California Solar Initiative Annual Program Assessment

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3 California Solar Initiative Annual Program Assessment June 2014 Prepared by the California Public Utilities Commission Authors Tim Drew James Loewen Shannon O Rourke Jason Perkins Ehren Seybert Sara Kamins, Supervisor Special Thanks Simon Baker Regina DeAngelis Daniel Hartmann Jessica Hecht Katherine MacDonald Scott Murtishaw Edward Randolph June

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5 Table of Contents Table of Contents Executive Summary Introduction Key Report Contents Installed Solar Highlights CSI General Market Program Highlights Other Program Highlights Net Energy Metering (NEM) Introduction Background on California Solar Initiative (CSI) CSI Program Components CSI Program Budget CSI Program Regulatory Process CSI General Market Program Decisions Other CSI Program Component Decisions Solar Installed Through Investor-Owned Utility Territory Solar Installations Net Energy Metering Program Background California NEM Ratepayer Impacts Evaluation NEM Program Cap California Statewide Solar Installations CSI Program Components General Market Solar Program General Market Program Background General Market Program Progress Marketing and Outreach Efforts Single-Family Affordable Solar Homes (SASH) Program SASH Program Background SASH Program Progress SASH Sub-Contractor Partnership Program Multifamily Affordable Solar Housing (MASH) Program MASH Program Background MASH Program Progress and Project Attributes Virtual Net Metering (VNM) CSI-Thermal Program CSI-Thermal Program Background June

6 4.5.2 CSI-Thermal Budget CSI-Thermal Program Eligibility CSI-Thermal Program Participation Research, Development, Demonstration & Deployment RD&D Program Background RD&D Program Progress Program Reporting and Evaluation Program Reporting Online Reporting Online CSI-Thermal Reporting Periodic CSI and CSI-Thermal Reports Program Evaluation Plan California Solar Initiative Program Links and Contact Information CSI and CSI-Thermal Program Administrator Contacts June

7 Index of Tables Table 1: CSI Budget by Program Component Table 2: Solar Interconnections and Solar NEM Customers by Utility Table 3: Progress Towards the 5 Percent NEM Cap Table 4: California Statewide Solar Installations Table 5: CSI General Market MW Targets by Utility and Customer Class Table 6: CSI EPBB Rebate Levels per Incentive Step Table 7: Current General Market Statewide Solar Incentive Step Levels Table 8: All CSI General Market Projects Pending and Installed Table 9: CSI General Market Applications received by year (MW) Table 10: CSI General Market Program Activity, first quarter of Table 11: CSI General Market Progress Toward IOU Program Goals Table 12: SASH Budget Allocations by IOU Service Territory Table 13: SASH Budget Allocations by Functions Table 14: SASH Incentive Rates in $/watt Table 15: MASH Incentive Tracks, Revised as of D Table 16: MASH Budget Allocations by Utility Territory Table 17: MASH Budget Allocations by Function Table 18: MASH Program Progress Table 19: VNM Projects Outside of the MASH Program by Utility Territory Table 20: CSI-Thermal Gas-Displacing Budget Allocation Table 21: CSI Thermal Gas Displacing Program Budget Table 22: CSI-Thermal Low income Program Budget Allocation Table 23: CSI Thermal Electric Displacing Program Budget Table 24: CSI-Thermal Incentive Step Table Table 25: CSI-Thermal Low Income Incentive Step Table Table 26: Electric-Displacing Solar Thermal Incentives Table 27: CSI-Thermal Applications by Sector and Displaced Fuel Table 28: CSI-Thermal Program Applications by PA Table 29: CSI RD&D Program Budget Allocations June

8 Index of Figures Figure 1: Customer-Sited Solar Capacity Installed in CA s IOU Territories, Figure 2: Customer-Sited Solar Projects Installed in CA's IOU Territories, Figure 3: Trends in Non-CSI Program Customer-Side Solar Installations. 27 June

9 1. Executive Summary 1.1. Introduction In January 2007, California began a $3.3 billion ratepayer-funded effort to install 3,000 megawatts (MW) of new solar over the next decade and transform the market for solar energy by reducing the cost of solar generating equipment. The California Public Utilities Commission s (CPUC) portion of the solar effort is known as the California Solar Initiative (CSI) Program. The CSI program goal is to install 1,940 MW 1 of solar capacity by the end of 2016, and, along with other statewide solar programs, transition the solar industry to a point where it can be selfsustaining without subsidies. This Annual Program Assessment meets the statutory requirement for an annual report to the Legislature on the progress of the CSI Program. 2 Other state authorized programs, including the New Solar Homes Partnership (NSHP) and publicly-owned utilities solar offerings, are not included in this report. 3 The market for solar generating equipment in California has grown at a rapid pace since the beginning of the CSI Program. As evidenced by increasing annual rates of new solar installations and cumulative installed capacity over the life of the program, California is well along the path to achieving the installed capacity goals set forth by the legislation authorizing the CSI Program, Senate Bill (SB) 1 (Murray, 2006) Key Report Contents This report contains current information on distributed solar energy systems in California, including systems installed through the CSI General Market Program, and those installed through other incentive programs. In addition, this report provides detailed information on CSI General Market Program participation, installed capacity, equipment costs, and program impacts. The report also includes information on the progress of other CSI Program components, including the Single-Family Affordable Solar Homes Program (SASH); the Multifamily Affordable Solar Housing Program (MASH); the CSI-Thermal Program; the CSI-Thermal Low Income Program; and the Research, Development and Demonstration (RD&D) Program. This 1 This goal includes the CSI General Market Program goal of installing 1,750 MW of capacity by the end of Public Utilities (PU) Code Section 2851 (c)(3) states, On or before June 30, 2009, and by June 30 th of every year thereafter, the commission shall submit to the Legislature an assessment of the success of the California Solar Initiative program. The CPUC submitted the first CSI Annual Program Assessment on June 30, 2009, available at: 3 Information on non-cpuc jurisdictional solar programs is available at June

