7. PV Program Size and Schedule
7.1. Parties' Positions
PG&E originally proposed to develop UOG projects at about 50 MW annually. PG&E contends that the 50 MW per year target would be a manageable project load for developing UOG projects from 1 to 20 MW in size. For the PV PPA, PG&E proposed to hold annual solicitation for up to 50 MW from 2010 to 2014 and if less than 50 MW is awarded in a given solicitation, the remainder megawatts would roll over megawatts to the following year's solicitation.
The Solar Alliance and CALSEIA propose a declining schedule with
100 MWs of PPAs in the first year, 75 MWs in the second year, 50 MWs in the third year, and 25 MWs in the fourth year of the program.58 The Solar Alliance contends that front-loading the MWs would be an effective approach to ensuring that the entire 250 MW of the PPA program will be built.
CARE argues that we should approve the development of all 250 MW of projects under the PPA portion of the program in light of the expiration at the end of 2010 of the opportunity to receive a grant in lieu of the investment tax credit pursuant to the American Recovery and Reinvestment Act.59
In response to CALSEIA and Solar Alliance's proposal to front-load the MWs, PG&E endorses the concept but recommends a slightly different schedule. PG&E suggests 75 MWs each in the first and second year, and 50 MW each in the third and fourth year of the program, with the fifth year as the "clean-up"" for contract failures.60 PG&E asserts that this schedule would allow an opportunity to take advantage of future price reductions in PV facilities and also new technologies to develop and bid into the last year of the program.
DRA also proposes that the program be scaled back to half its size to provide ratepayer protection. DRA disputes PG&E's claim that the full size of the program is needed to achieve economies of scale.
TURN proposes to consider reallocating the MWs between the UOG and PPAs after two years.
Regarding the proposal for a two-year evaluation of the allocation between the PPA and UOG portion of the PV Program, PG&E responds that a two-year check point would create uncertainty for bulk purchases as well as administrative costs that ratepayers will have to bear. PG&E argues that some PPA projects may not be fully developed by the end of the two year term. Thus, a comparison between UOG and PPA projects under such circumstance would not be useful. Finally, PG&E argues that a two-year program check will be unnecessary because a program review is intended at the end of the 5-year of the program when results for both the UOG and PPA portions of the PV Program will be available.
7.2. Discussion
We adopt the PV Program for 500 MWs. PG&E will be authorized to build up to 50 MW of PV UOG and solicit up to 50 MW of PPAs annually, subject to carryover/dropout provisions described below. If and when PG&E exercises its option to build any solar projects authorized by this decision, it will need to adhere to any and all permitting requirements, including any requirement under the California Environmental Quality Act (CEQA). We note that this adopted deployment schedule does change the estimated average capital cost, before contingency, from what PG&E provided in testimony. PG&E estimated a weighted average capital cost of $3,831/kW, which was based on a deployment schedule under which 25 MW would be deployed in 2010, 50 MW in each of years 2011, 2012, and 2013, and 75 MW in 2014. Under the adopted schedule, because 25 MW will be shifted from the last year of the program, when costs are expected to be lower, to the first year of the program, where costs are expected to be higher, this increases the weighted average capital cost to $3,920/kW before contingency.
We reject both PG&E's revised, and CALSEIA and Solar Alliance's proposed schedules to front load the MWs for PPAs. Neither has presented a convincing argument why front-loading the MWs would be beneficial. In our view, front-loading the MWs would not enable the program to take advantage of future price reductions that could become available due to technological improvements or new developments in the market. As PG&E recognizes "there may be cost effective technologies that can participate in later solicitations that do not exist today."61 One of the key reasons for an annual solicitation would be to enable the program to take advantage of additional choices as technology evolves and new companies entering the market. As the above comments suggests, if the program was front-loaded, these potential savings would be forgone as fewer MWs would be left to participate in the future years of the program. Furthermore, as the Solar Alliance has noted, any specific schedule may be somewhat arbitrary.62 We also reject CARE's proposal to allow all 250 MW of capacity on the PPA side of the program to be developed in 2010 in order to take advantage of the Investment Tax Credit (ITC) grant program. Were market conditions, including access to capital and PV prices, to remain unchanged, CARE's assertion that allowing all of this capacity to begin development in 2010 would be reasonable as it would reduce costs to ratepayers. However, as already stated we do not believe this to be the case. In addition to expectations of future declines in PV costs, we also believe that as the economy recovers, the availability of tax equity investment will be restored. CARE's argument implies that unless PPA projects begin construction this year, ratepayers will forgo the benefits of the ITC grant program. While strictly speaking they may forgo the grant, we believe that these grant monies will be largely replaced by tax equity investment as investors with tax appetite take advantage of the ITC as well as the Modified Accelerated Cost Recovery System (MACRS) which allows for the accelerated depreciation of solar assets and the associated tax benefits this provides. Given these considerations, we will adopt the schedule for an annual solicitation of
50 MWs for PPAs. For the same reasons, we will adopt a 50 MW per year for the UOG portion of the PV Program. We also allow PG&E to accrue unbuilt MWs from a given year to the next year. In other words, if PG&E elects to build less than the authorized annual capacity, or if the PPA solicitation results in the selection of less MW than allotted, the remaining MWs for that year will be added to the next year's solicitation. This will ensure that ratepayers will receive the benefits of potential price decreases in the future.
