States earmark millions to fund solar projects via system benefits charges.
Making solar power a realistic choice for electric consumers is a burgeoning issue for state utility regulators. As part of electric restructuring, regulators are trying to finance the costs of solar installations.
Key to delivering commercial, on-grid solar power to new markets are state efforts, partnered with other government and industry actions. So far, the system benefits charge, or SBC, is the primary short-term incentive to develop solar, wind, biomass and other renewable resources. SBCs are being used in California, Rhode Island, New York, Illinois, Montana, Massachusetts, Connecticut, Pennsylvania and Wisconsin.
In early SBC actions, nearly $31 million for solar projects has been identified, usually leveraged with funding from customers, utilities or government. Conservatively, another $30 million in solar energy financing is on the horizon.
In most cases, the SBC is a small surcharge on electric distribution customer bills. SBC funds are used on buy down or rebate programs, projects set by competitive bids, or on other renewable enterprises. The renewable portfolio standard, or RPS, is a major incentive in restructuring laws. It's implemented over the long-term as markets develop for solar and other sustainable energy resources. %n1%n
The infusion of SBC dollars to finance solar energy technologies comes at the same time as a federal goal announced by President Clinton in June 1997 to place one million PV or solar thermal systems on American rooftops by 2010.
Both state and federal government efforts build on the alliances of electric utilities and others that began in 1992. Those efforts accelerated the commercial deployment of PV systems on and off electric grids. More than 7.5 megawatts of PV at 2,000-plus sites in 25 states will be installed by 47 electric utilities and power providers under TEAM-UP, a U.S. Department of Energy cost-sharing program with the Utility PhotoVoltaic Group. %n2%n These ventures are valued at $70 million and use $14 million of DOE dollars.
A review of early state efforts to finance solar energy via SBCs finds legislative and regulatory actions that:
• Recognize opportunities to leverage consumer benefits from an anticipated decade-long PV price decline;
• Couple PV grid-connected applications with other financing, such as the federal TEAM-UP, or cost reduction measures, such as net metering and tax incentives;
• Identify the state potential for renewable energy and the most economic PV applications in existing and new markets;
• Link PV resources with green pricing or green marketing efforts and customer information disclosure of green resources; and
• Provide incentives for near-term PV investments in anticipation of a growing market with a renewable portfolio standard.
SBCs, State By State
Two of the first state electric industry restructuring laws from 1996 are now financing PV systems. California and Rhode Island provide SBCs to undergird new investment in photovoltaics and renewable resources. SBC financing for substantially more solar energy is in the regulatory process of implementation in New York, Illinois, Montana, Massachusetts and Connecticut. Other financing efforts are underway at several utilities in Pennsylvania and Wisconsin.
California. The SBC fund of $540 million in the state's 1996 restructuring law earmarked $54 million for "emerging renewables." The consumer buy down program for rebates may finance as many as 20,000 residential PV rooftop systems, or 32 MW, starting in 1998. %n3%n Using part of the first year's $10.5 million to finance several large and medium-sized PV projects in early 1998, the California buy down program has $6 million available for small PV system (under 10 kW). These PV systems qualify for a $3-per-watt rebate. The $6 million in 1998 could finance 1,000, 2 kW PV systems for residential use. The customer rebate then moves to $2.50 per watt. Eventually, the rebate is $1 per watt rebate as PV prices are expected to decline. %n4%n
Leveraging the California rebate is the Green Mountain Solar offering to IOU residential consumers, by Green Mountain Energy Resources. %n5%n The PV systems offered under the program cost between $9,500 and $13,500 each. GMS offers financing packages. The PV systems also would be net metered under the 1995 California law allowing residential customers to offset their rate by allowing the electric meter to spin in reverse when the customer is producing power onto the grid. Net metering laws or regulation, following California's lead, have arisen in 10 states. %n6%n
According to GMER, the net metered PV produces 20 to 50 percent of a residential consumer's electricity, at a projected cost of $30 monthly. That's after allowing for the electricity generated and consumed by the PV systems on site and considering the tax savings for financed systems. %n7%n Applied Power Corp., a solar electric system integrator, %n8%n is receiving UPVG TEAM-UP cost-shared funds for its crystalline and thin-film PV arrays used by Green Mountain Solar. Besides the PV electricity produced on the customer site, the cost projection assumes tax savings for home equity-type loans.