10 report also includes information on Net Energy Metering (NEM) and other relevant policy updates Installed Solar Highlights Through the end of the first quarter of 2014, an estimated 2,139 MW 4 of solar capacity has been installed on the customer side of the meter at 227,141 customer sites in the large investor-owned utility (IOU) territories. A record 620 MW were installed in 2013, a growth of 73 percent from capacity installed in CSI General Market Program Highlights To date, the CSI General Market Program has installed 1,455 MW, or 83 percent of its 1,750 MW program goal, with another 225 MW, or 13 percent of the goal, reserved in pending projects. Pacific Gas and Electric Company (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E) 5 territories have reserved and installed enough solar capacity to reach their goals in the residential sector. 6 PG&E and SDG&E territories have achieved the most installations in the non-residential (commercial, industrial, government, non-profit, and agricultural properties) sector, having met or nearly met 100 percent of their non-residential installation goals. The lowest installation rates for the non-residential sector are in SCE territory, where 55 percent of the sector s goals have been met. As the CSI Program phases out, NEM tariffs and the Federal Income Tax Credit (ITC) are playing a larger role relative to available CSI incentives Other Program Highlights Assembly Bill (AB) 217 o In October 2013, Assembly Bill (AB) 217 (Bradford) was signed into law by Governor Brown. AB 217 extends the SASH and MASH programs with $108 4 The installed capacity data cited in this report does not include solar capacity installed on the system side of the meter through the Renewables Portfolio Standard (RPS). The most recent RPS quarterly report can be found at 5 The California Center for Sustainable Energy (CCSE) administers the CSI program in SDG&E s service territory. 6 In response to a Petition to Modify, the Commission issued Decision (D.) , which allowed for a reallocation of program goals between the residential and non-residential programs, effectively re-opening CCSE s residential program. PG&E s and SCE s residential programs remain closed. June

11 million in new funding, to run until the additional incentives are claimed or until 2021, whichever is earlier. AB 217 sets a capacity target of 50 MW of additional solar capacity on affordable housing across the three IOU territories. In addition, AB 217 requires that these programs be designed to maximize overall benefit to ratepayers, enroll participants in the Energy Savings Assistance Program if eligible, and provide job training and employment opportunities in the solar energy and energy efficiency sectors of the economy. These program changes will be implemented in the Commission s Rulemaking (R.) distributed generation proceeding. Single-Family Affordable Solar Homes (SASH) o Since the program was launched in December of 2008, SASH has received a total of 4,232 applications which have resulted in 11.1 MW of installed capacity on eligible homes, with another 1.6 MW currently in progress. o SASH applicants have received or reserved a total of $77 million of the available $92 million incentive budget in support for their residential solar systems. Multifamily Affordable Solar Housing (MASH) o As of May 9, 2014, MASH had 340 completed projects, representing a total capacity of 22.1 MW. There are an additional 62 MASH projects in process, for a total capacity of 8.2 MW. o MASH applicants have received or reserved 100 percent of the available $95 million MASH incentive budget. o Virtual Net Metering 7 (VNM) has allowed thousands of tenants to receive the direct benefits of solar as reductions in their monthly electric bills. CSI-Thermal Program o In just over four years of operation, the program has approved 1,665 applications for $22.7 million in incentives of the available $205 million CSI-Thermal incentive budget. o D , adopted in August of 2013, allowed the program to offer incentives for non-single family swimming pools. Research, Development, Demonstration and Deployment (RD&D) Program o The CSI RD&D Program has conducted five project solicitations since its inception, resulting in grant funding for 36 projects, totaling $44.4 million. Funded projects have focused on the following areas: Integration of solar photovoltaics (PV) into the electricity grid 7 VNM was first approved by the Commission when the MASH Program was adopted in D It has since been expanded to include all multi-tenant, multi-meter properties. VNM is a tariff which allows the bill credits from a single solar system to be shared among multiple customer accounts. June

