Public Policy Issues Take the Floor at Intersolar-SEMICON

Over 17,000 solar and renewable energy specialists were in San Francisco last week attending the Intersolar North America Conference, with over 25 conference tracks, 170 speakers and about 500 exhibitors at Moscone West Exhibit Hall.

Among the issues on the public policy side was the recognition that changing global and national economics have impacted the solar industry, both photovoltaics and thin film, as well as large solar thermal plants. In the past, emphasis has been on the high cost of silicon and other basic materials used in the industry. Within the past year, solar module prices have been driven down by a combination of decreased demand, and oversupply of feedstock silicon.

One of the drivers of the decrease in demand was the lack of monitoring interconnections under the Spanish Feed-In Tariff which led to over 2.5 GW of solar installations in 2008, far more than the expected cap of 900MW. This led to a deep reduction in the cap to 500 MW in 2009, and 400MW is anticipated in future years. Combined with the weak markets in the US, China, and elsewhere, this has led to an oversupply in the market, and dramatic decreases in the price of silicon and silicon-based modules.

The credit market meltdown and the at least 10 year delays related to transmission build-out have put at risk the ability of California’s Investor Owned Utilities (PG&E, Southern California Edison, and San Diego Gas and Electricity) to reduce greenhouse gas emissions and fulfill the mandated Renewable Portfolio Standards (RPS) for California.
The California Energy Commission (CEC) and others have determined that there is a gap in the support for wholesale solar installations in the under 20 MW range, in particular in terms of systems that are smaller than the large transmission-interconnected central stations planned in the deserts of Southern California, and the current retail side Million Solar Roofs Program (SB1) to put solar on rooftops across the state.

Julie Blunden, Vice President of Sunpower, described potential projects in this “gap” as urban infill power plants, fast to build and having the advantage of not requiring large transmission and distribution systems to be placed in use. On the other hand, Gainesville, Florida delivers even more benefits with a Feed-In Tariff that interconnects on the utility side of the retail meter, interconnecting directly to the utility grid.

In the US today, Power Purchase Agreements are the most commonly used financing and ownership method for large utility-sized power plants. Utilities have only recently been able to own renewable generating power plants, with all three of the state’s investor-owned utilities-PG&E, Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E) proposing different approaches to renewable installations.

Damon Franz, Policy Analyst of the California Public Utility Commission described their process in evaluating these three large utility’s proposals to implement utility owned generation in this “gap” area of 20 MW-and-under projects. In order to further evaluate the impact of utility ownership vs. the feed-in tariff vs. competitive solicitations for PPAs the CPUC has implemented a policy to allow each method to run in parallel.

For instance, when Southern California Edison proposed 250 MW of utility owned projects, the CPUC permitted 250 MW of independently owned projects (IPP) in addition, for a total of 500MW over 5 years, allowing only 50 MW in each program per year.
California now has two legislative approaches to the Feed-In Tariff, an energy supply policy that offers a guarantee of payment to renewable energy developers for the electricity they produce. Germany and Denmark implemented the Feed-In Tariff in the late 1990’s to provide a long-term, stable, easy to utilize procedure for a financially attractive policy to drive increased market share for renewable energy.

In Germany the Feed-In Tariff provides a stable payment for electricity for renewable energy, including solar systems, over 20 years. According to Gerhard Stryi-Hipp, Energy Director of the German Solar Industry Association, this has resulted in remarkable growth of solar PV, from 4.8% in 1998 to 14.2% of the electricity market in 2007, employing 45,000 people and valued at $8 billion dollars of revenue in 2008, while stimulating innovation and job creation for the German economy.

Germany expects to reach grid parity from its renewable energy program in 2012 for larger solar systems, and 2015 for rooftop sized solar systems. Overall the program has also succeeded in reducing the overall cost of energy by 10.2% per year, in part because all other renewable technologies covered by the German FIT are priced below retail rates.
There are now two bills in the California Legislature that address Feed-In Tariffs, AB1106 and SB32. Craig Lewis, Founding Principle of Right Cycle, spoke on July 13th regarding AB1106 (Fuentes, Ruskin) which creates a system similar to the German Feed-In Tariff system, with the solar electricity fed back onto the grid on the utility side of the meter.

This proposal is similar to the Gainesville Feed-In Tariff, which will bring on more solar PV in the city of Gainesville in 1 year than the entire state of Florida has deployed in its entire history. Gainesville is continuing to offer its new metering CSI-type program but historically that has not been successful in terms of installed PV. Under AB1106, the utilities would use a standard “must-take” contract, reducing the significant transaction costs of negotiating individual contracts. The renewable energy credits (RECs) would be transferred (bundled) along with the power, unlike the net metering program now in place, and eligible systems would be sized at 10 MW-and-under.

Rates would be set by the CPUC, with contracts to run at a guaranteed rate for 20-25 years. The benefits of the AB 1106 model, include dramatically reduced transaction barriers and reduced delay and costs associated with transmission lines. AB1106 does not include a cap, and provides real potential to reach the 33% RPS goal by 2020 declared by Gov. Schwarzenegger in November, 2008.

The alternative bill, SB32 (Negrete McLeod), is a slight extension of the relatively anemic FIT that already exists in California, AB1969. The AB1969-based FIT has brought only 10 MW of biogas projects to the state over a one year period, but no wind and no solar. SB32 limits project size to 3MW, and provides a statewide cap of 750 MW.

The bill provides a mechanism to go from net metering to the Feed-In Tariff program by reimbursement of incentive funds received. However this would defeat the purpose of increasing the renewable power generated by solar and other renewable systems. Among the other key differences in the bills is the pricing mechanism, with SB32 pricing methodology that potentially makes the systems un-economic, the transaction cost-shaving standard contract optional by utility, and preferential treatment for systems that provide power at peak demand times on the grid.

Sue Kateley, Executive Director of CalSEIA, indicated that the smaller size limitation on the systems is meant to protect small public utilities in the state, but there is no provision in the bill for any system larger than 3 MW.

Given this, SB32 may jeopardize the ability of the Feed-In Tariff system to provide enough renewable energy to meet the state’s RPS standard. In addition, language in the bill may limit the ability of the Feed-In Tariff to incentivize solar power installations. In that scenario, the bill may effectively delay development of distributed generation in the “gap” area identified by the CPUC.

Recently the CPUC has indicated support for a market based pricing mechanism for 1.5 to 10 MW sized projects, and a Standard Offer Contract from 10-20 MW projects, with a total California cap of 1 GW.

A critical difference in the CPUC approach is the lack of a “must take” which increases the risk of developing a project, and subsequently increases capital costs for developing a project. In addition, requiring an RPS system for the smaller sized systems acts as a deterrent for those contemplating small solar FIT systems, as the cost and time involved are far more than the payback for a smaller <10 MW system. Ease of implementation is one of the hallmarks of the German Feed-In Tariff system.It remains to be seen how each of these approaches will fare in the remainder of the legislative session. Other states, including Hawaii, Michigan, Florida and Oregon, are considering similar legislation. Maine and Vermont have already passed Feed-in Tariff legislation and the city of Gainesville, Florida, implemented a highly successful program in March 2009.What is clear is that given the right incentives, a feed-in tariff system such as the one in Germany can provide a significant incentive for renewable energy generation, drive job creation, and reduce overall energy costs.For more information on CSI see***Jean Woo, MBA, LEED AP
Big Green Turtle, Inc
Energy and Water Conservation: Energy Consulting, Benchmarking, Design, Project Management and Project Finance

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