A different, but related issue concerns the treatment of dropouts, defined here as projects/capacity that were either selected through a solicitation or which PG&E has indicated its intent to develop, but that for various potential reasons, do not come online within the required timeframe. For the PPA portion of the program, in the interest of helping ensure the program fulfills its overall capacity objectives, any PPA projects and associated capacity that drops-out over the course of the program should be added to the authorized capacity that can be developed in the next available solicitation. This accrual of drop-outs should occur through the last solicitation of the program.
For the UOG portion of the program, we adopt a different approach to dropouts. As described above, to encourage PG&E to keep its capital costs in check we have adopted a capital cost savings incentive mechanism. The incentive mechanism as adopted may encourage PG&E to postpone deployment of UOG capacity to later years of the program when solar panel prices are anticipated to be lower, and thereby compromise the timeliness of deployment under this program. To address this we limit PG&E's ability to roll forward un-deployed capacity from any given year to subsequent years of the program to no more than 10 MW. Thus if PG&E deploys less in any given year than it has been authorized pursuant to the initial schedule adopted herein of 50 MW per year, it may roll forward no more than 10 MW to the subsequent year. It follows from this that in any given year, the maximum amount of capacity PG&E would able to deploy would be 60 MW.
Regarding the size of the PV Program, we are not convinced that DRA's proposal to reduce the program size by half is warranted. First, as discussed earlier, we believe ratepayers are adequately protected against high costs through the competitive processes PG&E will rely on to select both UOG and PPA projects, the requirement that PG&E involve an Independent Evaluator in conducting all of its solicitations, and the adoption of a revenue requirement which, if exceeded, will trigger a reasonableness review for recovery of UOG project costs. For the same reasons we also reject TURN's proposal to reevaluate the allocation of the MWs between UOG and PPAs based on a determination of which is cheaper. Adoption of such an approach would create significant uncertainty and could delay deployment of systems under this program. Second, as DRA acknowledges, there is a lack of analysis in this record as to "(a) what aspects of PG&E's programs might enjoy economies of scale, and (b) what effects changing the size of the program would have on the economies of scale."63 Without a proper analysis, it would be difficult to draw a conclusion about how much reduction, if any, in the program size would be appropriate.
We reject PG&E's proposal to suspend or scale back the PV Program without Commission authorization. While there may be factors that could justify termination of the PV Program, PG&E will be required to file an advice letter demonstrating the need to do so.
Finally, in its proposal, PG&E indicated that although its UOG program would focus primarily on ground-mounted projects from 1 to 20 MW in size, it wished to reserve the ability to pursue some projects less than 1 MW and some roof-mounted projects. Given the approaches adopted to ensure price reasonableness, we find allowing PG&E to pursue some limited number of smaller projects and/or roof-mounted projects reasonable. To that end we will allow PG&E to deploy projects less than 1 MW in size as well as some
roof-mounted projects, provided that in aggregate these projects represent no more than 5% of the total UOG capacity authorized under this program. To avoid potential conflicts with the CSI, PG&E shall not develop projects on locations that have sufficient onsite load to participate in the CSI program. This is consistent with the comments of the Solar Alliance and Vote Solar on the APD, and what we required of SCE in implementing its SPVP.
58 This proposal was jointly offered by the Solar Alliance and CALSEIA.
59 CARE Opening Brief at 4.
60 Exhibit 4 at 3-5.
61 Exhibit 1 at 3-3.
62 Exhibit 1100 at 5.
63 DRA's reply Brief at 4.
