To: Honorable Public Utilities Board Submitted by: /s/ Janet Oppio AGM - Energy Resource Planning

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1 AGENDA ITEM NO: 5.E.1 ADMINISTRATIVE REPORT NO To: Honorable Public Utilities Board Submitted by: /s/ Janet Oppio AGM - Energy Resource Planning From: Alan Hanger Senior Energy Resources Analyst Approved by: /s/ Girish Balachandran General Manager Subject: Information Update on Alameda Municipal Power s SB1 Solar Rebate Program RECOMMENDATION This report is provided for information only; no action is required at this time. The purpose of this report is to provide an update to the Public Utilities Board of the status of Alameda Municipal Power s solar program and to outline various options under future consideration. BACKGROUND Original SB1 Program The Million Solar Rooftops Law, Senate Bill (SB) 1, was passed in 2006 and became effective on January 1, One objective of the legislation was to reduce Photovoltaic (PV) manufacturing and installation costs and mandate $2.8 billion statewide to be spent over a 10- year period to fund solar rebates. Based on its share of statewide electric sales, Alameda Municipal Power s (AMP) share of the mandate was $4.2 million, or an average of $420,000 per year to be funded through rates from all electricity users. The SB1 program requires AMP to provide rebates for 2,127 kw over the 10 years. Per statute, the program must have been developed and implemented using a public process. Specific requirements of the SB1 law are: Each Publically Owned Utility (POU) must offer monetary incentives for customer installations of PV systems of at least $2.80 per installed watt (W), or an equivalent performance based incentive; The incentive level must decline by no less than 7% per year; Funding cannot come from existing low income or energy efficiency programs; Systems receiving the incentive must comply with State established standards; Systems must be located on the customer s premises; Systems must be intended to offset part or all of the customer s electricity demand; All system components must be new; Systems must have a warranty of at least 10 years;

2 The system must be metered; Mandatory annual reporting to customers and the State. AGENDA ITEM NO: 5.E.2 In November of 2007, the Board approved AMP s SB1 solar rebate program that met the preceding criteria. Table 1 lists the rebate schedule for the rebates paid at system completion for each alternating current (AC) kw of PV installed. Table 1 An Up-Front rebate is paid to the customer when the PV system is interconnected to the distribution grid. The total rebate is the available Up-Front rebate multiplied by the total installed AC watts after inverter losses are calculated. Rebates can be reserved for future years but cannot be paid until the year of reservation. The Funded column in Table 1 is the maximum number of AC kw that could be funded in a specific year if all the rebates were paid as an Up-Front rebate. For years 2008 and 2009, the residential set-aside was 20 kw, based on the perspective that most PV would be installed by commercial customers. Other than the set-aside for Residential installations, the rebate funds are allocated to valid rebate applications as they arrive until $420,000 is reserved for each year. As each year s rebate level is filled, projects become eligible for the next year s rebate level. A project has 180 days to show substantial progress or the project will lose its spot in the queue. SB1 & AB920 Program Changes The Net Metering Interconnection Agreement (IA) was updated in June 2008 to reflect changes mandated by SB1 and to include AMP s requirement for a dedicated meter to measure solar generation in addition to the net meter. Per requirements of SB1, AMP, rather than the customer, pays up to $200 for installation of this second solar meter.

