PASADENA WATER AND POWER MEMORANDUM. August 9, 2016

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1 PASADENA WATER AND POWER MEMORANDUM August 9, 2016 To: Environmental Advisory Committee From: Gurcharan Bawa Interim General Manager Subject: Pasadena Solar Program Updates This report is for information only. Pasadena s Solar Programs The installation of local solar photovoltaic ( PV ) systems to generate renewable energy for Pasadena Water and Power ( PWP ) electric customers supports several of the City s goals related to sustainability and reliability. Established January 1, 2008, PWP s Pasadena Solar Initiative ( PSI ) provides incentives and education for customers installing PV systems on their homes and businesses. Through implementing the PSI, PWP aims to install 14 MW of customer owned solar PV by December 31, 2017 in line with Senate Bill 1 ( SB1 ), California s Million Solar Rooftops initiative. As of June 30, 2016, PWP is a little over half way to meeting this goal with approximately 7.7 MW of PV capacity installed under the PSI. To complement the PSI, the 2015 PWP Integrated Resource Plan ( IRP), approved by City Council in June 2015, included a goal for PWP to develop Feed-In Tariff ( FIT ) and Community Solar pilot programs. A FIT program allows participants to directly connect PV systems to PWP s electric distribution and sell the output to PWP at a set price, whereas a Community Solar program enables PWP customers to own or subscribe to a share of a local PV system to meet a portion of their electric energy needs. PWP s goals for these two initiatives are to: 1) Support PWP customers interest in locally generated solar power 2) Fulfill commitments to develop new local solar programs made in the 2015 IRP 3) Advanced Pasadena s renewable energy and greenhouse gas (GHG) goals; and 4) Develop programs that are funded by participants (i.e., rate neutral) PWP anticipates recommending pilot programs for City Council consideration by June 2017.

2 Page 2 Pasadena Solar Initiative PSI Program Status Key achievements and trends for the PSI program include: In 2015, the PSI program supported the installation of nearly 1 megawatt ( MW ) of solar energy in Pasadena. The number of PSI applications continues to increase - PWP is processing between 200 and 300 applications annually. Since PSI inception and as of June 30, 2016, a total of approximately 872 solar installations, representing 7.7 MW of solar, have been completed. Customer interest in solar continues to grow. As shown in Table 1, the PSI program installed a record number 164 systems last year, the highest level of customer participation since the program began. These systems represent nearly 1 megawatt ( MW ) of solar power and will generate over 1.5 million kilowatt-hours each year, enough energy to power approximately 240 average residential Pasadena homes. Six of the PV systems (totaling 66 kw) were installed at income-qualified customers. Table 1 Number of Completed Solar Systems Installed Annually, in Pasadena Calendar Year Capacity Added (kw) ,495 1, , Total Number of Systems Residential Non-Residential Includes Commercial, Non-Profit, and Government The number of solar rebate applications received has been increasing steadily since 2008, as shown in Figure 1. The periodic spikes in the number applications received coincide with when PSI program incentive reductions have been implemented. To help manage the growing number of applications, PWP developed and received City Council approval for a new simplified interconnection form process for smaller installations (<15kW) in May This new interconnection form will allow for a streamlined process, helping to improve customer experience and meet state requirements for timely interconnection and metering processing.

3 Page 3 Figure 1 Growth in PSI Program Applications The growth of solar in Pasadena is shown in Figure 2. The amount of solar installed each year by residential customers has grown relatively steadily since 2008, while commercial customer participation has been smaller in recent years and less predictable. In the second quarter of 2016, the cumulative total amount of residential solar installed in Pasadena surpassed commercial solar. Collectively, PWP estimates that the PV installed systems are generating approximately 12 million kwh every year, which represents about1.1% of PWP s retail electricity sales. Figure 2 - PSI Progress: Annual and Cumulative Capacity Installed (kw)

