CLEANTECH: BUSINESS FUNDAMENTALS AND PUBLIC POLICY

Fall 2013

SHARED RENEWABLES: An In-Depth Look at SB 43

Juan Paolo Villonco Igor Leroux Raunaq Kohli

I.

Why are shared renewables needed

With the rise of global awareness of the effects of climate change, renewable energy resources, particularly solar systems, have been increasingly popular. Rising costs of electricity and decreasing costs of renewable energy resources have made renewable energy systems more and more attractive to the general public. The desire to make access to renewable energy even more universal has been the driving force of what is generally known as shared renewables. Shared renewables have the following general goals:1

1. Give universal access to Renewable Energy

Single unit homeowners enjoy cleaner energy and reduced utility bills when they install solar panels on their roofs. The Shared renewable energy programs goal is to give universal access (including customers without adequate space (multi-unit housing, shaded roofing, etc) to renewable energy systems. In addition, shared renewable projects and policy can greatly mitigate the negative effects of factors such as local planning, zoning, or historical requirements.

2. Improve the economics of solar installations

A Shared renewables program allows customers or subscribers to invest in the most efficient and geographically desirable sites and to take advantage of cost savings from the economies of scale of a large-scale solar system installation. Having the ability to choose the most optimal sites give investors the highest financial returns and the quickest return on investment. We calculated the following LCOE using the model provided in class for a residential rooftop project and for a larger shared renewable projects: Shared renewables project: 0.088 $/kWh
Useful life: 25 years System price: 2.1$/W Capacity factor: 20% Tax rate: 40% Depreciation: 5 y MARCS Invest. Tax credit: 30% O&M cost: 15$/kW/Year Cost of capital: 7.5%

Residential rooftop project: 0.246 $/kWh

Useful life: 25 years System price: 4.8$/W Capacity factor: 18% Tax rate: 40% Depreciation: 5 y MARCS Invest. Tax credit: 30% O&M cost: 20$/kW/Year Cost of capital: 9 %

A Guide to Community Shared Solar: Utility, Private, and Nonprofit Project Development, Jason Coughlin, Jennifer Grove, Linda Irvine, Janet F. Jacobs, Sarah Johnson Phillips, Alexandra Sawyer, Joseph Wiedman, May 2012, DOE SunShot Initiative; Sunnyvale Community Solar Array Development: Feasibility Study, Council Study Issue DPW 13-11, September 2013, v1.6; Dissolving Traditional Energy Boundaries With Group Net Metering, Andrew Savage, July 30, 2012, Greentech Media; Community Solar Power: Obstacles and Opportunities, John Farrell, November 2012, New Rules Project.

For this comparison, we assumed the system price of the shared renewable model to be similar to that of a utility scale project2 and that an equity tax investor3 would be involved to extract the full value from the tax credit and tax depreciation. The Residential Rooftop LCOE we obtained (0.246 $/kWh) must be compared with the ~$ 0.14 / kWh PPAs currently offered by companies like Solar City. The difference is certainly due to the securitization of their revenue flow (recently achieved at 4.8% for Solar City 4 ) and lower system cost due to their scale of operations. Shared renewables can therefore be attractive than rooftop installations from an economic point of view: the difference in LCOE between a Shared renewable project and a residential rooftop one is more than the additional cost (transmission, distribution, etc), a Shared renewable subscriber would still have to pay (US$ 0.04~0.08/kWh 5 ). If one uses Solar Citys PPA price as a reference, then both options are economically equivalent.

3. Additional flexibility for subscriber

A subscriber or investor in a shared renewable project would have the flexibility to move their residence or commercial establishment and still enjoy the benefits of their renewable energy project anywhere within the territory of the public utility. Should a subscriber decide to move outside the territory of the public utility, he would be able to transfer his subscription to another within the community.

II.

SDG&E application to CPUC

On January 2012, SDG&E submitted an application to the CPUC for a Shared Renewables program and proposed two models.6

1. SunRate: Customer purchases from a portfolio of local solar projects

Customers have the option to purchase all or a portion of their total energy requirements from local solar projects on a month-to-month basis, or under a 5, 10 or 15 year contract. The energy sold under the SunRate program will not be
System price: SEIAs quarterly U.S. Solar Market Insight report, project, Q2 2013 More on this issue: http://www.woodlawnassociates.com/tax-equity-101/ 4 http://www.greentechmedia.com/articles/read/SolarCity-Announces-Yield-of-Securitized-Solar-Notes 5 Sum of all the non-generation components in PG&E E6 residential tariff 6 See SDG&E Application: https://www.sdge.com/sites/default/files/regulatory/Application%20of%20SDGE%20Connected%20to%20 the%20Sun.pdf
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included under SDG&Es Renewable Portfolio Standard (RPS) requirements.

