5. A Solar PV Program Can Serve the State in Achieving the RPS and GHG Emission Reduction Goals

The proponents of both the proposed Solar Energy Project and the SA request that we adopt a new program to develop small-scale solar PV facilities to help achieve RPS and GHG emission reduction goals.

We are well aware of the IOUs' obligations to meet renewable and GHG emission reduction goals and recognize that a program that creates more opportunity for renewable generation development will facilitate achieving these goals. However, we will only approve a program if we find that the program is reasonable and provides benefits to ratepayers.

DRA, WPTF, UCAN, and CARE all oppose the proposed Solar Energy Project and recommend rejecting it. The major argument against adopting the proposed Solar Energy Project is that it is unnecessary, it is costly, and it conflicts with CSI and RPS programs. DRA questions the need for a new program arguing that a new program would be duplicative and unwarranted given the success of existing programs such as the CSI that provides funding for solar installations, and support for the development of renewable generation.⁷ DRA also expresses concern that the proposed new program conflicts with the CSI and RPS. WPTF concurs with DRA further arguing that other existing programs such as the feed-in tariff program⁸ (FIT) support small-scale renewable development and the proposal fails to demonstrate that it will deliver on the promise of providing a better deal for consumers than competitive RPS solicitations. WPTF states additional reasons for recommending rejecting the proposal, including the argument that the proposal is unclear on how the requested funds will provide an incentive for the co-construction of additional 25 MW and whether any of the $250 million that SDG&E is requesting will be used directly to fund the expected additional 25 MW.

Given the parties' arguments that SDG&E's proposed program is unnecessary, the Commission must first address the threshold question of whether there is a need for a new program designed to support the development of small PV facilities before considering the merits of the two proposals.

One way to determine that a new program is needed is to demonstrate that the proposed program may be able to remedy a specific problem or that specific benefits will be forgone if the program is not implemented. Below, we discuss some of the notable attributes of small-scale PV and then address the benefits of a program that targets small-scale PV development.

Small-scale PV facilities can be located close to load centers and when strategically located, they may defer or avoid the need for network transmission infrastructure development. In addition, projects installed under this program will contribute to the state's renewable goals and help fulfill GHG emission reduction targets. Furthermore, because these facilities interconnect at the distribution level and do not require, on an individual project basis, large amount of land, they are likely to avoid many of the transmission and permitting challenges that larger scale projects may face. As a result, we anticipate these facilities to come online with a greater degree of speed and certainty than larger scale projects.

Unfortunately, while in general, investment in renewable generation has been increasing under the CSI and the RPS programs, these programs have not resulted in significant investment in projects of 1-2 MW that are targeted by the Solar Energy Project. A brief description of the CSI incentives and RPS solicitations provides a useful explanation for this occurrence.

The CSI program offers incentives to eligible PV facilities that are installed by a utility customer, but the 1 MW incentive cap and the eligibility for net metering effectively limit the participation in the CSI to PV facilities of 1 MW or less. Additionally, the CSI operates under a "behind-the meter" paradigm that specifically targets installations that are intended to offset onsite load. This approach limits the installation of PV facilities to locations where there is onsite energy consumption. However, there are likely to be many locations that have excellent solar generating characteristics but are unable to participate in the CSI because of the lack of onsite load. PV facilities deployed at these locations could make meaningful contributions to the state's renewable energy objectives at reasonable cost under a separate program that would create a market opportunity for the development of these types of solar facilities.

The RPS program provides contracting opportunities to qualifying renewable projects of all sizes, but as SDG&E's testimony states, since the start of the RPS program in 2002, "no renewable projects within the market segment addressed by SDG&E's Solar Energy Project (1-2 MW) have been built as a result of the SDG&E's RPS RFOs."⁹ The fact that, despite the eligibility to participate in the RPS, no small-scale PV project has been completed as a result of SDG&E's RPS solicitation supports a conclusion that existing programs have not worked well in encouraging the development of 1-2 MW renewable projects. As a result, there is a gap for this range of renewable projects in the existing programs. It is unlikely that this gap will be filled under the current structure of the CSI and RPS programs.

