5. Discussion

The key issue raised in the Bloom petition is whether the Commission should modify the SGIP policies and practices to expand eligibility for Level 2 funding to include projects that use renewable fuels notionally delivered through directed biogas contracts. Under existing SGIP rules, projects must use on-site renewable fuels to receive Level 2 incentives. This restriction limits SGIP projects to those that have an adequate source of renewable fuel, such as recoverable biogas, on the premises.

If we expand eligibility for Level 2 incentives to include facilities that use renewable fuels from directed biogas, it will enable any project that can secure an offsite directed biogas supplier to receive Level 2 incentives. This should not only increase participation in SGIP, but also can be reasonably expected to increase the market for biogas in California as in-state biogas developers see opportunities from increased demand for their product. We agree with Bloom that its petition can be implemented with minimal administrative expense and should not impose a burden on the program budget given that SGIP funding in the last few years has been underutilized.

In D.01-03-073, the Commission established SGIP and set forth an incentive design to provide higher incentives to DG technologies that use renewable fuels. As stated in D.01-03-073, SGIP is intended "to encourage deployment of DG to reduce peak electric demand, give preference to new renewable energy capacity, and ensure deployment of clean self-generation technologies having low and zero operational emissions." (D.01-03-073, Attachment 1, at 23.) We find that Bloom's petition has the ability to further these intentions. If we allow incentives for directed biogas we can potentially increase program participation by renewable fuel technologies and thereby increase the amount of electricity produced by renewable generating facilities. This potential, and the corresponding potential to reduce peak electric demand, remains even though the fuel is not produced on the same site as the generating facility. We are persuaded that expanding Level 2 SGIP incentives to eligible DG technologies that use renewable fuel from directed biogas sources will increase the market for fuel cells and help SGIP achieve its goals.

This approach is consistent with the approach taken in the context of our RPS program. Under RPS, directed biogas can qualify as an eligible renewable fuel when notionally delivered to a gas-fired facility producing RPS eligible energy. In our view, current SGIP rules, which require on-site renewable fuels, impose a more stringent requirement than the RPS program. We see no compelling reason for this difference. If directed biogas qualifies as a renewable fuel in the RPS context, we believe it should qualify as a renewable fuel under SGIP.

For these reasons, we will grant Bloom's petition, with the modifications discussed below. We will direct the SGIP PAs to implement SGIP handbook revisions as set forth in Bloom's proposed amendments to the SGIP Handbook, which we attach to this decision as Appendix A, which incorporates the additional modifications which we now discuss.

First, the PAs suggest that if SGIP eligibility is expanded by legislation to include technologies other than fuel cells, the ability to use offsite renewable fuel should apply to all eligible gas-fired generators under the program. We agree and herein specify that the modification to allow renewable fuels from directed biogas should apply to all eligible SGIP participants.

Second, the PAs propose that, in order to avoid disputes over the eligibility of directed biogas, the Commission should require SGIP applicants to provide documentation at the incentive claim stage from the utility gas pipeline owner confirming that the renewable gas has been approved for injection into the local natural gas pipeline. The PAs claim that not all biogas is eligible for injection into gas pipelines, and pipeline owners in different states can have differing injection standards. Bloom responds that rather than requiring applicants to provide such documentation, the Commission should adopt the requirement that:

"the renewable fuel supplier represents and warrants that it holds the rights to the renewable attributes to the fuel prior to the sale to the SGIP customer, and it agrees that it is only selling the renewable attributes of the renewable fuel to the SGIP customer, and will not otherwise unbundle or sell the fuel's renewable attributes to another party. This will ensure that any renewable gas injected into the natural gas pipeline will be used by the applicant." (Bloom reply, 6/18/09, p. 2.)

We agree with the SGIP PAs that we should ensure any directed biogas used to qualify for Level 2 incentives meets local utility injection standards. Bloom's suggested language does not resolve this concern.

