X. Assignment of Proceeding
President Michael R. Peevey is the Assigned Commissioner and Dorothy J. Duda is the assigned ALJ in this matter.
Incentive Levels
1. According to D.06-05-025, the current solar incentive rate of $2.80 per watt will drop to $2.50 per watt when 50 MW of applications are conditionally reserved.
2. Data from the CEC's solar rebate program for systems over 30 kW shows residential solar growth rates flat since 2003, and a trend toward commercial solar installations.
3. The cost of solar panels has risen in the last year due to a world shortage of silicon.
4. A Cal SEIA survey indicates residential customers may accept a payback of 10 to 15 years for solar investments, while commercial customers generally require a shorter payback in the range of six to eight years.
5. Solar installations are experiencing capacity factors in the range of 16% to 18%.
6. Tax-exempt entities, such as government and non-profit institutions, are not eligible for federal tax credits to offset solar installations costs, unless they use third-party financing and ownership techniques.
7. Tax-exempt entities face a higher net effective cost per kilowatt hour for solar investments because they are not eligible for federal tax credits.
8. Government and non-profit institutions are a significant percentage of current SGIP participants.
PBI for Systems 100 kW and Larger
9. Incentives paid up front do not ensure a well-designed and installed system or that the system owner will attend to ongoing system maintenance and performance.
10. Actual system rating may differ from reported ratings due to incorrect equipment rating and/or poor system design and installation.
11. System performance is affected by compass orientation, tilt and shading.
12. Poor system maintenance and weather variability can impact solar output.
13. System ratings are not yet capable of estimating output for newer solar technologies, such as building integrated PV and bifacial modules.
14. Solar projects over 100 kW are about 1% of total project applications each year, but account for about one-third of installed solar capacity.
15. South-facing solar installations generally provide more total kWh output annually than west-facing installations, which reach peak production during a time more closely aligned to the utilities' system peak demand and yield energy of higher value.
16. Net energy metering rewards on-peak performance through time-differentiated net energy credits for customers on TOU rates.
17. Most customers with solar facilities participate in net energy metering.
18. A shorter PBI payment period has advantages for solar buyers and lower administrative costs.
19. To calculate a PBI payment, the dollar per watt incentive must be converted to cents per kilowatt hour using a capacity factor.
20. SGIP data shows an average capacity factor of 16% for systems installed through 2004, while U.S. Department of Energy and CEC data projects average capacity factors will reach 18%-20% by 2010.
EPBB
21. System AC ratings cannot be verified until systems are installed.
22. The Design Factor in the EPBB calculation is the ratio of a customer's simulated solar output to the simulated output for an optimal reference system.
23. Variability in California's geography and climate affects the level of solar production around the state.
Program Administration
24. In D.06-01-024, the Commission determined existing program administrators should administer CSI for the commercial and industrial sector.
25. Residential solar retrofit projects, formerly administered by the CEC, must shift to a new administrative structure in January 2007.
26. If we limited the existing administrators to projects above 100 kW, they would have few applications to administer.
27. Under Section 136 of the Internal Revenue Code, subsidies are treated as non-taxable income if provided directly or indirectly by a public utility for the purchase or installation of an energy conservation measure.
Metering Requirements
28. Revenue grade meters to measure solar output are available at a variety of prices, depending on the degree of time interval detail and communication system.
29. Under SGIP and net energy metering rules, the customer pays for any expenses beyond the minimum utility revenue meter.
30. Performance monitoring can be provided by third parties independent of solar manufacturers, installers, or owners.
31. A large portion of solar capacity is already served by time-differentiated meters and tariffs.
Incentive Adjustment Mechanism
32. In D.06-01-042, the Commission established a mechanism for solar incentives to automatically decline 10% a year for 10 years.
33. Demand for solar incentives varies by utility territory, with some utilities using their budget allocations more quickly.
34. In D.06-01-024, the Commission established a process for the ALJ to implement reductions to incentive levels.
Funding Levels
35. Residential customers approximate one third of total system sales.
Incentive Levels
1. Reducing solar incentives to $1.50 per watt, as suggested by Staff, could disrupt the solar market, particularly in conjunction with the introduction of performance-based incentives.
2. It is reasonable to adjust the single solar incentive rate adopted in D.06-01-024 in favor of rates tailored to the tax effects seen by residential, commercial, and tax-exempt customers.