California has the nation's leading solar utility, Sacramento Municipal Utility District. It produces a quarter of the solar cells manufactured in the world.
Operating more than 5 MW of PV, including 450 residential and commercial "PV Pioneer" rooftop systems, SMUD has reduced PV prices 9 percent annually by "sustained, orderly" utility bulk purchases. %n9%n
While the competitive retail electric market opened slowly in April 1998 with small IOU customers offered "green market" premium rates from renewable power supplies, %n10%n the PV buy down rebate program assumes that declining PV costs will increase demand for solar energy systems and accelerate solar technology acceptance.
Rhode Island. As the first state to move to a competitive market in August 1996, Rhode Island's law established a "wires charge" or SBC to support renewable energy technologies and energy efficiency programs. The five-year SBC of 2.3 mills per kWh of electricity sold raised $19 million in 1998. Next door in Massachusetts, the new 1 mill SBC raises $40 million for renewables.
SBC funds were used to study potential renewable energy sources in Rhode Island and Massachusetts in 1997. The study found that 50 to 75 grid-connected PV systems provide 0.3 MW, with a potential of 250 MW from PV by 2017. %n11%n
Approved and proposed solar projects from the SBC funds total $700,000 for 1998. The first large-scale PV rooftop project in the eastern U.S. is receiving $250,000 of Rhode Island SBC funds as Project SunRIse. It will install 250 kW of new PV capacity, with a $1-per-Watt subsidy, by the end of 1999. The pilot phase of 50 kW will lower the installed cost of a grid-connected PV system by up to 30 percent, using state SBC funds and other federal support. %n12%n
The smallest SunRIse system, at 250 Watts, costs $2,800, which can be financed for about $15 a month. These PV systems can be expanded. The UL-listed "plug and play" AC module for the PV systems can be wired into a customer's service panel by a small cord to the building's load center.
Leigh Seddon, Solar Works president, indicates that a one-page interconnection agreement faxed by the customer to any of Rhode Island's four electric utilities expedites a PV hook-up for a customer, due largely to the UL-listing of the equipment. A 10-year maintenance contract is included in the price of the system, along with a year warranty.
A Solar Schools Initiative also is part of the Rhode Island SunRIse program. It provides PV systems to middle and high schools across the state. %n13%n
After a study of near-term niche PV markets, %n14%n the Rhode Island SBC funds will also be used to host an outdoor PV lighting workshop bringing together manufacturers with potential customers in Rhode Island and Massachusetts. Other near-term markets identified were rooftop PV-augmented uninterrupted power supply, residential rooftop PV and PV for wireless communications.
Two more PV projects, worth $450,000, were recommended by the collaborative effort for SBC funding and were approved by Rhode Island regulators. %n15%n A $150,000 project is for commercial buildings. Sun Power Electric installs and owns the PV systems. A $300,000 PowerLight project integrates PV systems on flat roofs.
The new retail electricity markets opened in Rhode Island and Massachusetts in early 1998 found few small customers switching to new suppliers. Why? Competitors couldn't match the utility's standard offer prices. However, a Middletown, R.I. discount store proposes to purchase PV electricity and sell the green power to ReGen. ReGen is a renewable energy service of AllEnergy, a marketing affiliate of New England Electric System. In April 1998, AllEnergy began soliciting customers in the two states to buy a ReGen "power upgrade service" at $8 per month, or $96 per year. A block of 250 kW worth of power will be supplied into NEPOOL from the new PV, and from municipal landfill gas and wind resources. The ReGen customers remain on the utility's standard offer rates, but pay AllEnergy a premium for the new resources flowing into NEPOOL.
New York. While no electric industry restructuring law has passed the New York legislature, the New York State Public Service Commission has issued restructuring case orders for its six major investor-owned electric utilities.
Beginning July 1, an SBC for energy efficiency, research and development, low-income and environmental protection applies to restructuring cases.
The New York State Energy Research and Development Authority is the SBC fund administrator, %n16%n although nearly a quarter of the SBC funds are retained by utilities for projects deemed to be of public benefit.
