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SR-011309-1K7~ , ~,tY:of City Council Report Santa Monica® City Council Meeting: January 13,-2009 Agenda Item: ~ - To: Mayor and City Council i From: Dean Kubani, Director of Office of Sustainability and the Environment i_ Subject: Support. of Feed-in Tariff Legislation that Supports the Goals of Solar Santa Monica Recommended Action If is recommended that the-City Council approve support of creating new State Feed-In Tariff Legislation. Executive Summary. ; Dn December 2, 2008, Council directed staff to investigate and report back regarding appropriate-steps to develop implementation strategies fora "feed-in tariff' (FIT) for solar energy incentives. This -report responds to that direction by requesting support of = The California Solar Act of 2009, proposed State legislation drafted by the Solar Santa Monica Advisory. Board. Background Santa Monica has a commitment to reduce greenhouse gases by 2015 to a level 15% below the 1990 baseline. Increasing the installation of solar PV generation in the urban. environment also addresses California's Renewable Portfolio Standard (RPS) requirement. The-RPS requires that 20% of the State's electricity be produced from reviewable energy sources by 2010, and the state is taking steps to raise that target to 33%.by 2020. The California Solar Cities Act of 2009 will help California to go solar at no cost to taxpayers and, at a low cost to ratepayers. It is an investment in California's. future thafwill pay off in lower rates, less pollution, reduced greenhouse gases; and more renewable'energy. Solar Santa Monica's long-term goal. is to achieve greater community-wide energy independence by maximizing. energy. efficiency and onsite solar power generation in every building in the community and, where appropriate; using clean distributed 1 .generation (microturbines, small fuel cells, and. small co-generation systems) to supply baseload electricity. Additionally, the short-term goal is for the City to become a "net zero electricity importer" by 2020, which would mean that the total annual electricity demand withirr Santa Monica would be matched or exceeded by the total amount of electricity that is locallygenerated within Santa .Monica. To accomplish this goal, 17,500 rooftops will have to carry solarsystems. Current State regulations, however,. prevent multi-family ormulti-tenant property owners from participating in the California ~' Solar Initiative (CSI) because the related solar system must offset only one electric meter in the building, and it must be sized to generate no more power than is used by that onsite meter. Recognizing the regulatory barriers that preventafhe City from achieving its solar energy goals, Solar Santa Mohica's Advisory Board voted to support a State FIT model that would provide property owners with a reasonable return on solar investments: On December 2, Council directed staff to explore implementation strategies in support of a solar FIT.. A solar FIT allows anyone to install a solar system and receive payments for every solar kilowatt-hour (kWh) produced for the next 20 years. An effective. FIT pays the investor a per kilowatt-hour rate that provides a reasonable. rate of return plus a small-profit. This approach has catalyzed a robusYsolar industry in Germany and Spain. Last year, Spain installed eight times as much solar power generation as California. Discussion To achieve its renewable energy and greenhouse gas emission reduction goals, the City needs a solar policy thaf makes solar a sound and predictable investment for owners of apartment buildings, multi-metered commercial buildings, institutional ...buildings, and municipal structures. In each case, the. owners of solar photovoltaic. (P~ . systems need to earn an easily understandable and reasonable profit. The attached .draft California Solar Cities Act of 2009 provides FITs for onsite. PV generation. The draft Act limits the size of FIT installations to no larger than one megawatt capacity, Z .`specifically available for solar PV systems that are attached to (or part of) buildings, which are the installations most relevant to Santa Monica. .The Proposed California Solar Cities Act The proposed draft Act creates a very simple system. Based on the. methodology .presented in the Act, the California Public.Utilities Commission (CPUC).will determine the average installation cost and .electricity production levels of various types. of PV systems in various regions in California. Except for tax exempt and governmental entities, the cost basis for FIT computation is reduced by the amount of federal tax. .credit available at the time the system is operational. The CPUC would then adopt. FITs for each region designed to produce a reasonable return on the property owner's investment. California utilities would be required to buy each kWh delivered to the grid by participating solar systems, measured through a separate, onsite output -meter at thee. FIT price fixed for 20 years: After 20 years, the utility would pay a discounted rate for the power it receives: The power purchased by the utilities under the Act will be credited toward the utilities' Renewable Portfolio Standards (RPS) requirements, and the utilities will