12 Energy generation technologies and business development Grid integration and production technologies o No additional project solicitations are planned Net Energy Metering (NEM) All but 163 MW, or 9 percent, of solar capacity interconnected to the grid in the three large IOU territories is signed up for NEM. In October 2013, in compliance with AB 2514 (Bradford, 2012), the Commission released a study on the costs and benefits of the NEM program. 8 Signed by the Governor on October 7, 2013, AB 327 (Perea) required that, among other requirements, the existing NEM tariff be extended beyond 2014, and that the CPUC develop a successor tariff to the existing NEM tariff. In March 2014, the Commission adopted D , in compliance with AB 327 (Perea, 2013), establishing a 20-year transition period for customer-generators to be eligible to receive service under the currently applicable NEM tariffs. 8 See, June

13 2. Introduction 2.1. Background on California Solar Initiative (CSI) The CSI Program is the solar rebate program for California investor-owned utilities: PG&E, SCE, and SDG&E. Incentives under the CSI Program are available for solar PV systems and solar thermal technologies. Existing residential homes, as well as all commercial, industrial, government, non-profit, and agricultural properties within the service territories of the large electric and gas IOUs are eligible for CSI Program participation. 9 The goals of the CSI Program are to: Install 1,940 MW of distributed solar generation capacity in the large electric IOU service territories, and displace 585 million therms of natural gas usage, or the equivalent output of 200,000 solar thermal systems; and Transform the market for solar energy systems so that it is price competitive and self-sustaining. The CSI Program focuses exclusively on solar energy systems used by IOU customers who want to offset some or all of their onsite energy consumption. In the case of the solar PV program, the solar energy systems funded under the program reduce the customer's electricity consumption from the grid. In the case of the solar thermal program, the solar energy systems reduce the customer's gas or electricity consumption, depending upon the customer's energy source for their existing hot water system. The CSI Program does not fund wholesale solar power plants, which are designed to serve the electric grid and contribute to the state s RPS requirement. The electricity generated by CSI systems, however, does contribute indirectly to the RPS by reducing demand when serving customer load. In addition, the owner of the CSI system owns the renewable energy credits (RECs) associated with the system s generation and may sell the RECs to retail sellers to contribute to the RPS targets CSI Program Components The CSI Program has several program components, as shown in Table 1, each with its own Program Administrator for each large IOU territory, and budgets overseen by the CPUC: 9 The electric-displacing portion of CSI Program, which covers solar PV and some solar thermal systems, was authorized by the CPUC in a series of regulatory decisions between 2006 and In addition, the Legislature expressly authorized the CPUC to create the CSI Program in 2006 in SB 1 (Murray, 2006). The gas-displacing solar thermal portion of the CSI was authorized by the Legislature in AB 1470 (Huffman, 2007) and implemented by the CPUC in early 2010 after the required evaluation of a pilot program in the San Diego area. June

14 The CSI General Market Solar Program provides incentives for residential and nonresidential systems from one kilowatt (kw) to one MW. The General Market Program Administrators are PG&E, SCE, and CCSE in SDG&E territory. The goal of the general market rebate program is to incentivize 1,750 MW of customer-side solar capacity using a ten-year budget of $1.9 billion for both incentives and program administration. The General Market solar program funds solar PV and solar thermal technologies through the end of The CSI Single-Family Affordable Solar Homes (SASH) Program provides solar incentives to qualifying single-family, low income housing owners. The SASH Program is administered through a statewide Program Manager, GRID Alternatives, with a budget of $108 million. The SASH program offers job training to hundreds of volunteers and workforce development participants, and offers competitive opportunities for solar installers through a subcontractor program. As described above, AB 217 extends funding for this program until 2021 at the latest. The CSI Multifamily Affordable Solar Housing (MASH) Program provides solar incentives to multifamily low income housing facilities. The MASH Program also has a $108 million budget and is administered through the same Program Administrators as the General Market solar program: PG&E, SCE, and CCSE. The popularity of this fully subscribed program has resulted in the recent expansion of the VNM tariffs, which allow a system owner to share bill credits for solar production with the building s tenants. Like the SASH Program, the MASH Program has been extended by the Legislature until 2021 at the latest, through AB 217. The CSI Research, Development, Demonstration and Deployment (RD&D) Program provides grants to develop and deploy solar technologies that can advance the overall goals of the CSI Program, including achieving targets for capacity, cost, and a self-sustaining solar industry in California. The RD&D Program is administered through the RD&D Program Manager, Itron, Inc., and has a budget of $50 million. The CSI-Thermal Program provides solar thermal incentives to eligible systems such as gas or electric-displacing solar water heaters. The CSI-Thermal program is funded separately depending upon whether the project is electric-displacing or gas-displacing. There are four Program Administrators for the CSI Thermal Program. PG&E, SCE and CCSE administer the electric-displacing portion of the Program in their respective territories, and PG&E, Southern California Gas Company (SoCalGas) and CCSE administer the Program for the gas-displacing portion. In mid-april 2012, the CSI- Thermal program launched a $5 million, two-year public relations contract to spotlight the benefits of solar thermal technologies to targeted end users. The CSI-Thermal Program now consists of three subcomponents: single-family residential, multifamily/commercial, and low income. June