Some $234.3 million in SBC funds will be collected for three years. The PSC will later assess whether to continue collecting them. %n17%n
The NYSERDA plan for the SBC approved on July 2 by the PSC results in allocation of $11.5 million over three years for renewables financing. That includes $5.5 million for PV demonstration projects, to flow from the research and development program. %n18%n Competitive bids and co-funding from non-SBC sources will be used by NYSERDA for new PV financing under the SBC. Bids are expected this winter. Assistance is sought for program design.
SBC dollars for PV will assist utilities like Niagara Mohawk %n19%n and other developers since the NYSERDA programs are competitive and don't give preference to utilities. Larger grid-connected PV installations have been financed by the New York Power Authority, Niagara Mohawk Power Corp., and New York State Electric & Gas. The renewable energy skyscraper, 4 Times Square, is funded partially by NYSERDA and largely through private funds. NYSERDA provides funds to the company laminating the PV-integrated curtain walls on the skyscraper.
NYSERDA has an active research and development program that has contracted for nearly $1 million in photovoltaic projects each year to help companies with innovative PV-integrated technologies. These funds are not part of the SBC program.
The Long Island Power Authority announced in February the creation of a $32 million Clean Energy Fund "to support energy efficiency, clean distributed generation and renewable technologies." It plans to make 10 percent of the fund available to low-income households. Since LIPA was created to supplant the investor-owned utility, the Long Island Lighting Co., %n20%n high customer rates were reduced 20 percent.
New PV installations are expected on Long Island in view of new state laws on net metering and tax credits enacted by the New York legislature. %n21%n The laws provide for net metering for residential PV customers with a 25 percent personal income tax credit, capped at $3,750.
The Long Island Citizens Advisory Panel and Natural Resources Defense Fund are advocating a PV net metering pilot project to initiate the LIPA efforts. %n22%n
Illinois. A system benefits charge will raise $5 million annually to develop renewable energy resources under the first Midwest state electric restructuring law. %n23%n A 5 cent-per-month surcharge on residential customers will be matched by an equivalent amount of dollars from commercial and industrial utility customers. The surcharge will be administered as the Renewable Energy Resources Program, under the Department of Commerce & Community Affairs. The Renewable Energy Resource Program guidelines %n24%n for the SBC are under review to provide "grants, loans, and other incentives to foster investment in the development and use of renewable energy resources." %n25%n
Expected to be issued this year, the draft guidelines consider consumer rebates for PV and wind systems and small business grants for larger renewable energy systems. Grants would fund 60 percent of costs up to $5,000 for PV cells and panels, and 60 percent up to $5,000 for solar thermal systems. As much as $300,000 or 60 percent of costs for PV cells and panels in a single project is allowed. The REPR has $1 million available from the SBC as of August 1998. The DCCA will conduct an annual study on use and availability of renewable resources. %n26%n
DCCA has funded wind and solar resource monitoring at 18 sites. It also has administered $200,000 in PV systems grants since 1986.
Retail access for most small utility customers won't begin in Illinois until 2002, but beginning Jan. 1, every utility and alternative retail electric supplier must disclose in quarterly utility bills fuel sources and environmental emissions. %n27%n
Montana. Renewable energy operating by Jan. 1 may be funded under the Universal System Benefit Programs. %n28%n The SBC is 2.4 percent of 1995 utility revenues. The funds go to energy efficiency, renewables and low-income energy assistance. The SBC will raise as much as $14 million under a 10th of a mill-per-kWh formula.
Much of the debate so far has focused on the amount of low-income energy assistance and weatherization funding. A minimum of 17 percent of the SBC will be applied to this use.
Montana Power Co. proposes using $1 million of the $8.6 million from its SBC on renewable energy projects. %n29%n The Natural Resources Defense Council and Renewable Northwest Project proposed SBC funding of $1.35 million for renewables, including $450,000 for new solar resources. This would include demonstration projects in a low-income neighborhood and for a school or library. %n30%n By law, the utility may operate internal SBC programs, or turn the programs over to a third party agent or an administrator set up by the state.
The legislature's transition advisory committee has a subcommittee looking into setting up a statewide fund administrator. The TAC is obligated to provide a set of legislative recommendations to the governor before Jan. 1. The PSC was set to consider the SBC in the Montana Power restructuring case Sept 21. %n31%n A decision was expected late this year.