SunRates programs overview7

2. Share the Sun: Developers build solar facilities and enter bilateral agreements with customers
Under this program, solar providers can build solar projects and contract with SDG&E customers. SDG&E will thereafter credit the customers monthly bill for the value of the energy produced by the customers share of the solar project at the Commission-authorized renewable Feed-in tariff (FiT) rate in compliance with SB324. Renewable Energy Credits (REC) associated with such energy shall not count toward SDG&Es compliance. Excess solar energy will be bought by SDG&E at the FiT rate (RECs from the purchased excess will count towards SDG&Es RPS).

Share the Sun programs overview8 Third party finance can be a private investor, banks or a crowd funding mechanism (such as solar mosaic).

SDG&E U902E to implement optional program to increase customer access to solar generated electricity: http://docs.cpuc.ca.gov/PublishedDocs/EFILE/A/157735.PDF 8 SDG&E U902E to implement optional program to increase customer access to solar generated electricity: http://docs.cpuc.ca.gov/PublishedDocs/EFILE/A/157735.PDF

III. SB 43 Overview
On September 28, 2013 the California state legislature passed Senate Bill No. 43 the Green Tariff Shared Renewables Program (Program).9 Upon passing, the countrys largest shared renewables program was born and promises of rapid growth for Californias green energy sector abounded. 10 Bill 43 provides a framework that allows customers of Californias three largest investor -owned energy utilities to obtain up to 100% of their energy needs from off-site renewable energy producers.11 The 600MW pilot program allows customers to participate in shared renewable energy facilities and receive credits and charges on their utility bill for the energy produced by their share of the project.12 Key elements of the Program are as follows: a) PG&E, SDG&E, and SCE are directed to purchase an additional 600MW of clean energy from eligible generating facilities up to 20MW in nameplate rated generating capacity. b) The Program sets aside a minimum of 100MW for residential class customers; a difficult class of customers to serve currently. c) The Program reserves 100MW for facilities 13 located in impacted and disadvantaged communities.14 d) The Program shall only remain in effect until January 1, 2019, unless later statutory action dictates otherwise.

IV. Discussion
We will now highlight certain key points that are likely to have a significant impact on the development of Shared renewable projects in California. The following discussion is based on our understanding of the current legislative status from publicly available information published by the CPUC and interviews we conducted with Michael Wheeler, Senior Director of Policy Initiatives at Recurrent Energy, and Shannon ORourke from the CPUC.

Senate Bill 43, California Shared Renewables Program, Sen. Lois Wolk, September 28 2013 Chaptered by Secretary of State. Chapter 413, Statutes of 2013. 10 http://votesolar.org/2013/06/25/ca-shared-renewables/ 11 Wolk, Lois: Offsite Renewable Energy Self-Generation, summary edition, September 2013. 12 http://votesolar.org/2013/06/25/ca-shared-renewables/ 13 In this case, they cannot exceed 1MW of nameplate rated generating capacity: SB 43, s. 2833(1)(A). 14 Areas as previously defined by the California Environmental Protection Agency.

1. Limitations: who may apply/administer Shared Renewable Projects

The proposed program of SDG&E allows solar providers to build and administer solar projects. However, SB 43 provides: 2832. (a) On or before March 1, 2014, a participating utility shall file with the commission an application requesting approval of a green tariff shared renewables program to implement a program that the utility determines is consistent with the legislative findings and statements of intent of Section 2831. 2833. (a) The commission shall require a green tariff shared renewables program to be administered by a participating utility in accordance with this section. From the foregoing, SB 43 requires that the IOUs administer and apply for the shared renewables program. SB 43 could stifle innovation in shared renewable projects by giving too much discretion to the IOUs, which have the exclusive right to file an application and administer a shared renewables program. SB 43 should clarify, and perhaps limit the discretion of IOUs to purely technical aspects when with regards to applications for a shared renewables project, leaving other considerations to be determined by the CPUC. Furthermore, SB 43 should allow third parties to apply independently for shared renewable projects.