DRA argues that the lack of market incentives to encourage this portion of the solar market does not necessitate the creation of additional incentives. We disagree. While the existence of a gap, in and of itself, is not a reason to create a program targeting that gap, without a program that focuses on promoting the development of 1-2 MW PV facilities, we forgo the benefits identified above that these facilities would otherwise provide. Furthermore, the California Air Resources Board's adopted scoping plan specifically identifies a target of 33% renewables by 2020 as a key strategy for GHG emission reduction. As SDG&E notes, development of "52 MW of new solar capacity, that would offset fossil-fueled generation has the potential to reduce annual GHG emissions by up to 34,480 metric tons."¹⁰ Thus, development of small-scale PV facilities as proposed by SDG&E provides a valuable approach to increasing the amount of renewable generation in California and realizing the renewable energy goals of the state.

WPTF and DRA argue that there are better options than SDG&E's proposed Solar Energy Project. These parties' main objection to the proposed Solar Energy Project is that less expensive alternatives exist through the RPS program. Achieving the state's aggressive RPS and GHG emission reduction goals will require a diverse portfolio of technologies with varying costs. While in general, lower-cost renewables may be procured through the RPS, SDG&E has shown that no 1-2 MW solar PV projects have been developed under its RPS procurement activities. Additionally, as noted above, the smaller scale projects targeted by this program appear likely to come online with greater certainty than larger scale projects on which DRA's and WPTF's arguments are premised.

Parties also suggest the gap for small-scale solar PV can be remedied through other means, including legislative or policy options. We note that this Commission is considering expanding the existing FIT in Rulemaking (R).08-08-009. However, in the absence of a specific timeframe for such a program, it is reasonable to proceed now with a new program to encourage development of small-scale PV facilities provided that ratepayers are not placed at risk, and there is no conflict with existing programs and policies. Because small-scale PV facilities can be located close to load and minimize the need for new transmission, the adopted Solar Energy Project can help advance California's goal of developing renewable energy consistent with our legislative mandates and administrative goals while other options are being pursued. We agree with SDG&E that a program such as the Solar Energy Project is one possible solution to help address the existing gap in the 1-2 MW solar market and will supplement, not supplant or conflict, with other procurement strategies.

In light of the above, we believe the adopted Solar Energy Project is complementary to both the CSI and the RPS programs. This Commission reached the same conclusion in recent decisions adopting similar programs for Southern California Edison Company (SCE) and Pacific Gas and Electric Company (PG&E) to promote the development of small-scale solar in their respective service territories.¹¹

Development of small-scale PV is also consistent with the state's commitment to develop renewable distributed generation as a priority resource for the state. The EAP I, adopted by the Commission in 2003, states "the state is promoting and encouraging clean and renewable customer and utility owned distributed generation as key component of its energy system."¹² Also, the EAP II, which was adopted in 2005¹³ established a loading order with clean distributed generation as a key alternative that will contribute to California's aggressive renewable generation and GHG emission reduction goals.

In the following sections we discuss why despite our support for establishing a program that focuses on small-scale PV facilities in SDG&E's service territory, we do not adopt the Solar Energy Project or the SA as proposed.

⁷ Exhibit 200 at 6.

⁸ See Pub.Util. Code § 399.20 and D.07-07-027.

⁹ Exhibit 3 at II-9.

¹⁰ Exhibit 6 at I-9.

¹¹ See D.09-06-049 and D.10-04-052.

¹² Energy Action Plan I at 8.

¹³ The Energy Action Plan II was adopted by this Commission in October 2005, and is a joint policy plan by this Commission and the CEC. See http://www.energy.ca.gov/energy_action_plan/2005-09-21_EAP2_FINAL.DOC.