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:

  • GHG EF: greenhouse gas emission factor
  • EROLF: operating margin emission rate of load-following plants = 382 kg
  • EROP: operating margin emission rate of peaking plants = 544 kg
  • WFP: weighting factor for peaker plants = 8%
  • RPS%: RPS portfolio requirement = 33%
  • Emission rate of load-following plants = 368 kg
  • LLF: line loss factor = 8.4%
  • ERBLF: build margin
  • ERBP: build margin emission rate of peaking plants = 524 kg

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

  • SolarCity and CalSEIA (PDF) contend that the proposed decision (PD) uses "a flawed methodology for calculating the final GHG Emissions Eligibility Threshold" and that the PD’s proposed calculation "does not appropriately apply the 33 percent RPS adjustment and will ultimately allow SGIP funds to be spent on resources that will increase, potentially significantly, GHG emissions in California."
  • "Applying the 33 percent RPS correctly would result in a SGIP GHG eligibility threshold of 295 kgCO2/MWh. Including the 1 percent degradation factor, as proposed in the PD, a starting rate of 282 kgCO2/MWh or lower would be needed in order to meet this threshold over the course of 10 years."
  • "In order to result in a net reduction in GHG emissions, an SGIP resource needs to have a lower emissions rate than the emissions of the generation it is displacing."
  • "The PD incorrectly assumes that a MWh of SGIP generation this year means a MWh less generation from the marginal resource. In other words, while the deployment of BTM generation results in less dispatch of gas-fired generation on the margin, it also means less renewable generation will be procured by the utility. This effect is what the RPS adjustment is meant to capture."
  • The current figure will mean that "SGIP will support some technologies that result in higher emissions than if those technologies were not deployed. This is inconsistent with the state’s efforts to reduce GHG emissions."
  • "For fossil-fueled SGIP generators to provide net emissions reductions, their emissions rates need to be lower than the combined 67% marginal fossil resources and 33% RPS resources they displace. The build margin and operating margin concepts apply only to the estimation of that marginal fossil emissions rate. The 33% RPS adjustment factor must be applied to the whole factor to account for the fact that the BTM generation is displacing RPS generation by reducing the retail load on which the RPS obligation is set."
  • SolarCity and CalSEIA contend that "an update to the formula to update the marginal emissions factor and the higher RPS is appropriate given that both of these factors are now out of date. Unfortunately, in making these changes, the PD inappropriately applies the RPS factor to a sub component of the underlying formula used to calculate the marginal emissions factor. This results in a significantly higher emissions eligibility threshold that will result in SGIP supporting the deployment of technologies that actually increase GHG emissions."

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.)

  • Bloom has emphasized that per the latest SGIP impact report, "Bloom is actually the largest GHG reducer in the SGIP program."
  • Bloom also noted, "Distributed generation does not displace all of the generators on the grid, but rather generation from the marginal gas plants that the utility curtails in response to changes in demand, as well as transmission and distribution line losses. [...] This is why the present requirement for the SGIP program is 379 kg of CO2/MWh, which is well in excess of the PG&E average of 445 lbs/MWh."
  • "Bloom cannot support the proposed update to the emissions factor, as it is based on data that are not supported by the record." Bloom added, "As noted by the PD and as evidenced by the wide variance of parties’ comments on the Assigned Commissioner’s Ruling, there is no clear consensus about how SGIP technologies may interact with the grid in the long term." The company continued, "What is clear is that many SGIP technologies are reducing significant emissions today and will continue to do so for the foreseeable future."
  • "It would be irresponsible to set an emissions factor that in effect would exclude projects that reduce GHG emissions today based upon uncertain assumptions of how SGIP technologies may impact the grid in 10 or 15 years. [Bloom] urges the CPUC to readjust the emissions factor and to do so based on data and facts rather than speculative assumptions. Bloom suggests that the program could be reduced "to a limited set of technologies and miss opportunities to deliver additional immediate GHG reductions so desperately needed in California."
  • "Bloom Energy generally agrees with the concept that SGIP technologies will impact the operating margin in the near term and could theoretically have some impact on the need for new capacity in the long term. However, we find the PD’s methodology for determining the appropriate weight to assign to the operating margin and the build margin to be lacking in precision." The weight assigned to the build margin should be "less than 50%," suggests Bloom. The company "finds the use of a 50/50 weight to be arbitrary." The firm also suggests a remedy: "Since the aim is to develop a 10-year eligibility factor, the weight assigned to the build margin relative to the operating margin should be based upon the total number of years out of the 10-year time frame the project can be expected to impact the build margin. [...] SGIP technologies may partially displace the operating margin and partially displace the build margin."
  • While Bloom Energy agrees with the CPUC’s decision to rely on current policy (33% RPS) rather than speculate on future policy (i.e., 40% or 50% RPS), Bloom Energy disagrees with the Proposed Decision's use of 33% renewables within the build margin.  

Utility PG&E is OK with 360 kilograms of CO2

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

  • "PG&E supports the updated GHG emission standard of 360 kgCO2/MWh for eligibility to participate in the SGIP until better analytics can be performed."
  • "PG&E recommends that the Commission establish a process for additional analysis to support a forward-looking framework for evaluating GHG performance of all load-reducing technologies, including fossil-fueled distributed generation (DG) and advanced energy storage (AES) technologies."
  • "The updated standard of 360 kgCO2 /MWh, which is equivalent to 794 lbs.CO2/MWh or 6,800 Btu/KWh heat rate for natural-gas fired generation, proposed in the PD, is reasonable. The updated GHG standard allows fairly efficient gas-fired generation to receive the SGIP incentive. The SGIP GHG performance standard has moved in the right direction, declining from 379 to 360 kg CO2/MWh, and is in line with the grid performance getting cleaner over time. However, PG&E believes the methodology used to derive this performance standard -- which assigns equal weight to 1) an emission rate determined using historical data and 2) an estimated emission rate of future generation not built -- lacks rigor."

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.