Rather, we find it reasonable to look to the qualification standards for directed biogas that are currently employed in our RPS program. Commission Resolution E-4193 discusses RPS biogas standards and describes that in the RPS program, the California Energy Commission (CEC) determines what resources are eligible to count towards RPS. The CEC's RPS Eligibility Guidebook,⁹ states that biogas, derived from digester gas, is an RPS eligible renewable energy resource and must meet specific delivery requirements. (CEC RPS Eligibility Guidebook, December 19, 2007, at 20-21.) We will mirror these RPS delivery requirements, with minor word changes to reflect SGIP rather than RPS, and require that all directed biogas used to meet SGIP Level 2 incentive criteria meet the following requirements:

· The gas must be injected into a natural gas pipeline system that is either within the Western Electricity Coordinating Council (WECC) region or interconnected to a natural gas pipeline in the WECC region that delivers gas into California.

· The gas must be nominated for use at a facility that is SGIP eligible.

· When applying for SGIP funding, the applicant shall include: 1) an attestation from the facility operator of its intent to procure directed biogas and 2) an attestation from the fuel supplier that the fuel meets currently applicable RPS eligibility requirements for biogas injected into a natural gas pipeline.¹⁰

The SGIP PAs should ensure handbook revisions reflect these additional requirements. If RPS biogas delivery requirements are modified in the future, we direct the SGIP PAs to conform the handbook to current RPS requirements.

Third, the PAs suggest that the Petition be modified to require that, beginning in 2012, applicants must use off-site renewable gas from in-state sources to be eligible for SGIP incentives. The PAs assert that since SGIP funds are collected from California electric and gas utility customers, the SGIP should fund projects using renewable fuel developed in California. In response, Bloom contends the critical policy consideration with respect to California ratepayer benefits under SGIP is not where the renewable fuel is produced, but where that renewable fuel is ultimately converted into electricity. Bloom asserts that its petition will provide local air quality benefits and greenhouse gas reductions to California ratepayers by displacing demand for "brown" electricity from the local grid with renewable fueled DG installations. In addition, Bloom maintains that increased demand for renewable DG projects fueled by directed biogas should encourage expansion of in-state renewable fuel supplies, whereas a requirement that pipeline delivered renewable fuels come from in-state sources after 2012 injects regulatory uncertainty into long-term renewable fuel supply arrangements and represents a potential barrier to renewable electricity generation in California.

While the Commission supports development of and reliance on in-state renewable fuel supplies, we do not believe it is reasonable or necessary to require this as a condition for receiving Level 2 incentives for directed biogas. We agree with Bloom that it would be counterproductive to insert a requirement that fuel supplies must come from California by 2012. We also agree that expanding program eligibility to give Level 2 incentives to facilities using directed biogas is likely to increase demand for biogas and stimulate biogas development within California. Thus, we will not modify the Bloom petition as the SGIP PAs suggest on this point.

Finally, Pub Util. Code § 379.6(g) requires the Commission to "provide an additional incentive of 20 percent from existing funds for the installation of eligible distributed generation resources from a California supplier" in administering SGIP.¹¹ Given that the statute refers to "eligible distributed generation resources," and defines a "California supplier" as an entity that manufactures DG resources, we will calculate the 20 percent adder on the DG facility's equipment installation, irrespective of fuel type. In other words, the 20 percent "California adder" will be calculated on the base incentive of $2.50 per watt applicable to the installation of a DG non-renewable fuel cell project. A 20 percent adder would increase this incentive to $3.00 per watt for using a California supplier, as defined in the code. If a facility uses renewable fuel and thus qualifies for a Level 2 incentive, the additional $2.00 per watt incentive for fuel cells operating on renewable fuel will be added after the 20 percent California adder, increasing the total incentive to $5.00 per watt.

⁹ The CEC guidebook can be found at the following link:
http://www.energy.ca.gov/2007publications/CEC-300-2007-006/CEC-300-2007-006-ED3-CMF.PDF

¹⁰ RPS eligibility requirements shall pertain to the source of the biogas, the conditions of its injection, and the measurement of biogas supply only. The SGIP generating facility need not be certified as RPS eligible, nor must the electricity produced necessarily qualify for RPS.

¹¹ Pub. Util. Code § 379.6 (g) states in pertinent part:

(1) In administering the self-generation incentive program, the commission shall provide an additional incentive of 20 percent from existing program funds for the installation of eligible distributed generation resources from a California supplier.

(2) California supplier" as used in this subdivision means any sole proprietorship, partnership, joint venture, corporation, or other business entity that manufactures eligible distributed generation resources in California ....