Update: California Legislature Pens Angry Letter Urging CPUC Commish to Follow SGIP Carbon Rules

“If your decision is adopted, SGIP will continue the increasingly absurd practice of subsidizing natural gas consumption.”

Earlier this week, we looked at the debate in the California Public Utility Commission (CPUC) pitting solar, storage and environmentalists against natural-gas-fired distributed generation. The CPUC is deciding what "low emissions" actually means when the state has a 33 percent renewable portfolio standard. Fuel cells like those from Bloom Energy are just on the edge of being eligible for the incentive based on the Michael Picker-led CPUC's Proposed Decision (PD).

As the comments roll in and the CPUC prepares to vote on the proposed decision on SGIP emissions thresholds next week, the Calif. legislature has weighed in with a pointed letter directed to CPUC President Michael Picker that emphasizes the intent of SB 861.

Following are a few key excerpts of the letter from the legislature to Picker:

Here's the letter in its entirety.

And here's our coverage from earlier this week.

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California's Self-Generation Incentive Program is a generous subsidy intended to spur development of low-emissions distributed generation.

But the complicated calculation of just what qualifies as "low emissions" has been the subject of lively debate at the California Public Utilities Commission of late, since the calculation could exclude fuel cells or small gas engines from qualifying.

The Self-Generation Incentive Program (SGIP) was reauthorized by Governor Jerry Brown last year and will continue to provide $83 million per year (through 2019) in upfront and performance-based incentives for eligible behind-the-meter generation technologies. These include wind, gas turbines, combined heat and power, advanced energy storage, biogas and fuel cells.

Meeting that emissions threshold is crucial for a number of fuel cell startups whose California business plans rely heavily on the SGIP. 

Source: Base SGIP Incentive Levels for Eligible Technologies (from 2015 SGIP Handbook) 

As per Senate Bill 861, a proposed decision has been handed down by the Michael Picker-led CPUC to "update the factor for avoided greenhouse gas emissions based on the most recent data available to the State Air Resources Board" for greenhouse gas (GHG) emissions from electricity in the SGIP service areas (PDF of proposed decision here).

I was told there would be no math

So if you're installing distributed energy generation in California and want access to the sweet SGIP incentives offered each year by the state, you soon might have to meet the new SGIP GHG Eligibility Factor as defined in the proposed decision, shown below.

Where:

Source: Proposed Decision of Commissioner Picker, July 10

Figures shown are in kilograms of CO2 per megawatt-hour (kgCO2/MWh)

Plugging the proposed numbers into the equation yields:



GHG EF = (0.5 (382 kgCO2/MWh * (1 - 0.08) + 544 kgCO2/MWh * 0.08) + 0.5 (1-0.33 * (1 – 0.084) * (368 kgCO2/MWh * (1 – 0.08) + 524 kgCO2/MWh* 0.08))/(1 – 0.084) GHG EF = 360 kgCO2/MWh

CPUC: 360 kilograms of CO2 per megawatt-hour

The proposed decision of Assigned Commissioner Picker "updates the greenhouse gas emission factor that determines eligibility to participate in the Self Generation Incentive Program" from 379 kgCO2/MWh to 360 kgCO2/MWh.

According to the proposed decision, in order to be eligible for SGIP incentives, "gas-fired technologies must emit GHGs at a rate no higher than this emission factor [360 kgCO2/MWh] averaged over the first 10 years of operation, and the calculation of a project’s emissions must take into account the assumed 1% annual degradation in electrical efficiency."

Although that series of numbers and letters shown above looks like a formula, it's actually more of a Rorschach test. Each subscript and variable can be interpreted and lawyered, subject to each policy team's cognitive bias and agenda.

The arguments are likely to be about which resources will be displaced when these SGIP sources come on-line and what resources won't get built because of the SGIP. What is the impact of behind-the-meter resources on total system mix and the RPS? What is the nature and impact of a 33 percent RPS grid compared to a 20 percent RPS grid? 

Making their opinions known on this proceeding are the policy teams of natural-gas and solar firms and organizations such as SoCalGas, FuelCell Energy, SCE, CalSEIA, Bloom Energy, SolarCity, SDG&E and California Energy Storage Alliance. Here are some excerpts.

SolarCity, CalSEIA: 282 kilograms of CO2 per megawatt-hour

Bloom produces 333 kilograms of CO2 per megawatt-hour

Bloom Energy's (PDF) natural-gas-powered fuel cells have drawn or reserved more than $400 million of the program's 14-year $1.4 billion total, according to the CPUC's SGIP worksheet. Bloom's spec sheet lists CO2 emissions of 735 pounds (333 kilograms) to 849 pounds (385 kilograms) per megawatt-hour. (A typical new combined-cycle gas turbine plant emits about 913 pounds (414 kilograms) of CO2 per megawatt-hour. PG&E's most recent independently verified CO2 emissions rate of 445 pounds of CO2 per megawatt-hour (201 kilograms) is about one-third of the national average among utilities.)

Utility PG&E is OK with 360 kilograms of CO2

PG&E "generally supports the PD" but has the following suggestions (PDF):

Khosla- and Gates-funded EtaGen: 424 kilograms of CO2

Adam Simpson, the co-founder of EtaGen, a startup building a "free-piston" gas-fired engine for backup power funded by Khosla Ventures and Bill Gates, disagrees on the weighting of build margin versus operating margin (PDF). Simpson uses a revised formula to arrive at a figure of 424 kgCO2/MWh as the new SGIP GHG factor.

  The Sierra Club: 295 kilograms of CO2 per megawatt-hour

The Sierra club also focuses on the build and operating margin portion of the test, correcting Mr. Picker's formula to determine the threshold to be 295 kgCO2/MWh.

The environmental organization comments, "Unfortunately, the proposed decision falls far short of ensuring SGIP realizes its purpose of achieving meaningful reductions in greenhouse gas pollution. The PD’s proposed 360 kgCO2/MWh eligibility threshold allows projects with greenhouse gas emissions close to 20 percent higher than a modern combined cycle facility to qualify for SGIP incentive funding. At 360 kgCO2/MWh, the 'SGIP' acronym more aptly stands for Subsidizing Greenhouse Gas Intensive Projects."

"The PD’s 360 kgCO2 /MWh eligibility threshold was derived through flawed application and overly conservative assumptions of the RPS. To correct the PD and ensure SGIP aligns with California’s climate objectives, the Commission should apply the RPS to both the build and operational emissions rate as done in D.11-09-015 and update the RPS assumption from 33 to 50 percent to reflect the reasonably foreseeable increase in state renewable requirements" (PDF).

The PUC commissioners will reply to the comments this week and vote on this decision on August 13.