15 2.3. CSI Program Budget The CSI Program has two funding streams, depending upon whether the rebated technology displaces electricity or natural gas. The electric portion of the CSI Program has a 10-year budget of $2.2 billion, collected from electric ratepayers as authorized by SB 1 (Murray, 2006). In AB 217 (Bradford, 2013), the Legislature extended the CSI low income programs with $108 million in new funding, to continue until the incentives are claimed or 2021, whichever is earlier. The natural gas-displacing portion of the CSI Program, known as CSI- Thermal, is funded by AB 1470 (Huffman, 2007), which authorized $250 million in incentives for solar thermal technologies through 2017 to be collected from gas ratepayers. Table 1: CSI Budget by Program Component Program Component Budget ($ Millions) Goal General Market Solar Program (includes PV and electric displacing solar thermal technologies) $1,897 1,750 MW Single-family Affordable Solar Homes (SASH) $108 TBD* Multifamily Affordable Solar Housing (MASH) $108 TBD* Research, Development, Demonstration, and Deployment (RD&D) $50 N/A Solar Water Heating Pilot Program (SWHPP)** $ systems Sub-Total: CSI Electric Budget (Electric Displacing) $2,167 1,940 MW CSI Thermal Program (Gas-Displacing) $ million therms 10 Total CSI Budget $2,417 Source: CPUC D , p. 28 established goal of the General Market Program as 1,750 MW. In addition, D established the CSI-Thermal Program pursuant to AB 1470 (Huffman, 2008) and SB 1 (Murray, 2006). *The CPUC decisions on MASH and SASH did not explicitly adopt a MW program goal; however, the CPUC did adopt a total CSI program goal of 1,940 MW in D The Legislature, via AB 217, set a goal of installing an additional 50 MW total. The CPUC will address the revised goal in its implementation of AB 217 later this year. **The SWHPP was a pilot program that preceded the CSI-Thermal Program, and is now closed. In most cases, the budget is allocated across the Program Administrators in proportion with their annual electric sales: PG&E at 43.7 percent, SCE at 46.0 percent, and SDG&E at 10.3 percent. Weekly and daily budget updates for the General Market incentive buckets are available online ( The online reports display the program capacity goals, original dollar allocations, and capacity and dollars confirmed, under review, and still available. They also break down the dollars confirmed, in payment, and paid, 10 The CSI-Thermal goal of 585 million therms is the equivalent of 200,000 SWH residential systems. June

16 according to the type of project: Expected Performance-Based Buydown (EPBB), Performance- Based Incentive (PBI), or thermal electric (electric-displacing CSI-Thermal program dollars come out of the General Market budget) CSI Program Regulatory Process Between 2006 and 2014, the Commission adopted a number of regulatory decisions establishing the CSI Program, as well as various CSI Program components. 11 Rules and procedures pertaining to distributed generation, including the CSI Program, are currently developed within Rulemaking (R.) In addition to formal regulatory decisions, the CPUC and CSI Program Administrators have made numerous CSI Program changes based on regular informal feedback from program stakeholders and in response to issues that arise during program implementation. To gather feedback on the program, the CSI Program Administrators host quarterly public CSI program forums to discuss potential program changes with stakeholders. 12 The Program Administrators periodically file program rule changes via advice letters, consistent with the CPUC-established CSI Program Handbook process. These are processed by Energy Division staff in accordance with General Order (G.O.) 96-B. 13 As a result, the CPUC has revised and reissued the CSI Program Handbook numerous times since the program first began CSI General Market Program Decisions Key decisions related to the CSI Program include (but are not limited to): D adopted the CSI Program. D adopted Performance Based Incentives, an administrative structure, and other program start-up elements. D modified earlier decisions to conform to SB 1. D modified the incentive adjustment mechanism to account for program dropouts. D established interim marketing and outreach objectives for the program. 11 The Commission has developed the CSI program in a series of Rulemakings (R) since 2006, including R and R , with precedents from even earlier proceedings like R Each of the decisions noted herein occurs in one of those dockets, unless otherwise noted. 12 Information on the CSI Program Forums can be found at: 13 See, General Order 96-B here: June

17 D and D modified metering and performance monitoring requirements for the program. On July 29, 2008, the Assigned Commissioner issued a Ruling establishing a Program Evaluation Plan for the CSI. D modified the CSI General Market budget, and shifted $40 million from the program administration budget into the incentive budget as partial mitigation for higher than anticipated performance payments under the PBI mechanism. D modified prior CSI decisions, including D and D , based on a comprehensive staff proposal. D modified the CSI budget requirement, effectively adding $200 million in rebate funding, in response to SB 585 (Kehoe, 2011). D modified the CSI budget requirement in response to a petition for modification submitted by the California Center for Sustainable Energy Other CSI Program Component Decisions D established the Solar Water Heating Pilot Program in SDG&E territory. D established the CSI RD&D program. D established the CSI SASH program. D established the CSI MASH program. D established the CSI-Thermal Program to provide solar water heating incentives statewide. D established the Low Income Solar Water Heating Component of the CSI- Thermal program. D established the eligibility of propane-displacing technologies for the CSI- Thermal Program. D modified incentives for the CSI-Thermal Program. D established a performance-based incentive structure for the CSI-Thermal Program and expanded program eligibility to process heat, solar cooling and combination systems. D established the eligibility of swimming pool technologies for the CSI- Thermal Program. June

