4. Comments on Petition
Responses to the petition were filed by California Center for Sustainable Energy (CCSE), Center for Energy Efficiency and Renewable Technologies (CEERT), Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and UTC. In addition, responses were filed by Alliance Power Inc., ApolloPower Inc., California State University Northridge, Carollo Engineers P.C., Chevron Energy Solutions Company (CES), Gills Onions Rio Farms, HydroGen Corporation, Manuel Bros., Inc., Marubeni Corporation, MISCO, National Fuel Cell Research Center, Powerhouse Energy LLC, Silverwood Energy Inc., and Starwood Hotels and Resorts Worldwide Inc. We refer to this latter group collectively as the "fuel cell supporters" because though the comments were filed individually, they were strikingly similar, and in some cases identical to each other.
The fuel cell supporters state strong support for the petition, contending the increase in project size eligible for incentives is needed to cost-effectively develop the biogas market for fuel cell technology at waste treatment plants, landfills, and other host facilities that need larger scale projects. They allege that raising the incentive cap for both natural gas and renewable biogas supplied fuel cell technologies will allow larger users of electric and thermal energy to implement more efficient technologies which utilize less fuel. They contend there is an increasing market demand for DG between 1 and 3 MW to meet the requirements of end user customers. According to the fuel cell supporters, if the Commission raised the incentive cap to 3 MW, this would help encourage innovation and expansion of DG applications at a time when the state needs renewable DG and efficient use of fuel stocks. These parties claim the current 1 MW cap on incentives deters larger installations because they are uneconomic and too risky to develop.
Moreover, these parties contend that large fuel cell projects provide benefits to utility systems in California such as decreasing GHG emissions per megawatt hour of baseload electricity and thermal load supplied, reducing transmission and distribution grid constraints, reducing the need for new generation capacity, and eliminating emissions from combustion-fired power generation that would otherwise be used if renewable biogas or natural gas supplied fuel cell projects are not implemented. The fuel cell supporters further contend that if the Commission is concerned that raising the incentive cap will negatively affect SGIP participation by smaller DG projects, the Commission can monitor this, allocate money between large and small projects, or increase the SGIP budget.
UTC opposes FCE's petition, arguing that the Commission has denied past requests to raise the 1 MW cap on the basis that an increase might cause large projects to deplete the SGIP budget. UTC contends the 1 MW cap should be maintained to ensure the broad distribution of SGIP funds. According to UTC, increasing the cap beyond 1 MW would minimize the overall number of projects funded by SGIP, in opposition to the Commission's earlier stated goal of making SGIP funds available to a broad range of projects and customers.
Moreover, UTC contends the SGIP is successful at current incentive levels, with program data provided by FCE in its petition indicating that 2006 saw the highest level of fuel cell participation in SGIP to date.3 Thus, UTC concludes that maintaining current incentive levels will support more projects and increase fuel cell market penetration. UTC argues that the overall number of fuel cells manufactured promotes economies of scale that lead to price reductions. Thus, a higher number of smaller projects promote competition and innovation in clean energy more than incentives limited to a few large projects.
CEERT supports the petition as it relates to renewable fuel cells, and supports the recommendation for increased SGIP funding. CEERT also proposes that to ensure smaller installations receive incentives, the Commission could require installations over 1 MW to wait until the close of the fiscal year to receive incentives for the portion of their project over 1 MW. In reply, FCE opposes this request as creating too much uncertainty for fuel cell developers and undermining the ability to obtain project financing.
CCSE, PG&E and SCE support the petition, but only with respect to fuel cells operating on renewable fuel. SCE contends that raising the incentive cap for non-renewable technologies risks depleting program funds. PG&E suggests a lower incentive level of $2.50/watt for incentives over the first MW to extend the SGIP budget, and it also recommends permitting the increased incentive cap on a two-year pilot basis. CCSE also supports a tiered incentive approach to prevent a small group of large customers from monopolizing program funds.
In response to UTC, FCE states that the current 1 MW cap inhibits development of the market for larger installations. FCE proposes consideration of conditions to ensure funds are fairly allocated to large and small DG, such as budget allocations between large and small customer classes with corresponding discretion to shift funds, or scaled incentives as suggested by PG&E and CCSE. FCE supports the suggestion that any increase in the incentive cap should apply to renewable projects only.
3 UTC cites statistics provided by FCE on p. 4 of its July 25, 2007 petition.