own the renewable energy certificates (RECs.) The added cost. of the FIT payments and aIF of the other program costs would be spread arnong all ratepayers, maintaining utilities' profit margins. Successful FIT programs have. caused very small rate increases; in Germany, the program costs the average homeowner about the. cost of a loaf of bread per month. As solar prices fall and cdnventional prices rise,-the premiums will decline and will ultimately be eclipsed. The Act. also requires that the CPUC .establish a simple, fast; low-cost and efficient application process, standard contract and overall administration. The draft Act promotes solar energy for the urban environment and will help the City achieve its sustainable energy and greenhouse gas emission reduction goals: Not 3 supporting. a FIT vvilt likely result.. in the City not achieving its solar or greenhouse gas emission goals. Financial Impacts & Budget Actions There- is no direct budget or financial impact to the City for supporting this new California Solar Cities Act legislation. Prepared by: Susan Munves, Energy and Green Building Programs Administrator Approved: Forwarded to Council: F~ Dean Kubani, Director amont E e City Manager Attachments: A. The California Solar Cities Act 4 1212 Fifth Street, First Floor, Santa Monica, California 90401, (310) 458-4992, fax 395- 2138 DRAFT The California Solar Cities Act of 2009 Solar for the Urban Environment By the Solar Santa Monica Advisory Board FIT Subcommittee AI Rosen, Ted Flanigan, Craig Perkins; Susan Munves, and Angie Brooks November 26, 2008 Introduction The purpose of this bill is to accelerate the local installation and use of solar photovoltaics (PV) and to augment the current electric power system with "distributed generation" to fulfill national, state, local, and individual goals for energy security and climate change protection. The California Solar Cities Act:. • is targeted on solar energy for the urban environment; • is supplemental to utility-scale solar generation; • complements the California Solar Initiative (CSI), reaching markets that are not served by the CSI; and • builds a "solar synergy" of forces to meet energy and climate objectives. This Act creates opportunities for owners of certain types of buildings (more common in urban areas) who have been precluded from making solar investments. Net-metering has been successful in supporting some solar investments, but does not work for others: multi-metered buildings in the urban environment and other properties with on- site rate and consumption limitations cannot make sound solar investments using the CSI.. As a result, highly attractive rooftops are not being utilized. Through the simple and transparent Feed-In Tariff (FIT) mechanism that has been proveri in many countries, notably Germany and Spain, this Act provides a clear and consistent means of harvesting distributed solar generation and aggregating urban solar opportunities to a very significant scale. In California, the potential for safe and secure distributed solar generation is on the order of 45 GW, over 75% of current statewide power demand. Benefits of Solar in the Urban Environment National Security: Local power generation from renewable energy resources is a clear pathway to energy independence and security for our future. Power System Resiliency: Distributed generation will enhance reliability. Solar systems can support "smart grids" that can operate in emergencies. Solar also provides power during peak periods. Environmental Protection: Distributed solar installations bring the opportunity for renewable power generation to the local level, avoiding the environmental costs of large-scale, carbon-based, centralized power generation.. Job Creation: The booming German solar energy industry has created over 50,000 jobs in less than five years, with the entire renewable energy industry creating as many as 200,000 jobs; Spain boasts 25,000 solar energy workers. Californians will benefit from sustainable business creation. Sound Investments: Fundamentally, this Act presents a market mechanism to spur the solar industry within our communities. It provides a simple and transparent means for solar investments to earn reasonable and reliable returns, allowing capital to flow into clean and renewable energy systems in California cities. While initially more expensive, these investments will, in the near future, result in sustainable green povver sources that will deliver electricity to utilities at lower energy costs than conventional generation. State and Local Mandates This Act, promoting solar for the urban environment, will help California achieve the Million Solar Rooftops vision. It squarely addresses a number of other state and local mandates, including: The California Global Warming Solutions Act of 2006 (AB 32) mandates reducing carbon dioxide emissions to 1990 levels by 2020, a reduction of 30% compared to business as usual. Solar in California cities -using the "built environment" to generate clean, renewable electricity -- will help achieve the AB 32 goals, powering homes, businesses, and cars. Increasing the installation of solar PV generation in the urban environment also addresses California's Renewable Portfolio Standard (RPS) requirement. The RPS requires that 20% of the State's electricity be produced from renewable energy sources by 2010, and the state is taking steps to raise that target to 33% by 2020. Existing programs, many of which have merit, are not sufficient to reach California's renewable goals on schedule. The. California Solar Cities Act of 2009 links production with progress. 