3 AGENDA ITEM NO: 5.E.3 Originally, this second meter was for AMP to track the Renewable Energy Credits (RECs) generated by the solar system because they belonged to AMP. AB920 changed the law to give all RECs to the customer except for those associated with generation greater than the load, which would go to the utility. Information from the second meter is also used to determine the amount of net generation and for the annual true-up calculation. Addition of Performance Based Incentive On November 18, 2009, the Board approved a Performance Based Incentive (PBI) rebate program for solar systems of 50 kw or greater. The PBI rebate program bases the rebate payment on actual project generation over a 5-year period. Under the PBI rebate program, the payment for each year is determined by multiplying the PBI rate for the project by the actual AC-kWh generated. The PBI rate is set by the year in which the application for the project is approved. The annual PBI rates for the program are listed in Table 1. The PBI payment begins the year the project is interconnected and continue through the five-year period. In situations where prior projects, or projects, have reserved rebates beyond the start date of a specific PBI project, that project will be paid the PBI rate in effect when the prior project reservations end. Beginning with the PBI in 2010, the Residential set-aside was increased to 50 kw per year. The total number of Up-Front rebates and PBI rebates paid out in one year cannot exceed $420,000. A historical account of the reports and actions taken by the Board on AMP s solar program is as follows: 12/7/ the Board approved the original SB1 program with Resolution 3771 (Exhibit A). Staff reports referenced in the Resolution were presented on 5/21/2007 and 12/7/2007. The addition of the PBI to the solar program was approved by Resolution 4834 (Exhibit B) on 1/26/2010. DISCUSSION AMP s solar program was designed around three major factors: 1) mandated solar rebates would be funded by all AMP customers, 2) the expected payback for a residential system was 20 or 30 years, and 3) large customers may install PV for other than economic reasons. The SB1 rebate is a direct subsidy to solar customers from non-participating customers. This subsidy is in addition to the indirect subsidy provided under the net-metering program where the energy charges of solar and wind customers are offset at the full retail rate while AMP continues to provide distribution and energy when the sun doesn t shine. The current PV rider collects $.00116/kWh from all customers except street-lighting and rate schedule MU-1 municipal customers. When AMP s SB1 program was designed, system costs were $9-$10/watt with the upfront costs

4 AGENDA ITEM NO: 5.E.4 in the tens of thousands of dollars that resulted in a project payback time of around 30 years. To preserve a rebate for residential PV systems, a 20 kw set-aside for residential customers was included in the original program guidelines. Contrary to staff expectations, residential installations have exceeded the 20 kw set-aside each year from As the cost of PV systems fell, the rebate program attracted increasing interest. To date, all of the 50 kw residential set aside has been reserved through Given AMP s low residential rates and the high percentage of renewables in AMP s supply mix, more commercial PV applications were expected from Commercial customers. Commercial customers can offset up to 75% of a system s installed cost through 1) AMP s SB1 rebate, 2) a 30% tax credit or payment, and 3) accelerated depreciation on State and Federal taxes. At the beginning of the program two applications totaling 1,700 kw were submitted. However one was cancelled and the second reduced the size of their project due to economic considerations. Since inception of the Solar Rebate Program, 10 commercial projects ranging in size from 15 to 152 kw have been constructed. In May and June of 2012, AMP received applications for three large commercial projects of 430 kw, 670 kw, and 545 kw. The 430 kw project consists of 13 upfront rebates and 1 PBI project and will reserve all rebate funds through 2014, with the exception of the 50 kw residential set-aside. The second project for 670 kw consists of four 170 kw projects that will be paid out under the PBI program beginning in 2015 and continue through 2019 at which time the $4.2 million in rebate funds for the program will be exhausted. As a result, this project will not receive the full five year rebate amount. As a result of earlier approved projects reserving the remaining solar rebate funds, the third project for 545 kw is not eligible for a rebate under SB1. Possible options for the 545 kw project and other future PV projects are discussed below. The final rebate amounts will vary somewhat because a large percent are PBI based and will vary as actual generation deviates from projected PV generation. Table 2 provides a yearly breakdown of rebate amounts for projects that have been completed and/or reserved through the end of the project in As mentioned earlier, in the early years of the program, more Residential PV projects were completed than the 20 kw Residential reservation. Table 2