3. A single incentive rate for commercial and residential customers is reasonable given information on the record concerning customer payback periods, current capacity factors, tax effects, and solar equipment costs.
4. A residential incentive rate of $2.50 per watt is reasonable given data indicating slower adoption of solar technology in this market segment.
5. It is reasonable to adopt an incentive rate of $3.25 per watt for tax-exempt entities that do not use third-party financing, to bring net solar installation costs in line with those entities that receive federal tax credits.
PBI
6. A performance-based incentive structure will motivate consumers to focus on the proper installation, maintenance, and performance of their systems.
7. We should apply a PBI structure to solar projects 100 kW and larger based on the ability of customers investing in larger systems to finance system costs.
8. We should transition smaller systems, larger than 30 kW, to a PBI structure in 2010, after we have experience with PBI and to allow sales and financing arrangements to evolve.
9. It is reasonable to allow any size system to opt for PBI payments.
10. Building integrated PV systems, regardless of size, should receive PBI payments because it is difficult to estimate performance for these systems.
11. New construction projects, regardless of size, are exempt from PBI and should be paid up-front incentives to allow financing of net building costs by builders and developers.
12. We should not adopt time differentiated PBI payments because many customers with solar facilities and most solar MW capacity already participate in TOU tariffs.
13. A lengthy PBI payment period has the potential to dampen interest in solar installations because solar investors must wait to recover their investment.
14. A five-year PBI payment period has lower administrative costs and less market risk than a longer payment period.
15. PBI payments should be based on an 18% capacity factor initially, based on data from SGIP, the U.S. Department of Energy, and the CEC.
16. To encourage increases in system performance, the capacity factor to calculate PBI payments should be increased to 20% after 220 MW are installed through the CSI program (i.e., at Step 4 of the program).
17. A performance cap is inconsistent with the goal of rewarding systems for higher performance.
18. A solar facility receiving PBI payments will be paid for actual output over the five-year payment period, with no cap other than the total funding cap of the CSI program.
19. Each program administrator should forecast PBI payments for each solar project at the time of system installation, and deposit total expected five-year payments into a single interest-earning escrow account maintained by each administrator.
20. We should incorporate a discount rate into levelized PBI payments so the payments do not penalize systems that must wait five years to receive their full PBI payments.
21. A discount rate of 8% is a reasonable assumption for the range of interest rates different solar buyers might receive on deferred payment streams.
22. PBI payments should be made on a monthly basis to provide frequent customer feedback on system performance.
23. An immediate transition to PBI for systems 100 kW and larger should not cause market disruption to these systems which are already financed at the 60%-70% level.
EPBB
24. It is reasonable to use CEC-AC ratings because System AC ratings are not verifiable at this time.
25. The Design Factor for EPBB should include geographic location to more precisely estimate likely system performance and yield the highest level of overall system production per dollar of ratepayer support.
26. We should allow equivalent optimal design factors for south, southwest, and west orientations to promote either peak solar production or maximum total solar output.
27. The Design Factor for EPBB should: (a) treat all systems oriented between 180º and 270º equally, (b) assign an optimal orientation tilt for each compass direction in the range of 180 º to 270 º, (c) include location-specific criteria to account for varying degrees of insolation; and (d) determine an optimal latitude tilt that relates to local latitude.
28. It is reasonable to verify system characteristics for all systems between 30 kW and 100 kW, and for a sample of systems under 30 kW.
29. Trained personnel should verify system characteristics.
30. Project installers who fail three random verifications shall be excluded from program participation.
Program Administration
31. We should shift administration of the residential retrofit portion of CSI to the existing administrators to prevent any time gaps in the provision of residential incentives.
32. We should consider one statewide entity for residential CSI administration in the future if we find economies of scale, overhead savings, or other benefits.
33. Alternate administration may be reasonable for a single region or utility service area if one region lags others in solar penetration, ease of interconnection, or administrative performance and cost.
34. IRS taxation issues do not impact our decision between utility or independent administration.
35. Subsidies provided by a public utility are non-taxable under Section 136 of the Internal Revenue Code as long as the money comes from utility rates and the monies paid to the consumer are those provided by the utility.
36. A statewide online application system will enhance the ability of customers to use CSI programs.
37. A single database of project information will benefit ongoing program evaluation, but some data should initially be accessible only to program administrators and CEC/Commission staff.