2. Discrepancies in time of production and consumption

Initially another bill, SB 843, contained a net-metering provision, but it was rejected. IOUs claimed they would need a complete overhaul of their billing system, and CPUC refused to finance that through a rate increase. All stakeholders are aware of the discrepancy between the time the energy is produced by the shared renewable plant and the time that it is consumed by the customer. This greatly favors solar installations versus other renewables. If the program grows in the future, some type of hourly net-metering provision, will be necessary, perhaps as the Colorado Community Solar Gardens Act provides:15 Section 1. (5) (b) (II) the purchase of the output of a community solar garden by a qualifying retail utility shall take the form of a net metering credit against the qualifying retail utilitys electric bill to each community solar garden subscriber at the premises set forth in the subscribers subscription.
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Colorado Community Solar Gardens Act, House Bill 10-1342.

3. The Green tariff implementation is straightforward

Programs for all IOUs will be similar to SunRate. The implementation of these programs will be similar to the way IOUs are meeting their RPS target at the moment, apart from these differences: Volume sold under the Green Tariff does not count toward the RPS target, instead it is completely taken-out of IOUs sales volume. Volume sold under the Green Tariff will still be used to spread transmission, distribution and other costs sustained by IOUs, eliminating cross-subsidies across customers. Regarding the RPS target, SB 43 provides: 2833. (t) In calculating its procurement requirements to meet the requirements of the California Renewables Portfolio Standard Program (Article 16 (commencing with Section 399.11) of Chapter 2.3 of Part 1), a participating utility may exclude from total retail sales the kilowatthours generated by an eligible renewable energy resource that is credited to a participating customer (). The exclusion of Green Tariff sales from total retail sales for the purpose of the RPS calculation was one the compromises given to the IOUs in order to secure their support of the bill. Finally, the pricing mechanism to be used is not yet defined. The RAM mechanism is a possibility, but pricing of US$ 0.089/kWh (the latest auction results)16 could cause the Green tariff to be lower than the regular tariff, an outcome that is unlikely to be tolerated.

4. Customer involvement in specific project is still uncertain

Although a stated objective of SB43, the development of local initiatives around renewable energy projects, as in Share the Sun, is not yet well defined, developers are lobbying to modify the cash flows of the current Share the Sun model. They would prefer the following scheme: 1. IOUs pay the owners directly the Green tariff generation component. 2. Customers pay the IOUs based on the Green tariff for 100% of their consumption.

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Vote Solar: http://votesolar.org/2013/04/30/first-ram-projects-on-line-in-california/

3. Customers settle the difference between the generation component of the Green tariff and the actual price of the project they chose to sponsor. In this case, the IOUs are the main source of revenue for developers, making the project less risky and therefore easier to finance. This cash-flow model seems to be the current baseline of discussions. There is a perception among stakeholders that IOUs might try to delay the implementation of these projects for as long as they can. This was well illustrated by Vote Solar Initiatives press release17 on the signature of SB43: Well be vigilant as the CPUC hashes out program rules to ensure that customers are offered the ability to select the specific solar project in which they want to participate, as we see the ability for developers to innovate to meet customer preferences as key to the rapid scale up of shared solar.

5. Utilities are pressured to go forward by the existence of CCAs

The Community Choice Aggregators18 are an alternate path to Shared renewables. A detailed study of this route is outside the scope of this paper, but in short these are opt-out program under which a city can aggregate the demand of their constituents and procures these volumes with any Independent Power Producer (IPP), as long as they respect RPS requirements. IOUs are actively trying to undermine CCAs, for example PG&E spent $46 million to campaign for proposition 1619.

V. Conclusion
SB 43 was hailed by many as a great victory in affording greater access to the benefits of renewable energy. While certainly a great step in the right direction, the implementation of this bill still largely depends on the applications to be submitted by IOUs and the following consultations with stakeholders and the CPUC. This papers two main concerns are that hourly net-metering should be included if the program is to go beyond the initial target of 600 MW, and that the IOUs should not be given significant discretionary power in selecting independent projects, as long as the customer-base is secured and the project is technically sound.
Vote Solar: http://votesolar.org/2013/10/08/shared-solar-has-a-big-week/ Wikipedia: http://en.wikipedia.org/wiki/Community_Choice_Aggregation 19 SF Gate: http://www.sfgate.com/business/article/PG-E-s-Prop-16-lost-big-in-its-service-area3185513.php
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