AB327: is there devil in the detail?

Felicity Carus

Felicity Carus discusses the repercussions of California's Assembly Bill 327, which could spell profound changes to the solar industry.

This article is taken from the September/October issue of Renewable Energy Focus magazine. To register to receive a digital copy click here.

California saw an event take place in Sacramento last week that was as rare as a sighting of the State's endangered and prehistoric condor as legislators in Sacramento passed a law that pleased both the solar and utility industries.

Despite concessions made on either side to get the legislation through both houses, Assembly Bill 327 is set to usher in the most profound changes to California's utility industry since the energy crisis in 2000/1.

Under AB327, rate structures will be reconfigured and the 33% cap on California's pioneering Renewable Portfolio Standard will be removed. But the most hotly contested part of the legislation was over net energy metering (NEM), a keystone policy for distributed generation (DG), which allows customers with solar to sell back their excess electricity to the grid, and mandates utilities to pay full retail rates, rather than cheaper wholesale prices.

The solar industry is breathing a collective sigh of relief. AB327 will remove a looming suspension on net energy metering, which would have come into effect at the end of 2013. And it provides certainty over how the current net metering cap is calculated and a framework for removing the 5% cap.

NEM is available in 43 States. In California, NEM is capped at 5% of peak load, equivalent to 3.7GW of net-metered generation, which is currently around 1.6GW.

AB327 effectively lifts that cap from 2017, and authorises regulators at the California Public Utilities Commission (CPUC) to design what the NEM programme will look like thereafter.

California has installed almost 4GW of the 10GW U.S. market, a figure that will boom especially at commercial and residential levels now that developers have a clear sightline for the industry all the way to 2017; since AB327 also clarifies that NEM must be offered without interruption until July 2017, or until an investment owned utility reaches its share of the current 5% NEM cap.

AB327 provides certainty for customers too. By March next year, the CPUC will have to establish rules for the grandfathering of existing NEM customers into the new programme. It also protects customers from unreasonable or discriminatory charges utilities might be tempted to apply.

According to GTM Research, California is well on track to meeting that 5% cap with 3.9GW of DG by the end of 2016. Shayle Kann, vice president at GTM Research, said: “AB327…doesn't answer the big questions but it provides some near-term certainty regarding NEM and sets out a very clear path for figuring out what the long-term programme is going to look like.”

Significant concession

But solar advocates had to make a dramatic concession on a fixed fee for all utility customers that could be as high as US$10 a month. Utilities say this will compensate them for the loss of revenues from customers that have gone solar. And as the focus for AB327 moves to the CPUC, utilities will also have an opportunity to push for the elimination NEM.

Seth Hilton, a partner in the energy development practice group at law firm Stoel Rives in Sacramento, said, “there's certainly potential that utilities will push to eliminate NEM. They may say, ‘let's not do NEM, we should be paid at the wholesale power rate not the retail rate’. That could put a significant dent in future development of distributed generation. Alternatively, expansion of NEM would have a very different impact on the future of solar in California. “But the Governor's office has been a huge proponent of distributed generation and has pushed for a significant amount of it in his energy plan. So that counterbalances some of the utilities’ push to come up with something other than NEM. How that balance comes out, where the line falls, is yet to be determined. There are powerful people on both sides of the equation.

“This bill is helpful to the solar industry but the devil is in the detail. It's a step forward but we're not all the way there for the solar industry in California.”

Rate design

Rate design will also be another major focus for the CPUC under AB327 with a potential reduction in the tiered structure from the existing five to two levels. Solar in California is particularly attractive for commercial and industrial customers whose energy use puts them into this fifth and highest tier where prices have reached 50 cents per kWh in recent years.

“The economics for solar are best with customers who are in the highest rate tiers so it takes those away. But if they flatten the tiers it doesn't kill the market because not every solar customer is in the highest rate tier,” said Kann.

One of AB327's most dramatic impacts will be to remove the cap from California's 33% Renewable Portfolio Standard (RPS), already the most aggressive clean energy target in the U.S. which has powered the boom in utility scale solar.

“There's the potential for a real expansion of the RPS market in California,” said Hilton. “The utilities are currently already on the path to meet the 33% standard. Removing that barrier would potentially have a significant effect on the market.”

But not everyone is cheering from the solar rooftop, even after last-minute amendments. In the weeks leading up to the votes, the Sierra Club led protests outside the headquarters of San Diego Gas & Electric, which added to pressure to amend the legislation in favour of the solar industry. The Sierra Club estimates that the bill would make 42% of rooftop installations uneconomic if the maximum fixed charges of US$120 per year are allowed by the CPUC.

Evan Gillespie, western region deputy director of the Sierra Club's Beyond Coal Campaign, said, “the legislation improved significantly as a result of public pressure from tens of thousands of Californians in the final weeks of the legislative session. The removal of the 5% cap on net-metering is a groundbreaking precedent that eliminates a major barrier to continued growth. “Nonetheless, we have significant concerns about the impact of a fixed charge on solar adoption."

As the legislative session in California drew to a close on 13 September, there were an unusually high number of solar bills (five) among the 400 pieces of legislation that landed on Governor Jerry Brown's desk. Four additional bills were passed by Sacramento lawmakers, including SB43, which will implement California's first “shared renewables” pilot programme and require utilities to procure an additional 600MW.

Carrie Cullen Hitt, senior vice president of state affairs for the Solar Energy Industry Association, said, “California's solar industry is maturing significantly along with its relative importance in the State in terms of jobs and investment. Solar is…now a significant part of the economy and that's why you see all this [legislative] activity.”

About: Felicity Carus previously worked on the environment desk at the UK Guardian newspaper. She covers renewable energy technology and clean energy policy and finance out of San Francisco, CA., US.

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Energy efficiency  •  Energy infrastructure  •  Green building  •  Photovoltaics (PV)  •  Policy, investment and markets  •  Solar electricity