6 Many California cities have made additional commitments to mitigate climate change. Santa Monica has a commitment to reduce greenhouse gases to a level 15% below the 1990 baseline by 2015. The goal of its Community Energy Independence Initiative is to be energy neutral (net zero electricity demand) by 2020. Palm Desert has committed to cutting electricity use 30% citywide by 2012. Both cities seek the tools to expand solar production capacity to achieve their goals. While progress is being made, many California cities realize that ah additional solar policy instrument is required. The Solar Feed-In Tariff Mechanism In Germany, the FIT has created a major solar industry and over 1,000 MW of solar capacity per year in recent years. Spain's FIT has made it a "solar powerhouse," with over 1,000 MW installed in the past 18 months. These successes highlight a major opportunity for California. This Act presents a highly attractive form of Feed-In Tariff that will dramatically increase renewable power generation,. promote solar manufacturing and installation, create "green collar" jobs, and provide a secure clean energy source for ourfuture. It establishes the Solar FIT incentive mechanism for solar systems on buildings. The Solar FIT requires utilities to buy electricity from distributed PV installations at a price designed to provide reasonable and reliable returns for 20 years. Just as ratepayers will share in the costs of solar installations, they will also benefit, locking in fixed solar electricity prices for the long term, while the price of electricity produced from conventional fuels rises. This Act is a ratepayer investment, which will provide excellent returns over time -concurrently fulfilling environmental mandates and economic objectives. Section 1. Purpose It is the policy of the State of California to encourage the rapid and sustainable development of electricity from renewable sources, particularly from smaller, widely distributed solar PV installations, by the adoption of a Solar Feed-In Tariff. These Solar FITs will contribute to the following goals: (a) Reducing air pollution; (b) .Protecting California's environmental quality and its natural resources; (c) Helping to reduce global warming and climate. chahge; (d) Providing equitable opportunity to all of California's citizens and businesses,. including the owners of multi-tenant and multi-metered properties and properties that use very little electricity and/or pay very low electric rates to participate in the generation of renewable solar energy and meeting the state's renewable energy goals; (e) Providing utilities and their ratepayers with secure, clean and .green powecsources at a fixed price for 20 years that will likely cost less than conventional generation within the next 5 to 10 years; (f) Moderating the near-term impact on ratepayers, while reducing volatility and long term rates relative to other sources of power; (g) Ensuring that utilities are justly compensated for the higher prices they are. required to pay for electricity they purchase under the provisions of this Act and other atypical costs imposed on them by this Act; (h) Encouraging widely distributed solar PV generation; (i) Stimulating the development of new technologies, and jobs and industry in California; Q) Operating as a complement and supplement to the. CSI and California's RPS; (k) Simplifying and expediting the documentation, metering, payments and administration of the generation of electricity from solar PV sources, and increasing the transparency and equity of the system; (I) Encouraging energy conservation by requiring a separate new meter to measure the amount of solar PV electricity produced on site, while retaining the meter that measures the total amount of electricity used on site; (m) Giving property owners an investment opportunity, while supporting local, state; national, and international energy and climate protection goals. Section 2. Definitions (a) "Solar energy generator" or "Solar energy plant" or "Plant" or "Solar energy system" shall mean, interchangeably, any solar energy device that has the primary purpose of providing for the collection and distribution of solar energy for the generation ofelectricity which produces at least 1 .kilowatt and not more than 1 megawatt of alternating current rated peak electricity and which is permanently affixed to, and/or integrated with, a building structure. A plant includes the inverters; access ways and grid connections, as well as the measuring, administrative and control facilities that may or may not be technically required for its operation. [See Public Resources Code Section 25781 (e)] (b) "Eligible solar energy generator" shall mean any individual or entity, except an electrical corporation, which owns, operates and/or controls the property upon which the plant is installed. Plants which received payments from the CSI or