BILL ANALYSIS
SB 1
Page 1
Date of Hearing: July 7, 2005
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Gene Mullin, Chair
SB 1 (Murray and Campbell) - As Amended: July 5, 2005
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 (kilowatts) 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.
f) By 2010, 50% of all incentive money shall be spent on
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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 that the electrical work to install the solar energy
system is performed under contract by a California contractor
with an active C-10 license.
4)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.
5)Requires the CEC to "provide proportional program support" of
not more than 10% of over all funds for installation of solar
systems on affordable housing.
6)Allows the CEC, in consultation with the California Tax Credit
Allocation Committee (TCAC), to establish a revolving loan or
loan guarantee program for affordable housing.
7)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
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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.
8)Requires the Public Utilities Commission (PUC) to open a new
proceeding to determine the level of additional funding needed
to finance the MSRI. 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.)
9)Caps the total amount of money that can be collected from
customers of the three largest IOUs to fund the program at
$1.8 billion.
10)Requires the PUC to require time-variant pricing for all
ratepayers with a solar energy system.
11)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%.
12)Provides that a specified rate structure, in effect as of
January 1, 2006, shall remain in effect for non-residential
customers.
13)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.
14)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.
15)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.
16)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
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programs at the PUC and CEC be deposited in the MSRI Trust
Fund.
17)Requires municipal utilities to adopt a similar program with
proportionate expenditures.
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% 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.
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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.
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.
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 are 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,
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installed solar costs in California have decreased only
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 kilowatt-hour (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 per watt; in 2004 the cost
was $6.12 per watt (as compared to $9 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 11 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 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) 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
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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,
seven years after the MSRI is implemented and only four years
before the incentives will terminate.
This delay in implementation of the must offer provision means
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 .
7) Contractors' License : SB 1 currently requires that any
installation of a solar energy system be installed only by a
C-10 licensed contractor. According to the California
Contractors' State License Board (CSLB), a C-10 electrical
contractor is an electrical contractor who places, installs,
erects or connects any electrical wires, fixtures, appliances,
apparatus, raceways conduits, solar photovoltaic cells or any
part thereof, which generates, transmits, transforms or utilizes
electrical energy in any form or for any purpose (832.10 of the
Central Contractors Registration).
Also according to the CSLB, a C-46 Solar Contractor installs,
modifies, maintains, and repairs active solar energy systems. An
active solar energy system consists of components which are
thermally isolated from the living space for collection of solar
energy and transfer of thermal energy to provide electricity
and/or heating and cooling of air or water. Active solar energy
systems include, but are not limited to, forced air systems,
forced circulation water systems, thermo siphon systems,
integral collector/storage systems, radiant systems, evaporative
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cooling systems with collectors, regenerative rock bed cooling
systems, photovoltaic cells, and solar assisted absorption
cooling systems. A licensee classified in this section shall not
undertake or perform building or construction trades, crafts or
skills, except when required to install an active solar energy
system. (832.46 of the Central Contractors Registration).
According to the Associated Builders and Contractors or
California, 60% of PV systems funded through existing California
solar programs have been installed by those not holding C-10
electrical contractor licenses. Within this majority, the
largest sub set is C-46 contractors, whose classification is a
specialty in solar installation work.
The State of California developed the special C-46
classification in consultation with representatives from the
solar industry. Limiting eligibility to install solar systems,
under this program, would overhaul an established structure of
licensed contractors.
8) Affordable Housing Programs : SB 1 provides that up to10% of
the overall funds shall be dedicated for installation of solar
energy systems on affordable housing. The language in this
provision is somewhat vague as to how such assistance will be
administered. The committee may wish to consider incorporating
provisions contained in AB 1383 (Pavley), heard earlier this
year in this committee, relating to financing solar systems for
affordable housing .
Recent amendments to AB 1383 would establish, until January 1,
2016, the Low-Income Housing Development Revolving Loan Program
to help finance solar energy systems in eligible low-income
housing located in the service areas of an electrical
corporation.
Language currently contained in SB 1 fails to adequately
describe what kinds of affordable housing would be eligible for
assistance and how such funds would be applied for, distributed
or monitored.
Double referred: The Assembly Committee on Rules referred SB 1
to Utilities and Commerce and Housing and Community Development
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Committee. The Assembly Committee on Utilities and Commerce
held an informational hearing on SB 1 on Monday, June 27, 2005
and is scheduled to be heard on Wednesday, July 6, 2005.
REGISTERED SUPPORT / OPPOSITION :
Support
Access Capital Management Inc., Corte Madera
Attorney General Bill Lockyer
Akeena Solar, Los Gatos
Alliance for Nuclear Responsibility, San Luis Obispo
American Solar Energy Society, Boulder, Colorado
American Federation of State, County and Municipal Employees
American Lung Association of California
Bluewater Network, San Francisco
Borrego Solar Systems, San Diego
California Alliance for Consumer Protection
California Building Officials
California Interfaith Power and Light, Oakland
California League of Conservation Voters, Oakland
California Student Public Interest Research Group
California Public Utilities Commission
Carville Sierra, Inc., Grass Valley
Circle of Life, Oakland
City and County of San Francisco
City of Aliso Valley
City of Fresno Councilmember Henry T. Perea
City of Irvine
City of San Diego Council Member Donna Frye
City of San Jose Council Member Linda Le Zotte
City of Santa Cruz
City of Sebastopol
City of Thousand Oaks
Clarum Homes, Palo Alto
Clean Power Campaign
Coalition for Clean Air
Community Environmental Council, San Barbara
Cooperative Community Energy, San Rafael
East Bay Municipal Utility District
Energy Independence Now Coalition, Santa Barbara
Energy Efficiency Solar Electric Solutions, Pomona
Environment California, Los Angeles
Fresno County Green Party
Global Green USA
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Gray Panthers
Green Lease, Inc., San Clemente
Green Energy Network
Greenpeace
Industrial Environmental Association, San Diego
Intu Vision, Cardiff by the Sea
Iota Technology Inc., San Jose
KYOCERA International, Inc., San Diego
Marin County Board of Supervisors
Merced/Mariposa County Asthma Coalition
National Wildlife Federation
Next Generation, Oakland
New Vision Technologies, San Clemente
Northern California Solar Energy Association, Berkeley
Our Children's Earth, San Francisco
Pacific Environment, San Francisco
Physicians for Social Responsibility, Los Angeles
Planning and Conservation League
Power Light Corporation, Berkeley
Public Citizen, Oakland
Rainforest Action Network, San Francisco
Real Goods, Hopland
Redwood Rubber, Corte Madera
Relational Culture Institute, Fresno
Sierra Club California
Solar Hydrogen Company, La Mesa
Solar Integrated Technologies, Los Angeles
Solar Works, Sebastopol
South Coast Air Quality Management District
Stop Waste.Org, San Leandro
Sun Power & Geothermal Energy, San Rafael
The Better World Group, Burbank
Union of Concerned Scientists, Berkeley
Vote Solar Initiative, San Francisco
Women for: Orange County, Irvine
Working Assets, San Francisco
Opposition
Associated Builders and Contractors of California
California Chamber of Commerce
Pacific Gas and Electric Company
State Building and Construction Trades Council
The Utility Reform Network, San Francisco
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Analysis Prepared by : Hugh Bower / H. & C.D. / (916) 319-2085