18 3. Solar Installed Through 2013 This section of the report summarizes data on the cumulative installed capacity 14 and number of solar projects installed in California IOU territories and provides a table showing all distributed solar installed statewide Investor-Owned Utility Territory Solar Installations Through the end of 2013, there were 1,982 MW of solar capacity installed at 207,931 sites in the state s IOU territories. This data includes solar projects interconnected under any of the IOU solar programs, including CSI, New Solar Homes Partnership (NSHP), Emerging Renewables Program (ERP), and the Self-Generation Incentive Program (SGIP). IOU data does not include solar projects installed in Publicly-Owned Utility (POU) areas, such as Los Angeles Department of Water and Power (LADWP) or Sacramento Municipal Utility District (SMUD), nor does it include data from multi-jurisdictional utilities, such as the Pacific Power California Solar Incentive Program. 15 CSI Program-only data is featured in Section 4. Figure 1 shows the amount of solar capacity installed by customers by year in IOU territories, with 620 MW installed in 2013, the represents a growth of 73 percent from This figure relies on interconnection data submitted to the CPUC by the utilities (rather than data specific to the CSI Program featured elsewhere in this report), and it does not distinguish which solar program provided funding for the solar project. Figure 2 uses the same data as Figure 1, but shows the data as the number of installations. There were 66,097 solar projects installed in the IOU territories in 2013, a growth of 73 percent from All of the solar capacity identified in Figure 1 and Figure 2 is installed on customer sites, and does not include solar power plants installed on the wholesale side of the meter for use in compliance with the RPS. 14 All data in this assessment are for grid-tied solar PV (i.e. interconnected to the utility grid), unless otherwise noted. All solar in this report is customer-side of the meter self-generation designed to serve onsite load. All references to capacity are reported in CEC-AC units, which is the industry standard for net electricity output in MW based on the California Energy Commission s Alternating Current rating of solar panels. The CEC-AC rating tends to be slightly less than the nameplate capacity. 15 The PPCSIP program is authorized to provide incentives for 4 MW of solar energy through July 1, June

19 Figure 1: Customer-Sited Solar Capacity Installed in CA s IOU Territories, ,004 1,362 1,982 Data is through December 31, It Includes CSI, NSHP, ERP and SGIP data, but not POU or RPS data. Cumulative MW Installed Figure 2: Customer-Sited Solar Projects Installed in CA's IOU Territories, ,257 3,210 6,282 11,028 15,429 21,880 31,147 40,757 56,574 76, , , ,931 Cumulative Projects Data is through December 31, It Includes CSI, NSHP, ERP and SGIP data, but not POU or RPS data. June

20 3.2. Net Energy Metering Program Background The majority of solar customers are enrolled in NEM tariffs, pursuant to PU Code Section The NEM Program supports onsite solar installations up to 1 MW in capacity designed to offset a portion, or all, of the customer s electrical load. CSI Program participants are eligible for utility interconnection and NEM tariffs that facilitate solar by allowing solar customers to feed limited amounts of excess electricity into the grid. Under NEM, customers receive a bill credit (in dollars) based on the full retail rate (including generation, transmission, and distribution rate components) for any excess generation (in kwh) that is exported back to the grid. In periods when a customer s bill is negative (because the value of the energy produced by the distributed generation facility exceeds the value of the energy consumed on site), the negative balance is carried forward up to one year, at which point customers may elect to receive net surplus compensation for any electricity produced in excess of on-site load, or apply the net surplus compensation credit towards future consumption. Some solar projects, especially those with a solar system that is small relative to total load, so that exports to the grid would be unlikely, opt to take utility service under a non-nem tariff. Table 2 shows the total solar interconnections compared to the customers on solar NEM tariffs. Only 163 MW, or 9 percent, of solar capacity in the state is not signed up for NEM. Table 2: Solar Interconnections and Solar NEM Customers by Utility MWs Interconnected Customers Interconnected MWs on NEM tariffs Customers on NEM Tariffs PG&E 1,041 MW 106, MW 106,196 SCE 706 MW 69, MW 69,395 SDG&E 235 MW 31, MW 31,916 Total 1,982 MW 207,931 1,819 MW 207,507 Data is through December It Includes CSI, NSHP, ERP and SGIP data, but not POU or RPS data. June

