created by the MSRI is
dependent on the fact that a third party is paying a portion of
the cost of installing the solar energy system. Under this
provision the ratepayers will pay the entire costs of the
systems. They will pay a portion of the costs through the
incentive program and the remainder of the costs in basic rates
to the IOU. To assure that the MSRI does add value to
ratepayers, the committee may want to consider amending the bill
to allow IOU eligibility for solar rebates only if none of the
costs of solar energy system is recovered in rates .
9) Ratemaking through Legislation: Recent amendments to this
bill contain a provision that requires a specified net metering
rate for solar energy systems in Southern California to remain
in place forever. This committee has generally rejected any bill
that calls for a specific tariff or rate. Instead, the
committee's policy has been to leave ratemaking discretion to
the PUC, since the PUC has the personnel to fully analyze rate
design implications and can better assure that rates are fairly
allocated. The committee may want to consider deleting the
specific rate design in the bill .
10) Report to the Legislature : This bill require the CEC to
prepare multiple reports, some on a quarterly basis and one only
every three years. Over the past few years this committee has
approved several bills aimed at consolidating the number of
overlapping reports prepared by the CEC. To assure that the
committee's efforts to consolidate reporting requirements are
not undone, and to assure that the Legislature continues to
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receive timely summaries of the MSRI, the committee may want to
consider amending the bill to consolidate the mandated reports
into one annual report from the CEC .
REGISTERED SUPPORT / OPPOSITION :
Support
Akeena Solar
Alliance for Nuclear Responsibility
American Federation of State, County and Municipal Employees
(AFSCME) (Support)
American Lung Association
American Solar Energy Society
Bluewater Network
California Alliance For Consumer Protection
California Building Officials
California Conference of Carpenters (Support if Amended)
California Interfaith Power & Light (Support)
California League of Conservation Voters
California Public Interest Research Group
California Public Utilities Commission
California Student Public Interest Research Group (CALPIRG)
(Support)
City of Berkeley (Support if Amended)
City of Santa Cruz
City of Santa Monica (Support)
City of West Hollywood (Support)
Clarum Homes
Clean Power Campaign (Support)
Coalition for Clean Air
Community Environmental Council
East Bay Municipal Utility District (EBMUD) (Support)
Environment California (Support)
Global Green USA
Gray Panthers
Green Lease, Inc.
Greenpeace USA
Henry T. Perea, Councilmember 7th District KYOCERA
International, Inc.
Individual letters (14) (Support)
Merced/Mariposa County Asthma Coalition
National Wildlife Federation
Natural Resources Defense Council (NRDC) (Support if Amended)
New Vision Technologies
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NorCal Solar
Our Children's Earth
Pacific Environment
Physicians for Social Responsibility
Planning and Conservation League
Powerlight Solar Electric Systems
Public Citizen
PV Manufacturers Alliance (PVMA) Support)
Rainforest Action Network
Real Goods
Relational Culture Institute
Sempra Energy (Support if Amended)
Sharp Solar
Sierra Club California (Support)
South Coast Air Quality Management District
Sun Power & Geothermal Energy
The Better World Group
Union of Concerned Scientists
Vote Solar
Working Assets
World Council for Renewable Energy
Yolo county Board of Supervisors
Opposition
Associated Builders and Contractors of California (ABC) (Oppose)
Building and Construction Trades Council of California, Counties
of Fresno, Madera, Kings, Tulare and San Louis Obispo (Oppose
Unless Amended)
California Chamber of Commerce (Oppose)
International Brotherhood of Electrical Workers (IBEW) Locals:
413,340, 47, 18, 45, 11, 639, 551, 40, 332, 6, 595, 100, 180,
234, 1245, 440, 441, 569, Orange County Electrical Training
The Utility Reform Network (TURN) (Oppose)
Trust (Oppose Unless Amended)
Pacific Gas and Electric (PG&E) (Oppose)
Southern California Edison (Oppose Unless Amended)
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083