Massachusetts. The state's November 1997 restructuring law sets up an SBC for renewable energy technologies of 1 mill on each kWh of electricity sold. Expected to generate $40 to $45 million in each of the next five years, SBC revenues will be placed in a Massachusetts Renewable Energy Trust Fund %n32%n overseen by the Massachusetts Technology Collaborative. About $50 million of the eventual $200 million in the trust will be dedicated to waste-to-energy pollution controls or retirements. About $25 million a year will be available for renewable energy projects. The plan provides for elements of product and market development, training and public information, investment and research and development. %n33%n The Bain & Co. and Arthur D. Little consulting firms will develop an SBC implementation plan.
The Massachusetts SBC was challenged in a March state court complaint %n34%n arguing that the SBC is unfairly discriminatory, since municipal electric systems don't collect the charge under the restructuring law. This case and the November 1998 ballot issue seeking repeal of the entire 1997 restructuring law are barriers to SBC implementation.
Connecticut. A new Renewable Energy Investment Fund of at least half a mill per kWh starts Jan. 1 as one of several system benefit charges %n35%n in the Connecticut electric restructuring law enacted in April 1998. %n36%n Overseen by the quasi-public Connecticut Innovations Inc. and a 12-member advisory board, the SBC funds increase to three quarters of a mill on July 1, 2002, reaching one mill per kWh by July 1, 2004 as assessed by the Connecticut Department of Public Utility Control. %n37%n The SBC financing covers grants, direct investments or equity investments, contracts or other actions that support research, development, manufacture, commercialization, deployment and installation of renewable energy technologies, and actions that expand renewables expertise of individuals, businesses and lending institutions.
The DPUC established 28 dockets to begin implementing the extensive law on June 15, pointing toward partial retail access on Jan. 1. %n38%n However, an existing bill unbundling case started the SBC's first phase on Sept. 1. %n39%n In Connecticut, Northeast Utilities has financed five PV projects on schools and for remote, stand-alone lighting. %n40%n
Pennsylvania. While the 1996 Pennsylvania electric restructuring law %n41%n made no specific provision for system benefit charges for renewable energy, recent settlements are incorporating negotiated SBCs and renewable portfolio standards.
A PECO Energy restructuring settlement approved May 14 by the Pennsylvania Public Utilities Commission allocates a $12 million sustainable development fund over six years. The fund will finance sustainable energy and economic development and encourage small renewable energy technologies. %n42%n
A renewable energy pilot program for PECO is included in the low-income assistance program. A 2 percent RPS for a 20 percent customer block, or about 300,000 customers, is to be competitively bid. The RPS increases 0.5 percent each year, unless the cost of meeting the RPS level increases the cost of supplying the whole customer block. Rules for net metering are improved.
The Pennsylvania Power & Light restructuring settlement was approved by the PUC on Aug. 13 with a final order on Aug. 27. %n43%n An SBC of .0001 cents per kWh on PP&L's distribution and transmission rates will finance a Sustainable Development Fund to promote energy efficiency and renewables. Other settlement provisions allocate $3.2 million annually for R&D related to renewables and energy efficiency. Some $15 million annually goes toward low-income assistance. A September 1998 settlement approved by state regulators for Metropolitan Edison and Pennsylvania Electric Co. contains similar provisions. %n44%n
Wisconsin. A "public benefits charge" that includes renewable energy was envisioned by the Wisconsin Public Service Commission in a December 1997 "Enunciation of Policy Principles." %n45%n The SBC fund would include $5 million annually for renewables, along with $100 million for energy efficiency, $59 million for low-income programs, and $2 million for R&D.
In 1998, the Wisconsin Energy Bureau began a public benefits pilot program in Wisconsin Public Service Corp. territory. %n46%n Some $16.7 million of WPS funds are provided for demand-side management over two years, ending June 30, 2000. A $1 million Renewable Energy Assistance Program is anticipated by the energy bureau. About 25 percent of the renewable funds will be available for technical assistance studies, 25 percent for marketing and public relations and about 50 percent for "externality rewards." According to Don Wichert of the energy bureau, externality rewards provide 50 cents per annual projected kWh from a PV system. For instance, an $8,000, 1 kW system running at 20 percent capacity would generate 1,752 kWh per year, making it eligible for $876, or about 10 percent of the cost.