5 AGENDA ITEM NO: 5.E.5 As shown in Table 2, the residential class has received or has reserved $1,416,650 (33.7%) and the commercial class has received or reserved $2,783,350 (66.3%) of the $4,200,000 SB1 PV rebate dollars through The division of SB1 rebates represents an equitable funding split between the commercial and residential rate classes. Currently, solar installations are occurring under different business models. All of the residential installations and a large portion of commercial projects are now constructed under a solar lease arrangement. As of this reporting, residential rebates for 2013 have been fully reserved and all of these projects will be constructed under a solar lease arrangement. A solar lease requires no initial outlay by the customer who agrees to pay to the lessor, a fixed (or slowly increasing) rate for each kwh generated by the solar system which has sparked increased interest in the solar program. Solar PV after SB1 AMP has completed or reserved all rebates for commercial and only set-aside s for the residential reservation remain eligible for SB1 solar rebates. This is an achievement that has been accomplished by few other electric utilities in California. The results of the program agree with staff projections made in 2007 but the path to completion has deviated from those early projections with residential installations exceeded projections early on and commercial interest taking hold in later years. With AMP essentially completing the SB1 program requirements, AMP has a number of options and approaches to facilitate future solar PV installations: Extend the solar rebate program If the Board so determines, a future rebate program could be created to incent the installation of PV projects. The Board can make a determination that solar is at parity with other energy sources and do nothing beyond SB1 Currently, solar PV projects are approaching parity with wind and other conventional generation sources but prices remain at a premium. The investment tax credit extends through 2016 and accelerated depreciation still applies for commercial and solar lease projects. National Renewable Energy Lab (NREL) has projected that solar panel prices will drop to 50 cents per watt in 3 to 5 years. At that level, solar generation will be at parity with grid electric prices. A Feed In Tariff (FIT) Staff is reviewing options for offering a FIT for future, non net-metered PV installations. These facilities would sell electricity to AMP at a fixed rate for an extended number of years. There would be no requirement for onsite energy usage. Rates could be set at the

6 AGENDA ITEM NO: 5.E.6 market cost of electricity plus credits for avoidance of transmission and the value of the green attributes. Other pricing mechanisms are also being evaluated. Create a standardized Power Purchase Agreement (PPA) and rate A Power Purchase Agreement contract would purchase electricity for 10 to 20 years at a rate that is comparable to the wholesale delivered price of electricity. A PPA could be negotiated or procured through a request for proposal (RFP) process. The PPA would be similar to the FIT in that the generator would be paid for all energy delivered onto AMP s distribution system and may or may not have load behind their meter. As solar costs drop to grid parity, signing many long term contracts for solar at above market prices doesn t appear to be in AMP s customer s interest. Address issues with Net Energy Metering (NEM) and AMP cost allocations Customers that aren t eligible for a PPA or FIT fall under Net Energy Metering. These are usually residential and small commercial customers. NEM can result in shifting the costs of the distribution grid and other supply costs on to other, non-nem AMP customers. This situation can result because NEM customers are credited at the retail rate and do not pay for billing, engineering, maintenance, and other costs associated with the distribution system. AMP could develop a Community Solar program similar to the Solar Shares program administered by SMUD A Community Solar program is one or more solar installations that would be owned by AMP. Any customer can elect to participate in the program and receive power generated by the project by purchasing a share. Thus, renters and others who may not be able to install a solar system would still be able to enjoy solar energy as part, or all, of their electricity supply. Unlike NEM, the program could be designed so that non-participating customers would be cost neutral. SB843, legislation that may require utilities to allow private parties to create shared solar is near passage in Sacramento. Any requirements under this bill would be in addition to a utility s Community Solar program. AMP could create a pseudo-time-of-use (TOU) tariff for solar that would credit on-peak benefits Different approaches to pricing electricity hourly in lieu of requiring individual meters that register hourly usage are being developed. The city of Austin and Lawrence Berkeley Labs (LBNL) are developing models and analysis that support payment of peak pricing for energy generated by solar systems. However unlike NEM, these models assume that distribution costs will be recovered. The premised solar rate would credit the customer for the value of real-time peak electricity as well as the value to the utility of avoided transmission costs. The customer would pay the regular utility bill covering generation, transmission, distribution, support for social programs and customer costs. The two

7 AGENDA ITEM NO: 5.E.7 amounts would be netted for the final bill. As solar prices drop to grid parity, the current solar premium will adjust accordingly. NEXT STEPS Staff will analyze the above options for solar PV in Alameda and evaluate the impacts and needs of the community and AMP. A recommendation for Board consideration will be presented at a future meeting. FINANCIAL IMPACT This report is for information only. There is no direct cost impact other than the $4.2 million in rebates that are mandated by SB1. Indirect costs arise because 2.2 MW and some 200 customers are net metered and as a result, do not fund distribution system maintenance, billing, metering reading, and other costs that range from 30-40% of AMP s non generation and transmission costs. LINK TO STRATEGIC PLAN AND METRICS Strategy 2: Ensure utility financial health is preserved through short and long-term risk management and planning. Strategy 10: Manage short-term and long-term power supply reliability and cost, while maintaining a loading order of efficiency and demand response, renewable energy resources, and clean and efficient fossil generation. EXHIBIT Exhibit A: Resolution Approving the Solar Photovoltaic Rebate Program Exhibit B: Resolution Approving the Solar Photovoltaic Performance-Based Incentive Rebate Rate