other net-metering program are not eligible to become solar energy generators under this Act. (c) "Commissioning" shall mean the first time a plant is put into operation following establishment of operational readiness. Commissioning shall also include the modernization of a plant (which plant has not received payments from the CSI), if modernization costs are at least 50 per cent of the total cost to build a completely new plant, including 8 all building structures and installations technically required for its operation. (d) "Capacity" of a plant shall mean its alternating current rated peak electricity production. In step with the CSI, this Act defines capacity using the CEC-AC rating methodology. (e) "Grid system" shall mean all the interconnected facilities used for the transmission and distribution of electricity for general supply. (f) "Grid system operators" shall mean the operators of all types of voltage systems for general electricity. supply. (g) "The Solar FIT" shall mean the rate paid in dollars per kilowatt-hour of generation delivered to the grid under the terms of a standard contract as provided in this Act. (h) "Commission" shall mean the California Public Utilities Commission. (i) "Adequate renewable energy development" shall mean the rate of development needed to accomplish the renewable energy objectives in California's RPS, as it may be modified, including any interim objectives and/or other objectives set by the state. Q) "Electrical corporations" are defined as investor owned utilities that sell power to the public at regulated rates. (k) "Renewable Energy Credit' or "REC" shall mean a market instrument that places a determined value on each megawatt-hour of renewable energy generated. (I) "System installation cost" shall mean, for entities exempt from federal income taxation, including governmental entities, the total installed costs necessary to install a solar energy plant.. For all other entities, system installation cost shall mean all of the solar plant's necessary costs, less the federal tax credit available when the plant is ready to be commissioned. Section 3. Obligation to Connect (a) An eligible solar generator shall provide the electrical corporation to which it will be interconnected with a notice of intent to connect not less than 60 days prior to the generator becoming operational (b) The electrical corporation shall file an advice letter with the Commission, not later than 30 days after receipt of an interconnection notice. (c) The Commission, within 30,days of the filing, shall approve a proposed tariff or specify conforming changes. (d) When construction is. complete and a solar generator is operational, a solar generator shall request interconnection with the electrical corporation. (e) An electrical corporation shall connect an eligible solar energy generator to its distribution system upon the terms and conditions set by the Commission, but in no case more than 60 days after receipt of a request 9 for connection. In the event that the electrical corporation does not provide interconnection within this time frame, the electrical corporation will be required to begin Solar FIT payments on the 61S` day after receipt of the interconnection request, calculated based on nameplate capacity. (f) The Commission shall apply, in a nondiscriminatory manner, established standards for the interconnection of solar energy generators to the grid. Interconnection standards should ensure the reliability of electric service to all customers, and the safety of customers, the grid operators' employees, and the public (g) Every kilowatt-hour of electricity purchased under this Act shall count toward the electrical corporation's annual RPS procurement targets and earn Renewable Energy Credits and any related Emission Reduction Credits for the electrical corporation. (h) All electrical corporations shall prepare, publish and apply transparent, objective and non-discriminatory rules for connecting eligible solar energy plants to the grid. All costs associated-with the interconnection of solar energy generators, including direct interconnection costs, distributioh system enhancements, and electrical corporation compliance costs, shall be paid by the electrical corporation and included among the costs to be considered by the Commission under Section 6 of this Act. Sectiorr4. Standard Contract (a) The Commission shall develop and approve a standard contract of 20 years duration to be used for all Solar FIT payments under this Act. (b) The contract shall include the Solar FIT amount to be paid for each kilowatt hour generated and the duration of the contract. (c) The contract shall provide that the solar generator must sell and the electrical corporation must purchase all of the power produced by the solar plant. (d) The contract shall be written in simple, clear language. (e) Contracts under this Act shall be transferrable and may be used as security for loans. Section 5. Solar Feed-In Tariffs (a) Upon application, electrical corporations shall enter into Solar FIT agreements to purchase all of the electricity generated by eligible solar energy generators located in California, that are connected to the grid, for a term of not less. than 20 years from the date of