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California Proposes Energy Storage Procurement Requirement

by Melissa Dorn

The California Public Utilities Commission (CPUC) recently released a proposal that would require the major investor-owned utilities (IOUs) in the state to procure approximately 1.3 gigawatts (GWs) of energy storage by 2020.  Consistent with state’s energy storage bill, Assembly Bill 2514, which passed in 2010, the CPUC’s proposal aims to reduce market barriers and incentivize development of viable, cost-effective energy storage methods.  The CPUC hopes that the rapid growth of energy storage in California will support the state’s renewable energy industry as the state seeks to meet the legislature’s mandate to have one third of California’s energy generated from renewable sources by 2020.  Many renewable energy sources are intermittent, making energy storage technologies important for the integration of a large quantity of renewable energy into the existing electric system.

Central to the CPUC’s proposal are biannual procurement targets for the three major IOUs, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. The CPUC’s proposed aggregate procurement targets for each IOU are divided into three different “use cases” based on the end uses of the energy storage:  transmission-connected storage systems, distribution-connected storage systems, and customer-sited storage systems. The initial proposed procurement targets are: 

* The Totals include the additional interim targets for 2016 and 2018 that were intentionally omitted from this table.

To procure third-party owned energy storage to meet the targets, the CPUC proposed a “reverse auction” market mechanism, similar in structure to the state’s existing Renewable Auction Mechanism for renewable power sources. Under a reverse auction, energy storage providers would bid non-negotiable price bids, and the IOUs select projects starting with the lowest cost. The first auction, proposed for June of 2014, will require the IOUs to procure an aggregate 200 MW of storage. Subsequent auctions will be conducted every two years. The procurement targets are subject to change if the IOUs can demonstrate, among other things, that the energy storage resources bid into the reverse auction are not reasonable in cost, are not cost effective, or were insufficiently competitive.

The CPUC anticipates releasing its final order in October of this year.

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CPUC Orders On-Bill Repayment For Energy Efficiency and Other Demand-Side Projects

by Thomas L. Hefty

The California Public Utilities Commission (CPUC) recently ordered California investor-owned utilities (IOU) to implement on-bill repayment (OBR) programs by the end of the first quarter of 2013 to support “all types of demand-side investments.”  OBR enables building owners or occupants to repay eligible project obligations through their monthly utility bills. 

Unlike on-bill financing (OBF) loans, which are made by the IOUs under pilot program tariffs, OBR programs can be underwritten and funded by far wider array of third-party capital sources, including commercial lenders, investor funds and vendors.  Because default rates on utility bills tend to be low, OBR lenders/investors should be able to offer low finance rates, longer maturities and better terms as compared to conventional energy efficiency loans.  Repayment will be made through the IOUs’ billing and collections, meaning that the original owner/tenant will not be responsible for making payments after a sale of the property or after moving.

OBR programs are expected to be made available across a wide array of property types – governmental, institutional, commercial, non-for-profit and residential.  Program participation could come from a variety of funding vehicles including loans, energy service agreements and power purchase agreements.  Customers will pay a single monthly bill for both energy and OBR program payments that should be lower than their previous bills.  This “pay as you save” feature should enable greater market penetration across more property market segments.  In addition to IOU “back-office” support (billings and collections), OBR is linked to project performance measurement and verification by the IOU. 

The Environmental Defense Fund estimated that an OBR program in California could generate $2.7 billion of third-party investment per year, create 20,000 jobs and reduce annual CO2 emissions by seven million tons after five years.

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Rebooted California Self-Generation Incentive Program Opens Opportunities for Distributed Generation

by Thomas L. Hefty

Established in 2001, California’s Self-Generation Incentive Program (SGIP) provides public utility customer-funded incentives to businesses and individuals who invest in non-solar distributed generation-—i.e., generation that is installed on the customer’s side of the meter and provides electricity for a portion or all of a customer’s electric load. According to the California Public Utilities Commission (CPUC), as of January 2009, the SGIP is one of the largest and longest-running distributed generation incentive programs in the country, with over 1,270 projects on-line and over 337 MW of rebated capacity.

In response to California Senate Bill 412, which changed the primary purpose of SGIP from peak load reduction to greenhouse gas (GHG) reduction, the CPUC directed sweeping changes to the program. The following are highlights of changes mandated in decision 11-09-015:

  • Adds eligibility requirements based upon greenhouse gas reductions. Establishes an on-site emission rate of 379 kg CO2/MWh that projects must beat to be eligible for SGIP participation. Eligibility is determined based on a cumulative 10 years performance;
  • Adds waste heat to power, pressure reduction turbine, internal combustion engine – combined heat and power (CHP), microturbine – CHP, gas turbine – CHP, and stand-alone advanced energy storage technologies to the list of eligible technologies;
  • Revises the incentive levels for all technologies and adds a $2.00/watt biogas adder;
  • Eliminates maximum size restrictions for projects that meet on-site load and sets a 30 kW minimum for wind and renewable fuel cell projects;
  • Adopts a hybrid payment structure with 50 percent upfront, 50 percent performance-based incentive (PBI) based on kWh generation of on-site load for projects larger than 30 kW; projects under 30 kW will receive the entire incentive upfront;
  • Sets incentives to decline 10 percent per year for emerging technologies and 5 percent per year for all other technologies, beginning January 1, 2013;
  • Caps the allocation to any single manufacturer’s technology in a given year at 40 percent of the annual statewide budget available for the program;
  • Establishes a maximum project incentive of $5 million and a minimum customer investment of 40 percent of eligible project costs;
  • Establishes an SGIP incentive budget allocation of 75 percent for renewable and emerging technologies, and 25 percent for non-renewable technologies;
  • Allows projects exporting to the grid to receive SGIP incentives as long as they do not export more than 25 percent on an annual net basis;
  • Makes an energy efficiency audit mandatory for participation in SGIP unless an extensive audit has been conducted within five years of the date of the reservation request; and
  • Limits all projects to one six month extension. Request for a second extension can be made to the Working Group.

SGIP reservation applications received prior to January 1, 2011, are subject to the prior SGIP regime. All SGIP reservation applications received on and after January 1, 2011, are subject to these modifications. The new program handbook is available on CPUC’s website.

Beginning November 15, 2011, SGIP was reopened (after a ten month SGIP application moratorium). The Senate bill extended the SGIP through January [...]

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