38. We should create a CSI Program Forum to provide a public venue for interested parties to identify, discuss, and fashion consensus-based solutions to ongoing issues related to CSI administration and implementation.
Metering Requirements
39. Accurate metering of solar output should increase owner knowledge of system performance, foster adequate system maintenance, and thereby ensure ratepayer incentives result in expected levels of solar generation.
40. Revenue grade meters are required to ensure accuracy of PBI payments and may be needed to meet renewables portfolio standard rules.
41. Revenue grade meters will not add a significant cost burden to CSI participants.
42. All systems paid incentives through CSI should install a revenue grade meter at the customer's expense that includes some form of communication reporting capability.
43. The entity administering solar performance reporting should be an independent party, either existing administrators or a third party not affiliated with solar manufacturers, installers or owners.
44. We should consider the overall economics of time-differentiated tariffs when we examine cost-effectiveness in Phase II.
Incentive Adjustment Mechanism
45. If we decrease incentives on a calendar basis, we might reduce incentives before the economics of the solar industry and market demand match incentive levels.
46. An incentive adjustment mechanism based purely on the volume of program participation allows the market demand for solar power to control the pace of incentive reductions.
47. A volume based incentive reduction mechanism is transparent, administratively simple, and allows external market factors to influence incentives through market demand.
48. It is reasonable to maintain a cap on the total CSI budget, as adopted in D.06-01-024, but not mandate the timing of the expenditures on a yearly basis.
49. A uniform statewide incentive level ignores the unique characteristics of solar markets throughout the state.
Funding Levels
50. For equity reasons, we should reserve one-third of CSI funds for residential customers.
51. We should establish MW triggers for each utility, and for the residential and non-residential sectors within each utility, based on the MW levels of program participation adopted in the trigger mechanism in D.06-01-024.
52. The Commission should open a rulemaking in 2009, or sooner if needed, to review major aspects of the CSI program as described in this order.
53. The Commission should periodically review the CSI program at two-year intervals.
IT IS ORDERED that:
1. The California Solar Initiative (CSI) incentive levels, program structure, and budget described herein are approved through December 31, 2016. Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), (collectively "the utilities"), shall implement this program consistent with today's decision. SDG&E shall contract with the San Diego Regional Energy Office (SDREO) to administer the CSI in the SDG&E service territory.
2. The incentive rates adopted in Decision (D.) 06-01-024 are modified to reflect the performance-based incentives (PBI) and Expected Performance Based Buydown (EPBB) incentives set forth in Sections II.B and C and Tables 5, 6 and 13 of this order. Beginning January 1, 2007, PG&E, SCE, SoCalGas and SDREO (collectively, the "program administrators") shall pay performance-based incentives (PBI) and EPBB incentives, as set forth in Sections III.B and C and Tables 5, 6 and 13 of this order, to gas and electric customers of the utilities for eligible residential retrofit and non-residential solar projects.
3. In order to receive the higher government/non-profit incentive rate rather than the commercial rate, tax-exempt entities must include with their incentive application a certification under penalty of perjury from their Chief Financial Officer or equivalent that they are a government or non-profit organization, and they are not receiving and will not receive federal tax benefits through third-party financing or ownership arrangements. The certification shall include a copy of the entity's bylaws and articles of incorporation if it is a non-profit entity.
4. Beginning January 1, 2007, the Commission will apply a PBI structure to all systems 100 kilowatts (kW) and larger. Any system, regardless of size, may opt for the PBI payment structure in Table 5. The Commission will require all building-integrated photo-voltaic (PV) systems to receive incentives through a PBI structure, but will not require new construction solar installations to be paid through PBI.
5. Program administrators shall pay any solar facility receiving the PBI incentive rate for its actual output over the five-year payment period, although program administrators shall not exceed their individual CSI budgets as set forth in D.06-01-024. The rate to be paid for the five-year period is determined based on the rate in the year the project is conditionally reserved. Program administrators may make the payment on the utility bill or separately at this time. SDREO should arrange with SDG&E for monthly on-bill payments.
6. Each program administrator shall deposit the total five years expected PBI payment amount for all completed solar projects into a single interest earning escrow account for each administrator to ensure fund security over the five-year period.
7. Beginning January 1, 2007, program administrators shall pay an EPBB incentive to qualifying solar projects under 100 kW, where the EPBB incentive shall equal the incentive rate multiplied by a system rating and a design factor, as set forth in Section III.C of this order.
