BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
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|SB 655 - Peace |Hearing Date:April 13, | S|
| |1999 | |
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|As Amended:April 5, 1999 | | B|
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DESCRIPTION
This bill requires the California Energy Commission (CEC)
to develop a seven-year program to provide grants to offset
a portion of the costs of qualified solar and distributed
generation (DG) installations, contingent on funding of the
program in the annual Budget Act. Solar systems would be
eligible for up to $750 and DG systems would be eligible
for 10% of their cost, up to $2,000.
The bill further requires the CEC to establish operational
and safety standards for DG systems.
The bill also expands the purpose of a "solar energy
system" to include "electricity generation" for the Civil
Code's definition of a "solar easement."
KEY QUESTIONS
1) To what extent will the grant program established by
this bill induce new investment in systems that provide
additional environmental and system reliability
benefits?
2) Will the CEC be able to accurately determine whether
individual DG systems provide greater environmental and
system reliability benefits than those achievable from
other power sources?
3) What exactly is a DG system and who should develop
operational and safety standards for their use?
BACKGROUND
Existing law provides a variety of mechanisms to support
solar energy. These include property tax exemptions for
installation of solar systems and grants for development
and operation of some solar generation technologies.
Since 1976, California tax law has provided a credit for
the cost of solar energy systems installed in California.
Existing federal law provides a credit equal to 10% of the
cost of energy property placed in service during the year.
In 1980, the California Constitution was amended by
initiative (Proposition 7) to provide that active solar
energy systems would not be assessed as "new construction"
under Proposition 13's property tax requirements.
AB 1890 (Brulte), Chapter 854, Statutes of 1996, provided
$540 million, collected over four years, to operate and
develop new, emerging and existing renewable resources
technologies. The CEC was charged with developing a
spending plan for these funds, as well as others dedicated
in AB 1890 for various public purpose programs. The CEC
spending plan was codified by SB 90 (Sher), Chapter 905,
Statutes of 1997.
Under SB 90, the grid-connected photovoltaic segment of the
solar industry (which is potentially eligible for grants
under this bill) is eligible to compete for 10% of the $540
million, which is the portion designated for new and
emerging technologies. That money is awarded according to
the number of kilowatt hours produced, not on a per-system
basis. As a result, the solar water heating segment of the
solar industry is not eligible to compete for this funding
because no kilowatt hours are produced. And, by
definition, the non-grid-connected photovoltaic segment is
also not eligible.
DG is small scale production of electricity at or near the
point of use, as opposed to central generation, where
electricity is produced in large quantities at a remote
site and transmitted to multiple users. DG systems range
from photovoltaics and fuel cells to gas turbines and
diesel engines in residential, commercial and industrial
applications. They can operate in conjunction with, or
independent of, the electricity grid. Under this bill,
solar and DG systems are required to be interconnected with
the electricity grid to be eligible for grants. DG systems
are further required to be used only to meet onsite
electric load, and not sell power.
This bill is similar to SB 116 (Peace) of 1998, which
established a grant program for solar systems, but not DG
systems. In addition, SB 116 reinstated a property tax
exemption for the installation of solar systems. SB 116
was vetoed by Governor Wilson, who objected to the grant
program, stating a preference for "fair and open market
competition without government subsidization of one
particular industry." Governor Wilson had already
reinstated the solar property tax exemption by signing AB
1755 (Keeley), Chapter 855, Statutes of 1998.
COMMENTS
1) Will the grants attract new investment? The goal of
this bill is to increase consumer investment in solar
and low-pollution DG systems in California by providing
grants that make them more cost-competitive. With that
increased investment, the theory is that these systems
won't need state support to be cost-competitive in the
future. The rationale for supporting these systems now
is (1) the current environmental and system reliability
benefits that individual system installations provide
and (2) the anticipated future environmental and system
reliability benefits that a thriving solar and DG
industry will provide.
This bill caps the grant that an individual system can
receive at $750 for solar and $2,000 for DG. The type of
low-pollution DG systems contemplated in this bill might
cost from $7,500 for a household fuel cell to $25,000 for
a small commercial turbine. The grant's contribution to
the cost of installation of most systems would be
relatively small, so the extent that these grants will
attract investment in solar or DG system from customers
who wouldn't otherwise buy one is uncertain. In some
cases, the availability of a grant may have the perverse
effect of allowing manufacturers to increase their prices
and profits on the state's dime. As a result, it is
uncertain how much of the state subsidy will go toward
increasing the number of solar and DG systems in use and
how much of it will go toward boosting manufacturers'
return on investments.
2) On what basis should DG systems be considered to be
worthy of public support? While the environmental
benefits of solar generation are well established, the
benefits of DG systems are highly dependent on the
efficiency of the particular system. An onsite solar or
combined cycle gas turbine-powered DG system could be a
marked environmental improvement over central
generation, but a conventional diesel generator would
not.
