BILL ANALYSIS
SB 1
Page 1
Date of Hearing: August 25, 2005
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
SB 1 (Murray) - As Amended: August 18, 2005
Policy Committee: UtilitiesVote:7-0
Housing and Community Development 6-1
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
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 (MW) of capacity, on
residential and commercial buildings by 2019.
FISCAL EFFECT
1)The CEC estimates it would incur annual special fund costs of
around $2.1 million for 21 positions to implement and
administer the MSRI and for associated information technology
support.
2)The PUC would incur special fund costs of $280,000 for three
positions related to the MSRI financing, coordination with the
CEC, and time-variant pricing and net metering for solar
customers.
3)Estimated direct costs to electric ratepayers statewide of
between $1.6 billion and $2.6 billion over 10 years.
SUMMARY (CONTINUED) :
Specifically, this bill:
1)Requires the CEC to develop and implement the MSRI, with the
goals of: (a) placing solar energy systems on one million
residential and commercial sites or providing 3,000 megawatts
of generating capacity by 2019; (b) establishing a
self-sustaining solar industry in 10 years; (c) placing solar
energy systems on 50% of new homes in 13 years.
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2)Requires the CEC to establish an incentive program for solar
energy systems, with capacity between 1kW and 1MW, and with
subsidies starting at the January 1, 2006 level and declining
by at least 7% per year until the rebate is zero in 2016.
3)Requires the CEC, by January 1, 2010, to adopt a
performance-based incentive program (with incentives based on
maximizing electrical output) and to provide at least 50% of
MSRI moneys for this program.
4)Prohibits the granting of incentives for eligible solar energy
systems installed on the premises of individuals not
contributing (through their electric rates) to the MSRI,
except that incentives may be granted to customers
participating in specified low-income energy assistance
programs, and to an electrical corporation (investor-owned
utility-IOU) under specified circumstances.
5)Requires the CEC to:
a) Establish criteria for eligible solar energy
systems, including that the electrical work for
installation be performed by a contractor with a C-10
license from the Contractors' State License Board.
b) Provide at least 10% of MSRI program funds for
affordable housing projects.
c) Provide an assessment of the MRSI to the Legislature
by January 1, 2009 and annually thereafter.
6)Establishes the MSRI Trust Fund, and authorizes expenditure of
moneys in the fund upon annual appropriation by the
Legislature in the Budget Act, with up to 2% of the funds
available for administrative costs.
7)Specifies that the MSRI will supplant existing funding for
photovoltaic (PV) solar energy systems provided through
programs administered by the CEC and the Public Utilities
Commission (PUC). The PV portion of those programs will be
discontinued and any remaining PV funding will be transferred
to the MSRI program.
8)Requires the PUC to initiate a proceeding to determine the
amount of additional funding required to finance the goals of
the MSRI, and to adopt a financing program by January 1, 2007.
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9)Limits the additional funding to an unspecified amount per
kilowatthour for any electricity customer class and limits
total additional funding for the MSRI from the customers
within the service territories of the three IOUs to $1.8
billion. (Customers participating in specified low-income
energy assistance programs would not be subject to this
charge.)
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% of an electrical
service provider's aggregate peak demand, and then to 5% after
the PUC has developed a time-variant net metering rate.
12)Requires municipal utilities to adopt programs consistent
with participation toward meeting the goals of the MSRI.
13)Requires builders of housing developments of at least 50
homes, where an application for a tentative subdivision map is
complete after January 1, 2010, to offer every customer a
solar energy system as an option and to disclose the total
installed cost and estimated energy cost savings associated
with the system.
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COMMENTS
1)Current Solar Subsidy Programs . 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 from a portion of monies raised through
the Public Goods Charge (PGC)-a surcharge on all IOU electric
customers that sunsets in January 2012. In 2004, the CEC
provided $70 million in rebates-about $25 million in ongoing
funding and the remainder from internal borrowing.
The PUC administers the Self-Generation Incentive Program
(SGIP) for commercial-sized customer generation, including PV
systems, which are currently subsidized at $3.50/watt. The
SGIP is funded at $125 million annually from electric rates.
Both these programs are oversubscribed-i.e. demand for
subsidies far exceeds available rebate money-and the programs
are borrowing funds from future years' allocations in order to
help meet demand. Advocates of solar energy believe this has
made it difficult for a larger number of consumers to benefit
from the rebate programs and is a reason why the Governor's
MSRI is needed.
In addition to the two subsidy programs, there are numerous
other state and federal programs that substantially reduce the
after-tax cost of PV systems, particularly for commercial
customers. These include accelerated depreciation, a 7.5%
state tax credit (expiring at the end of this year), and
favorable property tax treatment. Recently enacted federal
energy legislation provides the following solar tax credits:
(a) a 30% investment tax credit on commercial installations
for 2006 and 2007, and a permanent 10% credit thereafter; and
(b) a 30% credit on residential installations, up to a maximum
of $2,000 each, for 2006 and 2007 only. Other state subsidies
include net metering, which reverses customer-generators'
electric meters as their solar energy system produces excess
electricity.
As of January 2005, there were 12,000 PV systems in California
with an aggregate capacity of 93 megawatts (MW), which is over
85% of the total installed solar capacity in the United
States. (This country's solar installations currently
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represents only about 11% of the worldwide total. Japan and
Germany, countries with aggressive solar subsidy programs,
account for 39% and 25% of installed capacity, respectively.)
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 slightly, and
the industry has made little progress in reaching a
self-sustaining market."