8. Within 30 days of this order, the program administrators shall issue a single solicitation for a technical expert to provide a single design factor protocol and initial estimation tool that matches the criteria set forth in this Section III.C of this order. Program administrators shall ensure the design factor protocol and estimation tool are delivered by November 1, 2006 for inclusion in the initial CSI Program Handbook.
9. Program administrators shall use trained personnel to verify system characteristics for all systems between 30 kW and 100 kW that receive EPBB incentives, and for a random sample of systems under 30 kW.
10. Program administrators shall develop a coordinated training plan for EPBB site inspectors and submit the plan by Advice Letter no later than January 5, 2007.
11. Program administrators shall ensure solar installers report expected annual system output on program application forms.
12. Within 30 days of this order, program administrators shall designate one administrator to contract with an entity to create a statewide online application process and program database as set forth in Section IV.B of this order, and report on their progress through letter to the Director of the Energy Division no later than December 31, 2006.
13. Energy Division Staff shall convene a workshop within 15 days of the effective date of this order to discuss CSI Program Handbook development and create subgroups to work on sections of the handbook. Energy Division shall forward a draft CSI Handbook to the Administrative Law Judge (ALJ) no later than 60 days from the workshop, for review and comment according to the schedule in Section IV.B., unless modified by the Assigned Commissioner or Administrative Law Judge by further ruling.
14. The program administrators shall convene the first meeting of the CSI Program Forum in the first quarter of 2007, to provide the opportunity for CSI stakeholders to discuss proposed revisions to the CSI Handbook. Energy Division Staff shall facilitate this meeting. The program administrators shall: (a) arrange future meetings no less than quarterly, (b) provide notice of all meetings on the Commission's Daily Calendar and to the service list of this or any successor proceeding, and (c) maintain meeting minutes and post them on the CSI portion of the Commission's website. The CSI Program Forum may fashion consensus handbook revisions, as needed, and file them by Advice Letter.
15. All solar projects that receive an incentive through the CSI program shall install a separate revenue grade meter with communication reporting capability, as set forth in Section V and Table 9 of this order, to measure their systems' solar production. Internal meters certified as revenue grade are acceptable for projects under 10 KW. Systems 100 kW and larger must have reporting capabilities before receiving PBI payments, and systems between 30 and 100 kW shall have reporting capabilities as soon as protocols are established through the CSI Handbook process. The total cost of a customer's metering, communication, and reporting system for the first five years of solar production shall be less than 1% of total installed costs for systems up to 30 kW, and less than 0.5% for larger systems.
16. Program administrators shall ensure the entity responsible for performance monitoring and reporting is not affiliated with the incentive recipient, or any solar manufacturer or installer.
17. Energy Division shall ensure that parties participating in the CSI Handbook development process, or any metering subgroup within that process, address the following issues for inclusion in the CSI Handbook: (a) meter standards and data transfer protocols, and other details of a minimum solar output communication function, within cost limits specified in this order, (b) solar performance monitoring in advance of Advanced Metering Infrastructure, (c) a method for independent performance monitoring of solar output, and (d) communication of solar performance to customers and program administrators initially, and to the general public at a later date.
18. The incentive adjustment mechanism adopted in D.06-01-024 (Appendix A, Table 5) is modified to base incentive adjustments purely on the volume of megawatts (MWs) of solar installations, as set forth in Table 11 of this order. Incentives may vary by utility service territory and customer sector, according to the MWs of achieved solar demand specified in Table 11. Each program administrator shall automatically reduce its incentive level when conditional reservations for solar incentives in its utility service territory reach the MW targets in Table 11, and provide written notification of this incentive reduction to the ALJ and the service list of this proceeding, or any successor proceeding. The ALJ will issue a ruling confirming the incentive reduction.
19. CSI MW goals are allocated across each utility using the percentage contribution that each utility makes to the total CSI budget, as shown in Table 10. Program administrators shall ensure a portion of program funds, equivalent to one-third of program MWs, are reserved for residential applicants.
20. The ALJ may issue a ruling, according to the process established in D.06-01-024, to implement any additional or unscheduled incentive reductions.
21. Program administrators shall submit estimated CSI administrative costs for 2007 and 2008 to Energy Division Staff no later than March 31, 2007, and shall spend no more than 5% of their total budget for administration until the Commission addresses marketing, outreach, and measurement and evaluation in Phase II of this proceeding.