21 California NEM Ratepayer Impacts Evaluation On October 28, 2013, the Commission issued a report on the costs and benefits of the NEM program, in compliance with AB 2514 (Bradford, 2012). 16 The study evaluated the costs and benefits of the NEM program using two separate measures: a cost-benefit analysis, which estimates the net benefits (or costs) of a demand-side resource or program from the perspective of non-participating customers, and a cost of service test, which compares the utility cost of serving NEM customers with their actual bill payments. Though the estimates contained in the report are subject to certain methodological limitations, the analysis suggests that NEM generation resulted in a net cost to ratepayers of $79 to $252 million in 2013, and would reach costs of $370 million to $1 billion per year in 2020 under a complete build-out of systems to the 5 percent NEM program cap. 17 The report also notes that the costs of NEM are largely a function of retail rates designs, since NEM customer-generators receive benefits in the form of bill credits valued at the full retail rate, and that any future changes to the retail rate structure would have a significant impact on the results. 18 With regard to the cost of service analysis, the study finds that NEM customers appear to be paying slightly more than their full cost of service NEM Program Cap Pursuant to AB 327, every large electrical corporation is required to make NEM available to eligible customer-generators until July 1, 2017, or the date when a utility reaches its 5 percent NEM program cap, whichever is earlier. Table 3 shows the current progress towards the 5 percent NEM cap. Table 3: Progress Towards the 5 Percent NEM Cap Aggregate Progress towards MWs on NEM Customer Peak 5 Percent NEM Tariffs Demand Cap PG&E 1,050 MW 48,177 MW 2.18% SCE 704 MW 44,807 MW 1.57% SDG&E 270 MW 12,134 MW 2.23% Data through March AB 327 also directs the Commission to establish a transition period for customers enrolled in the current NEM program, and adopt a successor tariff or contract to NEM by December 31, California Net Energy Metering Ratepayer Impacts Evaluation, Prepared by California Public Utilities Commission Energy Division and Energy and Environmental Consultants, October 28, 2013 (NEM Evaluation) The 5 percent NEM program cap is calculated by the amount of installed NEM capacity relative to a utility s highest non-coincident peak demand, or the sum of each individual customer s peak demand, in any given calendar year. 18 Pursuant to AB 327, the CPUC is in the process of examining residential rate designs that more accurately reflect the true cost of utility service in its residential rate rulemaking, Proceeding R June

22 In March 2014, the Commission adopted D , establishing a 20-year transition period for customers to remain on NEM tariffs. 19 Specifically, the decision established a transition period of 20 years, beginning on the year the system was interconnected, during which time systems already enrolled in NEM tariffs on the earlier of July 1, 2017, or the date when a utility reaches its statutorily required 5 percent NEM cap, may continue to take service under NEM California Statewide Solar Installations Through the end of the first quarter of 2014, California has an estimated 2,302 MW of installed solar capacity at 246,666 customer sites. As detailed in Table 4, this statewide solar data combines the best available information on IOU interconnections through March 2014, and POU solar data through The CPUC tracks IOU interconnection data on a quarterly basis and CSI program data is available weekly. Data on POU solar projects is collected by the California Energy Commission (CEC), and, to date, the information is only available annually every July for the previous year. The statistics shown in Table 4 provides the best available estimate of California statewide solar installations. Table 4: California Statewide Solar Installations Data Source and Dates Total MWs Total Projects Solar Installations in California IOU Territories All IOU Interconnections, 1993-Q , ,141 Solar Installations in California POU Territories CEC through ,525 Total California Solar Installations 2, , CSI Program Components As of March 31, 2014, the CSI Program has achieved a total of 1,488 MW of installed capacity since program inception. This was achieved through installations in the General Market, SASH and MASH programs. Those programs are discussed in more detail below General Market Solar Program General Market Program Background The CSI General Market solar program is the largest CSI Program component. It offers incentives to all eligible customers in the large IOU territories who install solar PV systems on their property. These incentives are based on either the actual or calculated 19 June

23 performance of a solar system, such that higher performing systems receive a larger incentive than lower performing systems. The heavy emphasis on performance in the CSI Program is designed to optimize California ratepayer investment in solar. In addition, the CSI Program requires program participants to complete energy efficiency audits before installing their systems to encourage applicants to invest in cost-effective energy efficiency measures prior to sizing their solar system, consistent with the state's Energy Action Plan and "loading order." 20 The General Market program is divided into residential and non-residential programs and is administered by three program administrators: PG&E, SCE and CCSE. CCSE administers the program in SDG&E s service territory General Market Incentive Types The CSI General Market Program pays solar consumers an incentive based on system performance. The incentives are either an upfront lump-sum payment based on expected performance, or a monthly payment based on actual performance over five years. The EPBB is the upfront incentive available only for smaller systems. The EPBB incentive is a capacity-based incentive that is adjusted based on expected system performance calculated using an EPBB calculator 21 that considers major design characteristics of the system, such as panel type, installation tilt, shading, orientation, and solar insolation available by location. PBI is paid based on actual measured performance over the course of five years. The PBI is paid on a fixed dollar per kilowatt-hour ($/kwh) of generation basis and is the required incentive type for larger systems, although smaller systems may opt to be paid based on PBI. Beginning in January 2010, all systems 30 kw and larger have been required to take the PBI incentive. Because PBI systems are large solar arrays that primarily serve commercial and institutional customers, cumulative payments to PBI system owners sometimes exceed one million dollars per project. The average reserved incentive for PBI systems is $450,000, as of March General Market Incentive Level Design The CSI Program s financial incentives decline in steps as more capacity is installed. The declining incentives, required by PU Code Section 2851, are intended to help the program meet the goal of creating a self-sustaining solar industry by reducing rebates as the solar industry grows. Each step has an installed MW target that triggers the subsequent step down in incentives. The capacity targets per incentive step are further broken down into allocations 20 The loading order was introduced in the Energy Action Plan (EAP), which was adopted in 2003, which is a joint effort by the CPUC, the California Energy Commission and the California Power Authority. The EAP adopted a loading order of preferred energy resources - the first of which is energy efficiency. 21 The EPBB calculator is publicly available at June