8 CITY OF ALAMEDA ALAMEDA POWER & TELECOM RESOLUTION NO APPROVING THE SOLAR PHOTOVOLTAIC REBATE PROGRAM WHEREAS, during its 2006 session the California State Legislature passed Senate Bill 1 (SB1), the law which requires the governing body of each Publicly Owned Utility (POU) like Alameda Power & Telecom (Alameda P&T) to adopt, implement, and finance a solar initiative program by January 1,2008; and, WHEREAS, the goal established by SB1 is for POUs as well as the investor owned utilities to offer rebates in proportion to their share of statewide electric sales; and, WHEREAS, Alameda P&T s share has been determined to be $4.2 million over the next ten years, or an average of $420,000 per year; and, WHEREAS, SB1 requires that the specific structure of the POU program be developed through a public process; and, WHEREAS, Alameda P&T has been engaged in that public process for the past six months, including its initial plan presented to the Public Utilities Board in May 2007, its public workshop held in September 2007, and its dialogue with all stakeholders throughout the past half year; and, WHEREAS, Alameda P&T believes its revised plan incorporates many of the suggestions of its stakeholders and is fair to all stakeholders, including the voters of California whose legislative representatives enacted SB1, and honors not only the letter of the law but also the spirit of the law. NOW, THEREFORE, BE IT RESOLVED by the Public Utilities Board that the Solar Photovoltaic Rebate Program, as set forth in the accompanying Administrative Report, be authorized and adopted for use effective November 26, AYES: NOES: ABSENT: Commissioners Holmes, McCahan, Hamm, City Manager Kurita, and President McCormick None None IN WITNESS WHEREOF, I have set my hand on this 7 th day of December G\Resolutions\4771 /s/ Girish Balachandran Secretary AGENDA ITEM NO.: 5.E. MEETING DATE: 07/16/2012 EXHIBIT A: Page 1 of 1

9 CITY OF ALAMEDA ALAMEDA MUNICIPAL POWER RESOLUTION NO APPROVING THE SOLAR PHOTOVOLTAIC PERFORMANCE-BASED INCENTIVE RATE WHEREAS, Alameda Municipal Power (AMP) established a solar photovoltaic (PV) rebate program in November 2007, making available $4.2 million in rebates over the ten year period from 2008 through 2017; and, WHEREAS, AMP has provided up-front rebates for all sizes of photovoltaic systems, based on the kilowatts installed, and paid on a $/watt basis, during calendar years 2008 and 2009; and WHEREAS, a performance based incentive program is paid over a multi-year period based on the kilowatt-hours produced, rather than kilowatts installed; and WHEREAS, AMP recommended, and the Public Utilities Board authorized, implementation of a performance-based incentive program for customer-owned PV installations 50 kilowatts and larger in size in November NOW, THERFORE, BE IT RESOLVED that the Public Utilities Board of the City of Alameda authorizes the payment of performance-based incentives for solar PV installations 50 kilowatts and larger in size, at the rate and term as set forth in the accompanying Administrative Report, effective January 25, 2009; and BE IT FURTHER RESOLVED that the Public Utilities board of the City of Alameda authorize that up-front rebate funds be reserved for 50 kilowatts of residential solar PV installations for each calendar year. AYES: Commissioners McCormick, Holmes, McCahan, and President Hamm NOES: None ABSENT: Interim City Manager Gallant IN WITNESS WHEREOF, I have set my hand on this 26th day of January Date /s/ Girish Balachandran, Secretary Public Utilities Board AGENDA ITEM NO.: 5.E. MEETING DATE: 07/16/2012 EXHIBIT B: Page 1 of 1