22. In 2009, or sooner if necessary, the Commission will open a rulemaking to review CSI rules and policies as described in this order. The Commissioner assigned to this future rulemaking may determine the CSI program elements included in the review.
23. The Commission shall review the CSI program at approximately two-year intervals throughout its duration.
24. Rulemaking 06-03-004 shall remain open for consideration of other CSI and distributed generation issues in Phase II.
This order is effective today.
Dated , at San Francisco, California.
APPENDIX A
PBI Levelized Payment Explanation
Levelized PBI Monthly Payment Amounts at 8% discount rate.
|
statewide |
EPBB payments (per watt) |
PBI payments (per kWh) | ||||
Step |
MW in step |
Res |
Non-Res |
Non-Tax |
Res |
Non-Res |
Non-Tax |
1 |
50 |
$2.80 |
$2.80 |
$2.80 |
** |
** |
** |
2 |
70 |
$2.50 |
$2.50 |
$3.25 |
$0.39 |
$0.39 |
$0.50 |
3* |
100 |
$2.20 |
$2.20 |
$2.95 |
$0.34 |
$0.34 |
$0.46 |
4 |
130 |
$1.90 |
$1.90 |
$2.65 |
$0.26 |
$0.26 |
$0.37 |
5 |
170 |
$1.55 |
$1.55 |
$2.30 |
$0.22 |
$0.22 |
$0.32 |
6 |
230 |
$1.10 |
$1.10 |
$1.85 |
$0.15 |
$0.15 |
$0.26 |
7 |
300 |
$0.65 |
$0.65 |
$1.40 |
$0.09 |
$0.09 |
$0.19 |
8 |
400 |
$0.35 |
$0.35 |
$1.10 |
$0.05 |
$0.05 |
$0.15 |
9 |
500 |
$0.25 |
$0.25 |
$0.90 |
$0.03 |
$0.03 |
$0.12 |
10 |
650 |
$0.20 |
$0.20 |
$0.70 |
$0.03 |
$0.03 |
$0.10 |
* For PBI Calculations, the first three steps assume a capacity factor (CF) of 0.18; Steps 4-10 assume a CF of 0.20.
** The first 50 MW incentives are disbursed under the 2006 SGIP program; PBI payments do not apply.
Overview:
We convert from a capacity based output (in watts) to a performance based output (in kWh). We calculate a levelized monthly payment so that we can provide a uniform per kWh incentive that adjusts for discount rate and is equivalent to an up-front EPBB payment.
In order to convert from EPBB payments to a levelized monthly PBI payment, we calculate and assume the following:
· We assume an 8% discount rate (which we divide by 12 disbursement periods)
· 60 monthly periods during the time of the five-year payment period under PBI
· The Present Value of the payment to be levelized is the value of the EPBB
· We make each payment occur at the end of the payment period
· We levelize each payment into a uniform series
· We multiply the levelized payment by the Capacity Factor (either 0.18 or 0.20 depending on which Step)
· We divide the levelized payment by the kWh/month per Watt (0.1314 or 0.146 depending on the CF)
· This gives us the levelized monthly PBI Payments in $ per kWh
(END OF APPENDIX A)
INFORMATION REGARDING SERVICE
I have provided notification of filing to the electronic mail addresses on the attached service list.
Upon confirmation of this document's acceptance for filing, I will cause a copy of the Notice of Availability to be served upon the service list to this proceeding by U.S. mail. The service list I will use to serve the copy of the Notice of Availability is current as of today's date.
Dated July 24, 2006, at San Francisco, California.
/s/ FANNIE SID |
Fannie Sid |
************ APPEARANCES ************ |
Regina M. Deangelis |
Janis C. Pepper |
Ann L. Trowbridge |
Dan Perkins |
Joseph F. Wiedman |
Joshua Harris |
Eric Larsen |
Amber Dean |
Stephen Miller |
J. P. Ross |
CALIFORNIA ENVIRONMENTAL PROTECTION |
Maryam Ebke |
Anne E. Simon |
Reed V. Schmidt |
Steven G. Lins |
Diane I. Fellman |
Elston K. Grubaugh |
Mark Bolinger |
Cathy S. Woollums |
Scott Tomashefsky |
Steve Endo |
Nathalie Osborn |
Lisa Urick |
John Galloway |