24 across customer type and across the three IOU service territories. Table 5 presents the capacity target by utility territory and customer class, showing how all of the incentives were originally allocated over the expected 10-step life of the program. Actual allocations by step will vary due to dropouts and other factors. Table 5: CSI General Market MW Targets by Utility and Customer Class PG&E (MW) SCE (MW) SDG&E (MW) Step MW in Step Res Non-Res Res Non-Res Res Non-Res Subtotals (Res and Non-Res) Totals Percent 43.7% 46.0% 10.3% Source: D , Appendix B, Table 11. Notes: The MWs for Incentive Step 1 were reserved under the Self-Generation Incentive Program in Non- Residential (Non-Res) includes commercial, government, and non-profit facilities. June

25 Table 6: CSI EPBB Rebate Levels per Incentive Step Incentive in Step (EPBB, $/Watt) Step Residential Commercial Government Non-profit 1 n/a n/a n/a 2 $2.50 $2.50 $ $2.20 $2.20 $ $1.90 $1.90 $ $1.55 $1.55 $ $1.10 $1.10 $ $0.65 $0.65 $ $0.35 $0.35 $ $0.25 $0.25 $ $0.20 $0.20 $0.70 Source: For comparison, the average installed cost for PV systems below 10 kw is $5.71 per watt, as of May 7, 2014 (see for current average system costs) General Market Current Incentive Steps Table 7 shows the current steps for each service territory for all customer classes and incentive types. Once the incentives reserved for each customer class within a utility territory reach the capacity target for a given step, the incentive level offered drops to the next lower step. These drops occur independently of one another for example, reservations made in PG&E s residential step do not affect the level of incentives offered to PG&E s non-residential customers, nor do they affect other territories. This creates a demand-driven program that adjusts solar incentive levels based on local solar market conditions. It is important to note that the EPBB rebates in step 10 for residential and commercial are less than 5% of the average system installed cost. June

26 Program Administrator CCSE (San Diego) PG&E SCE Table 7: Current General Market Statewide Solar Incentive Step Levels Customer Class Current Step EPBB Incentive Value ($/Watt) PBI Incentive Value ($/kwh) MW Remaining in Step MW Under Review Residential 10 $0.20 $ Commercial $0.25 $ Government/ $0.90 $0.114 Tax-exempt Residential Commercial Government/ Program Fully-Subscribed Tax-exempt Residential 10 $0.20 $0.025 N/A 7.29 Commercial $0.25 $0.032 Government/ $0.90 $0.114 Tax-exempt Data as of 5/12/2014. N/A: the PG&E programs have successfully used up their funding pools and are no longer accepting applications. The SCE residential program funds are nearly exhausted and the program is accepting applications to join a waitlist. Note: * Per Senate Bill 585, PBI payments have been revised to reflect a 4% discount rate which creates new PBI rates for Steps 8, 9, & 10. For comparison of the size of the current incentives relative to current system costs, the average installed cost for PV systems below 10 kw is $5.71 per watt, as of May 7, 2014 (see for current average system costs) General Market Program Progress Five of the six General Market programs have substantially reached their targets, while the final remaining program (SCE s non-residential) is expected to do so before Both PG&E s residential and non-residential programs have expended their funds and are closed. After receiving Commission authorization to place more funds in its fast-moving residential program, the program in SDG&E territory once again has both residential and non-residential programs open and accepting applications, although residential funds will likely be exhausted soon. The charts and tables in this section illustrate the CSI General Market solar program progress to date, with data from the California Solar Statistics (CSS) web page. 22 In addition, the CSI Program releases a Data Annex each quarter with key program application processing metrics, 22 California Solar Statistics can be accessed here: June