This bill requires, as a condition of eligibility, that
the CEC certify whether a DG system provides
environmental and system reliability benefits equal to or
greater than specified fuel efficiency, NOx emissions and
reliability standards. These standards are designed to
be more stringent than existing powerplant standards.
Even with these standards, it may be difficult for the
CEC to accurately compare overall benefits to those
attributable to existing or competing power sources. The
CEC could calculate the total emissions per kilowatt
produced by a DG system and compare that to an average
for natural gas power plants to determine whether a
system produces more or less relative pollution.
However, while the per-unit pollution of a DG system
could be less, there's no guarantee that the pollution
produced by the DG system would displace the pollution
produced by existing central power plants. If reliance
on distributed generation grows significantly, it may
actually displace demand for generation from newer,
cleaner central power plants.
Assuming that the CEC can make an accurate comparison of
the simple pollution impact of a DG system, there is also
an important question of where the environmental and
system reliability benefits accrue. To address this, the
Committee may wish to consider amending the bill to
require pollution impacts to be calculated within
discreet geographical areas and/or that the CEC
coordinate with the Air Resources Board. One option
would be to require that environmental benefits are
realized within the same air district, although there may
be more localized impacts within an air district that
should be considered.
The Committee may also wish to consider a technical
amendment to clarify the NOx standard that would apply to
DG systems, on page 9, line 40, by replacing "percent"
with "parts per million".
3) Will this bill outlive its purpose? One of the stated
goals of the solar energy grant program is to "reduce
the cost of solar energy systems so that after four
years these systems will not need state support to be
cost competitive." However, the program that this bill
would establish would continue at least until January 1,
2007. If the program is expected to achieve this goal,
the Committee may wish to consider whether it should be
established for four years rather than seven.
4) Operational and safety standards for DG. This bill is
intended to establish operational and safety standards
that apply to DG, which is defined as any onsite,
grid-connected generation system used to meet onsite
load only (no sales of excess power). However,
including this provision in the same section that
establishes the DG grant program implies that the
standards only apply to grant-eligible systems. To
clarify that they apply to all DG systems, the Committee
may wish to consider drafting the standards described
between page 8, line 23 and page 9, line 7 in their own
section. The definition for DG found on page 9, line
24-27 should also be duplicated in the new section.
The standards are to be established, and presumably
enforced, by the CEC. Ordinarily, the California Public
Utilities Commission (CPUC) has jurisdiction over these
type of transmission and distribution issues. The
Committee may wish to consider whether the CEC should
coordinate with the CPUC, or whether the CPUC should
instead be the responsible agency.
5) Exactly what is DG? How DG should be defined is the
subject of some disagreement. According to this bill,
DG means systems that provide onsite power only. Others
have suggested that co-generation facilities, which
often sell excess power, should be considered DG. The
type of facilities that might sell excess power are not
likely to otherwise qualify for the grant program, but
the operational and safety standards might be relevant
to them.
6) Exemption from OAL review. This bill exempts the
guidelines adopted to implement these programs from the
ordinary requirements that govern the adoption of
regulations, including review by the Office of
Administrative Law (OAL). Ostensibly, this provision is
intended to simplify and/or expedite the adoption of
these guidelines. However, OAL was established to
provide consistent, centralized review of state agency
regulations with the goal of reducing complexity and
duplication in regulations. The Committee may wish to
consider whether this exemption is justified.
POSITIONS
Support:
Alten, Palo Alto
Ameco, Long Beach
Astro Power, Walnut Creek
Aztec Solar, Sacramento
BP Solar
California Solar Energy Industries Association, Rio Vista
California Manufacturers Association
California State Council of Laborers
Diablo Solar Services, Martinez
Environmental Defense Fund, Oakland
Environmental Solar, North Hollywood - 15 letters
Goldline Electronic Controls, La Mesa
Helioco, Napa
Heliotrope General, Spring Valley
Horizon Industries, Escondido
Leveleg, Precision Solar Mounting Systems, San Diego
Morley Manufacturing, Cedar Ridge
New Energy Ventures, Inc. (NEV)
Off-Line Independent Energy Systems, North Fork
Photocomm, Inc. the Wireless Power Company, San Diego
PVI Photovoltaic & International, Sunnyvale
Real Goods, Ukiah
Schofield Solar Energy Company, San Buena Ventura - 2
letters
Science Applications International Corporation, San Diego
Six Rivers, Eureka
Solar Connection, Morro Bay
SolarCraft Services, Inc. Novato
Solar Depot, Sacramento
Solar Unlimited, Burbank
Solec, Carson
South Bay Solar, San Jose
SunEarth, Ontario
Sunray Energy, Inc., Daggett, California
Sun Utility Network, Los Angeles
Western Renewables Group, Mission Viejo
Oppose:
None reported to Committee.
Lawrence Lingbloom
SB 655 Analysis
Hearing Date: April 13, 1999