commissioning. (b) Electrical corporations shall pay the Solar FITs established by the Commission. In determining the Solar FIT payment schedule, the Commission shall determine an average cost and average production for each investor owned utility's service area, in each of three size categories: less than 10 kW; from 10 to 100 kW; and over 100 kW. The 10 Commission shall provide for a premium to cover the average additional cost of building integrated PV systems. (c) The Commission shall ensure that the Solar FITs are sufficient to provide a reasonable and reliable return to solar generators. A reasonable return is defined as an annual payment equal to 12% of the average net system cost for each category, fixed for 20 years. To equalize returns, the Commission shall provide one schedule for tax exempt entities and another for taxable entities. (d) The Solar FITS established in this Act shall be reviewed and modified every two years by the Commission.. In its periodic review, the Commission shall take into consideration the Act's success in encouraging the installation of solar PV plants and any changes (up or down) in the: i. Actual average system costs and production of each type and size and location of plant; ii. Inflation and interest rates; iii. The determination of a reasonable and reliable return; and iv. Electric rates paid by rate payers. (e) After the expiration of the 20-year contract period, the solar power generator shall offer and the electric corporation shall purchase all of the electricity produced by participating plants at a price 10% below the wholesale cost for renewable energy at that time. Section 6. Statewide Equalization of Costs across All Customers In all rate setting proceedings, the Commission shall include and consider all of the costs borne by electrical corporations under this Act (including the additional cost of power and other atypical costs) in the same manner the Commission considers all of the electrical corporations' other costs. Those costs shall be reduced by the value of the RECs received by electrical corporations. Low-income ratepayers -defined as those on CARE rates -are exempt from the costs of the Solar FIT. Section 7. Administration The Commission shall establish simple, fast, efficient and inexpensive procedures for the administration of this Act, including: (a) Developing a simple, clear application form, requiring identification of the system owner and the installer, the precise location, and the type and size of the system; (b) Requiring applications be processed in less than 30 days; (c) Requiring that solar energy generators commission their systems within one year after their application is approved; (d) Not requiring system inspection beyond what is required by local governmental entities with jurisdiction over building code enforcement; 11 (e) Complying with the current statewide electrical code and fire safety standard for PV systems and providing training programs for local inspectors; (f) Requiring the installation and use of a separate, dedicated meter to measure the production of solar PV systems operating under the provisions of this Act and requiring electrical corporations to read that meter at no cost to the solar energy generator. Section 8. Requirement to Provide Information Solar energy generators and electrical corporations shall annually provide the Commission with any information that may be relevant to the Commission's performance of its duties under this Act, including but not limited to, assessment of project development costs, equipment costs, electricity production costs; interconnection costs,. automatic rate adjustments, and compliance costs, capacity installed, and electricity generated. The Commission shall prepare a simple form to collect this information. Section 9. Compatibility with Existing Renewable Energy Policy It is the intent of the legislature that this Act shall operate in parallel with California's RPS and CSI. Therefore, nothing in this Act shall be interpreted to reduce, impede, or conflict with California's RPS or the CSI. Section 10. Periodic Review and Reporting Every year, the Commission will prepare an annual report describing and summarizing the Solar Feed-In Tariff program's progress in California. Every two years, the Commission shall review the implementation of this Act for compliance with the intent of the Act. The Commission shall file a report with the governor and the legislature that shall include all of the following: (a) The number and generation capacity of new solar energy plants in the state and the environmental effects of the addition of those plants; (b) The capability of the program in delivering the solar energy generation required under California's RPS and other renewable energy objectives; (c) Actions taken by the Commission to implement this Act and to use the Solar FITs herein to achieve California's RPS objectives; (d) Revisions of the Solar Feed-In Tariffs to reflect inflation, changes in technology, and the increased or decreased costs of solar energy generation, such that the Solar FITs continue to be sufficient to pay for the costs of solar energy installations plus a reasonable return; (e) The impact of the program established by this Act on electrical rates; 12