27 such as application processing times. 23 further in Section 5.1. The CSS website and the Data Annex are discussed There are many ways to measure the progress of the CSI general market program, including progress towards the two stated goals of the Program: 1) Install 1,750 MW of solar PV capacity; and 2) Transform the market for solar so that it is price competitive and sustainable. This section reports on the installations, pending and complete, the solar price trends, program participation rates, and program budgets, as well as the program s effect on the transformation of the solar market. The CSI Measurement and Evaluation (M&E) program component performs more detailed analyses, including cost benefit analyses, impact analyses, and other studies intended to help understand and improve the Program s performance. 24 The progress of the M&E component is reported in Section General Market Program Trends Several trends have emerged since the CSI Program s inception in 2007, suggesting that the program is approaching its goal of stimulating widespread adoption of solar and creating a selfsustaining market, free of direct cost-support in the form of program rebates Average System Costs for Program Participants Between the last quarter of 2008 and the last quarter of 2013, the average cost of installed residential systems has decreased 48 percent from $10.64 per watt to $5.50 per watt (CEC-AC, with figures adjusted for inflation). In the same time period, non-residential systems have decreased 52 percent from an average of $10.08 per watt to $4.86 per watt. These significant cost declines point to the success of the CSI in contributing towards a sustainable solar industry in California. It is worth noting, however, that even greater PV system cost declines have been witnessed in Germany, where the cumulative residential MW installed capacity dwarfs that of California. 26 Since July 2010, the CSI program has imposed a soft cap on per watt system costs to encourage an ongoing reduction in system costs. If an application comes in above the cap, the applicant must submit an explanation for the high cost; the host customer must acknowledge that the project is higher than the cap; and the PA must find the explanation reasonable. 23 The current Data Annex can be accessed here: 24 All CSI Program Measurement and Evaluation reports are available at: 25 The solar industry may continue to require the support of Federal Tax Credits and Net Energy Metering, or a successor tariff, for a longer term before achieving self-sustainability. 26 See, June

28 As directed by SB 585, the CPUC revised the methodology to calculate the system cost cap to be based on national and state installed cost data. Originally set at two standard deviations above the program s average cost per watt, the cost cap was lowered by Resolution E to $1.00 per watt above the 12-month rolling average of CSI system costs. In addition, the Commission set separate cost caps for residential and non-residential projects by calculating this average cost for systems under 10 kw (largely residential projects) and for those over 10 kw (largely nonresidential projects). These average cost figures are recalculated and published on on a weekly basis. National solar installation cost data are reviewed annually by the Energy Division to keep CSI system costs in line with national trends Inspections in the Performance-Based Incentive Program In late 2012, the CSI Program Administrators PG&E, SCE, and CCSE recognized that a number of PBI systems were producing noticeably more kilowatt-hours than expected. Based on projections developed by technical consultant Energy Solutions, Energy Division staff flagged 36 PBI systems for inspection by the Program Administrators in These inspections provided useful insights into the performance of large distributed solar installations in the field. For 29 of the 36 projects, the discrepancy was traced to system characteristics that were incorrectly recorded on the application, or system efficiencies above and beyond what was initially expected by the CSI Program s EPBB calculator. Interestingly, 12 PBI systems located on carport structures or on cool roofs produced more kilowatt-hours than expected, perhaps explained by the fact that their solar panels stay cooler during the day than conventional roofmounted systems. Most importantly, these inspections revealed seven instances of improper metering or unauthorized solar panel additions beyond what was reported in the incentive application, prompting quick corrective action by the Program Administrators. Payment adjustments to these seven projects are projected to preserve $1.18 million in ratepayer incentive funds by the end of the program, which can be used to pay future customer-generators. 27 See, June

29 Solar Installations Outside the CSI Program Since the publication of the 2013 Annual Program Assessment, the Energy Division has observed that a significant portion of customer-side solar NEM installations have interconnected in the three large IOU territories without having participated in the CSI Program, as many of the CSI sub-program incentives have been exhausted. 28 Figure 3 below shows that the proportion of customer-side solar NEM installations not participating in the CSI Program in 2014 has grown dramatically since the first two quarters of Most of the capacity being installed without CSI incentives comes from the residential sector, with a smaller proportion coming from the non-residential sector. A sizeable portion of these projects are located in PG&E territory, where customer-side solar installations have continued to increase despite the close of the CSI incentive program. Figure 3: Trends in Non-CSI Program Customer-Side Solar Installations PV Capacity Foregoing CSI Incentives According to these estimates, a little less than half (48 percent) of the customer-side solar NEM capacity installed in the first quarter of 2014 received CSI incentives. Given that one of the principal goals of the CSI Program is to create a self-sustaining solar market, the fact that roughly half of all customer-side solar projects, by capacity, are being installed without CSI 28 Note: Participation in the CSI Program is not a requirement for customer generators installing solar panels. However, since 2007 the vast majority of customer-side solar projects have applied for and received CSI incentives. 29 This figure compares the capacity figures reported by the three IOUs in their quarterly Net Energy Metering (NEM) data submissions to the publicly-available CSI data located on California Solar Statistics. Although these two data sources are not identical either in terms of what date is used to represent the installation dates or individual project records, nearly all customer-side solar capacity is interconnected under NEM tariffs, making it possible and useful to compare the cumulative size of participating CSI installations to the total amount of customerside NEM solar capacity installed in a given period. June