William A. Spratley is owner of William A. Spratley & Associates of Columbus, Ohio, a public utility consultancy. Spratley publishes the LEAP Letter on industry restructuring and is a former Ohio Consumers' Counsel.
1 A renewable portfolio standard (RPS) requires that competitive retail electric provider must supply a percentage of their power from solar, wind, biomass, geothermal and other renewable energy resources. The RPS is part of the new laws in Maine, Nevada, Massachusetts and Connecticut. A solar portfolio standard is also proposed by Arizona regulators to work in tandem with a new Arizona retail access law applying to publicly owned utilities. See Lisa Prevost, "Renewable Energy: Toward a Portfolio Standard?" Public Utilities Fortnightly, Aug. 1, 1998.
2 Producing more than 40 percent of America's electricity sales, the 97 UPVG members proposed to deploy up to 50 MW of PV over six years with $160 million of DOE funds in September 1993 in TEAM-UP, or Technology Experience to Accelerate Markets in Utility Photovoltaics.
3 California PV solar rebate program administered by the California Energy Commission.
4 Vincent Schwent, California Energy Commission, "Emerging Renewables Buydown Program," Soltech 98 Conference, April 29, 1998.
5 The program will be operated by Green Mountain Solar (GMS) and Applied Power Corporation (APC) under the California PV buy down program.
6 Similar laws were enacted in New York, Nevada and Maryland in 1997, Washington, Vermont and New Hampshire in 1998. Regulatory affirmations in Maine in 1997 and Massachusetts, Iowa, and Rhode Island in 1998.
7 The PV systems will cost between $9,500 and $13,500 each with GMS to offer financing packages. The California rebate and GMS program apply only to the customers of investor-owned utilities.
8 On April 27, the Public Service Co. of New Mexico announced that Applied Power Co. and Science Applications Intl. Corp. won the bids to build the world's largest solar generation source in Albuquerque. The 5 MW system, with a 30 cent/kWh generation cost, went before the New Mexico Public Service Commission (Case 2740). By September, the regulatory negotiation process was centered on a 3 MW unit, however, after strong objections to the centralized, grid-tied PV project by the New Mexico Solar Energy Industries Association.
9 Howard Wenger, Tom Hoff, and Donald Osborn, "A Case Study of Utility PV Economics," American Solar Energy Society, Solar '97 Conference, April 1997.
10 Ryan Wiser, William Golove, and Steve Pickle, "California's Electric Market: What's In It for the Customer," Public Utilities Fortnightly, August 1998.
11 Christine T. Donovan, "Scoping Study of Renewable Electric Resources for Rhode Island and Massachusetts," filed at the Rhode Island Public Utilities Commission by the Renewable Energy Collaborative November 1997, noting, "A capacity of 25 MW for RI and MA by the year 2002 is aggressive, but achievable, and will only happen with very strong financial incentives and a very determined implementation program," at pp. 5-10.
12 Through Solarex PV Value and potentially from GPU and APC in TEAM-UP Round 3.
13 In cooperation with the EcoSage Corp., the internet curriculum SolarQuest(, is being made available to all Rhode Island schools to allow use of the installed PV systems in support of traditional science, mathematics and social studies curriculum.
14 Eric Ingersoll and Romana Vysatova, "Commercialization Strategies for Photovoltaics in Southeastern New England," Lucid Inc., Rhode Island Renewable Energy Collaborative, April 1998.
15 Rhode Island Public Utilities Commission, Docket 1939, Narragansett Electric Co.; Docket 2153, Blackstone Valley Electric Co.; Docket 2152, Newport Electric and Docket 2510, Pascoag.
16 PSC Opinion No. 98-3, Case 94-E-0952, issued and effective Jan. 30, 1998.
17 The PSC-approved plan provides $171.77 million of SBC funds administered by NYSERDA with $59.5 million in SBC funds retained by utilities for projects deemed to be of public benefit and $3 million is reserved for a comprehensive environmental disclosure program.
18 September 1998 interview with Jeffrey Peterson, NYSERDA. The July 2, 1998 PSC order states that $15 million from SBC will be spent on renewables. The NYSERDA-run program for renewables through the R&D efforts is $11.5 million. Additional support for renewables is included in the Energy Efficiency efforts at NYSERDA through a low-cost loan program and technical assistance.