2)MSRI Costs to Solar Customers . A typical residential PV system
is 2kW to 4kW. With an installed cost of $9,000/kW ($9/watt),
a 2.5 kW system would cost $22,500. The current rebate of
$2,800 per kW ($2.80/watt) would bring the system cost to
$15,500. A 7.5% state tax credit further lowers the cost down
to $14,338. (The state tax credit is set to expire at the end
of this year.) For commercial customers, the final after-tax
cost is much lower because of greatly accelerated depreciation
and a 10% federal tax credit.
Under the current rebate structure and the net metering
program that credits consumers electric bills for selling
excess electricity back to the utility, a customer might break
even on their investment over the life of the solar energy
system. As the rebates decline under the MSRI, customer costs
may increase. However, proponents of SB 1 believe that, as the
solar market grows, prices will decrease, thus solar customers
will continue to break even on their investments. Moreover,
proponents argue that solar power provides other benefits such
as avoidance of additional power plant construction, carbon
dioxide emissions, and transmission and distribution costs.
3)MSRI Costs to Ratepayers . The total costs of the MSRI are
indeterminable, and will depend on factors such as
participation, mix of residential to small commercial
participants, the future costs of solar energy systems, and
the mix of capacity-based and performance-based incentives
provided. A joint report to the PUC by staffs of the CEC and
PUC estimated that subsidies from ratepayers of the three IOUs
would total $1.1 billion over 10 years for a performance-based
incentive program and $1.8 billion for capacity-based
incentive program. (Since a performance-based incentive
program may not be in place per SB 1 until 2010, the likely
costs are toward the higher end of this range.) Assuming the
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municipal utilities provide a proportionate effort toward
meeting the MRSI goal and adopt similar ratepayer-financed
incentives, their customers would incur costs totaling between
$500 million and $800 million. These ratepayer costs for the
direct incentives do not include indirect ratepayer subsidies
such as for net metering.
4)Funding Availability From Existing Solar Programs Unclear .
With respect to the IOU ratepayers, the costs above do not
account for the extent to which funding streams for existing
solar programs would be used to help fund the MRSI. IOU
ratepayers are currently providing about $125 million annually
in direct subsidies for solar energy projects under the CEC's
renewable program ($25 million) and the PUC's SGIP ($100
million). The bill specifies that the MSRI will replace these
existing solar programs and "remaining funds shall be
deposited into the MRSI Trust Fund." It is thus unclear
whether this implies a single transfer or an annual transfer
for the duration of those programs, though it is staff's
understanding that the latter is the intent.
The CEC indicates that solar monies (about $25 million
annually from the PGC) have been spent through 2008. After
2008, a like amount could be transferred to the MRSI for the
three remaining years until the PGC sunsets. Likewise, the
PUC's SGIP is authorized in statute through 2007, though the
commission staff believe that the commission could extend the
program administratively beyond that time. (The program was
originally created administratively.)
5)Other Issues . Among the issues raised in prior analyses of
this bill are:
a) Picking a Winner . Assuming that peak demand reduction is
desirable, this can be achieved in many ways other than PV
investment. Energy efficiency and other renewable energy
sources, for example, may be less costly options. The
Legislature has passed a Renewable Portfolio Standard (RPS)
with overall goals of achieving a minimum amount of
renewable energy generation by a specified date. Rather
than choose a specific renewable technology, however, the
RPS legislation identified a variety of technologies, and
through a competitive bidding process, renewable energy is
procured based on the lowest cost regardless of technology.
This bill, conversely, picks a winning technology, thereby
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eliminating somewhat the competitive pressure to reduce
price and innovate.
b) Will It Work ? As measured in megawatts, this program
represents more than a thirty-fold increase in installed
solar energy generation within California over the next 10
years. Given the scale and long-term nature of this
program, its success is highly uncertain. As an example of
unforeseen events that could effect the program, in 2001, a
40% increase in electric rates and rolling blackouts
spurred unprecedented growth in PV demand. If the PUC is
eventually successful in reducing rates and ensuring
reliable generation supply, the attractiveness of PV could
diminish.
c) Homebuilder's Must-Offer Mandate . This bill requires all
builders of new home developments with 50 or more units
(production homes), for which a subdivision tentative map
is completed on or after January 1, 2010, to give potential
home buyers the option of purchasing a solar energy system
when the customer purchases the house. 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. Thus the must-offer provision 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 provision will therefore likely have little
impact on the success of the MSRI. It should be noted that
installation on new homes is less costly than retrofitting
existing homes.
d) Contractor's License . SB 1 currently requires that any
solar energy system under the MRSI be installed only by a
C-10 licensed contractor. According to the Associated
Builders and Contractors of California, which opposes this
provision, 60% of PV systems funded through existing state
solar programs have been contractors without a C-10
license. Within this majority, the largest subset is C-46
contractors, whose classification is a specialty in solar
installation work. Limiting eligibility to install solar
systems would overhaul an established structure of licensed
contractors.
6)Related Legislation . AB 1683 (Pavley), pending on the Senate
Appropriations Committee's Suspense file, establishes, until
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January 1, 2016, a revolving loan program to help finance
solar energy systems for low-income housing within the service
areas of the IOUs.
AB 1099 (Leno), currently enrolled, extends the sunset, from
2004-05 to 2008-09, for the exclusion of an active solar
energy system from the definition of new construction for
property tax purposes.
SB 1016, Campbell, pending in the Senate Revenue and Taxation
Committee, extends through 2017 the sunsets on 7.5% state
solar tax credit for solar energy systems.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081