19 In an April 1998 memo appended to the July 2 PSC order, Niagara Mohawk notes it could fund $7 million or 1.6 MW of photovoltaics. The utility is authorized to receive $475,000 for PV projects, including $200,000 for the Linear Park project to provide solar lighting along the Erie Canal. NiMo also said it could use $8 million for development of up to 10 MW of wind energy, 3 MW now being developed, and another 4 to 7 MW to be solicited by NYSERDA. These capacity numbers are from the PowerChoice Agreement.
20 LIPA was created from LILCO in a May 1998 bond financing of $7.3 billion, the largest municipal utility bond issuance ever.
21 S. 7640/A.11252 in 1998 amended the 1997 Solar Choice Act.
22 Interview with New York Citizens Advisory Panel Director, Gordian Raacke, August 1998.
23 House Bill 362, Electric Service Customer Choice and Rate Relief Law of 1997, effective Dec. 16, 1997
24 Renewable Energy Resource Program, Demonstration Program Guidelines and Application Form, January 1998, Alternative Energy Section, Illinois Dept. of Commerce and Community Affairs.
25 Section 6-3.
26 Section 6-4.
27 Section 16-127, Illinois Commerce Commission, Case No. 98-0194.
28 Senate Bill 390, Electric Utility Industry Restructuring and Customer Choice Act, Amending Title 69, Montana Code Annotated, effective May 2, 1997 at Section 2 states: "The public interest requires the continued protection of consumers through: ¼ (d) continued funding for public purpose programs for: (i) cost-effective local energy conservation; (ii) low-income customer weatherization; (iii) renewable resource projects and applications; (iv) research and development programs related to energy conservation and renewables; (v) market transformation; and (vi) low income energy assistance."
29 Testimony of MPC witness David Houser.
30 Testimony of NRDC and RNP witness Rachel Shimshak.
31 Docket No. D97.7.90.
32 "The public purpose of said trust fund shall be to generate the maximum economic and environmental benefits over time from renewable energy to the ratepayers of the commonwealth through a series of initiatives which exploits the advantages of renewable energy in a more competitive energy marketplace by promoting the increased availability, use, and affordability of renewable energy and by fostering the formation, growth, expansion, and retention within the commonwealth of preeminent clusters of renewable energy and related enterprises, institutions, and projects, which serve the citizens of the commonwealth." Section 20.
33 Section 68.
34 Shea. et.al., v. Boston Edison, et.al., Supreme Judicial Court Case No. SJ-98-0124.
35 Other SBCs are for consumer education of up to $350,000 (Sec. 34), low-income energy conservation, dislocated worker programs, costs of hardship protections, post-retirement safe shutdown and site protection, nuclear plant decommissioning and spent nuclear fuel storage and disposal (Sec. 18). A separate 0.3 cents/kWh SBC would fund energy conservation programs designed by a DPUC-appointed board (Sec.33).
36 House Bill 5005, Public Act 98-28, effective April 19, 1998.
37 Section 44 (C) states, in part: "Connecticut Innovations, Incorporated, may use any amount in said fund for expenditures which promote investment in renewable energy sources in accordance with a comprehensive plan developed by it to foster the growth, development and commercialization of renewable energy sources, related enterprises and stimulate demand for renewable energy and deployment of renewable energy sources which serve end use customers in this state. Such expenditures may include, but not be limited to, grants, direct or equity investments, contracts or other actions which support research, development, manufacture, commercialization, deployment and installation of renewable energy technologies, and actions which expand the expertise of individuals, businesses and lending institutions with regard to renewable energy technologies."
38 Full retail access occurs in Connecticut on July 1, 2000 with 35 percent of the population by customer class eligible for retail competition with distressed areas getting first choice on January 1, 2000.
39 Docket No. 97-01-15.
40 Interview with NU Research Director William Stillinger.
41 Electricity Generation Customer Choice and Competition Act, 66 Pa. Cs. §§2801-2812 (effective Dec. 31, 1996).
42 Docket Nos. R-00973953 & P-00971265.
43 Docket No. R-00973954.
44 The 1999 sustainable energy fund for Met Ed is $5.7 million (Docket No. R-00974008) and for Pennelec is $6.4 million (Docket No. R-00974009).
45 Docket No. 05-BU-100.
46 Docket No. 6690-UR-110.
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