4 Page 4 PSI Rebates Solar rebates are available to all PWP electric customers at four different levels, depending on the customer type. For smaller customer solar PV systems (less than 100kW), incentives are paid upfront through an Expected Performance Based Buydown ( EPBB ). All systems larger than 100 kilowatts ( kw ) are paid over two-years through a Performance Based Incentive ( PBI ) that is based on metered output of the solar system. Consistent with the requirements of SB1, the PSI incentive rates must decline over time. The next incentive reduction, summarized in Table 2, will be implemented on August 1, 2016, with the next following step reduction planned for August 1, Table 2 PSI Program Incentive Levels Customer Type Current Effective Effective Incentives August 1, 2016 August 1, 2017 EPBB PBI EPBB PBI EPBB PBI Residential $0.45 $0.114 $0.30 $0.096 $0.25 $0.080 Commercial $0.45 $0.114 $0.30 $0.096 $0.25 $0.080 Non-Profit/Gov't $0.90 $0.288 $0.60 $0.192 $0.50 $0.160 Income-Qualified $1.80 $0.576 $1.20 $0.384 $1.00 $0.320 In addition to the rebates available from PWP, Pasadena residents and businesses will continue to benefit from a recently extended federal tax credit equal to 30 percent of their net cost for photovoltaic solar systems. Overall, the cost of solar PV systems has declined significantly since A recent State report on the California Solar Initiative found that between the last quarter of 2008 and the last quarter of 2014, the average cost of installed residential systems decreased 53 percent from $10.87 to $5.14 per watt, while the average cost of installed non-residential systems decreased 62 percent from an average $10.30 per watt to $3.93 per watt. 1 The PSI program helps to further PWP s commitment to a sustainable energy future by promoting renewable solar power. Consistent with the state s energy resource loading order that prioritizes energy efficiency as the resource of first choice, PWP encourages customers to identify and pursue cost-effective energy-efficiency improvement opportunities even before installing solar. PSI Funding PWP s solar incentives are funded by the Public Benefits Charge ( PBC ) that is maintained in a separate fund and authorized under Public Utilities Code 385(a), to be used for: (1) cost-effective energy efficiency and demand reduction programs; 1 CPUC (2016).California Solar Initiative 2016 Annual Program Assessment.

5 Page 5 (2) renewable resources; (3) research, development and demonstration projects ( RD&D ); and, (4) low income services. The PSI incentives paid for solar installations since the PSI s program inception are shown in Table 3. Approximately 10%, on average, of the solar rebate budget has been spent on solar program administration. Table 3 PSI Expenditures for Solar Incentives ($000) Calendar Year Incentives Paid Total $435 $837 $1,688 $1,926 $2,828 $2,462 $2,621 $2,297 $15,094 The approved FY2017 PWP Budget allocates $970,000 for solar incentives, a large drop from the FY 2016 budget of $2,320,000. This reduction is caused by final PBI rebate payments that were made in FY2016 for a number of large commercial solar installations that received significantly higher 5-year PBI incentive levels than those currently offered. As the PSI incentive budget declines, PWP is able to allocate a higher proportion of PBC revenues to fund new energy-efficiency programs or other PBCeligible expenses. Feed-In Tariff Program A FIT is a form of wholesale electricity procurement, and is a policy-defined mechanism that s used to encourage investment in renewable energy technologies. A FIT program offers a long term contract and price to eligible renewable energy generators. For utilities, a FIT is complementary to Renewable Portfolio Standard ( RPS ) mandate in that the electricity produced can be counted as the highest Bucket 1 renewable resource in California s RPS program. FITs can encourage distributed resource generation by providing greater certainty to the renewable resource owners who require a steady stream of revenue to support their fixed investment. Unlike Net Energy Metered (NEM) systems that are installed primarily to produce renewable energy that s used to offset the energy used at that site, FIT renewable generation is in front of the meter and all of the energy produced is sold back to the utility. Customers that enroll in the FIT program sell 100% of the renewable energy generated to PWP through a Power Purchase Agreement ( PPA ). None of the output of the eligible generation would be available to serve the customer s own load and by definition, a customer-site that participates in the FIT cannot participate in NEM. Additionally, customers that receive a rebate from PWP s solar program would not be eligible to participate in the FIT and a customer that enrolls in a FIT would not be eligible to receive a solar rebate. Dependable or set pricing is one of the main components of a FIT program. The FIT rate schedule establishes the prices that developers will be paid for the renewable energy generated and delivered by their FIT projects. FIT rates are typically fixed rates and do not vary over the term of the PPA. FIT pricing is often based on the time of day

6 Page 6 the energy is delivered to PWP, in order to incentivize projects that produce at peak periods when the electricity is most needed. In addition to a FIT rate schedule, PWP will be developing program rules, a standard PPA contract, an application, and the associated workflow to review the application and interconnection processing along with the payment processing. PWP is planning to review the Regulation 23 Distributed Generation Facilities Interconnection Requirements later this year for possible updates, including changes necessary to be appropriate for a FIT program. The FIT program is contingent upon City Council approval. PWP plans to present a proposed FIT program, including pricing options and anticipated budgetary impacts for MSC and City Council review and will seek approval for a new FIT rate structure through an amendment to the Light and Power Rate ordinance. Community Solar Program PWP is also developing a community solar program that will expand access to clean, renewable solar energy. PWP has sought community input and feedback to help shape this program and plans to launch an initial phase of this program in The new community solar program will enhance the PSI program by providing a broader range of customers with access to solar energy. Community solar programs enable customers to buy a portion of a shared power facility and receive credits for the energy on their electric bill, without having to install solar panels on their home or business. The National Renewable Energy Laboratory ( NREL ) defines community solar as a solar-electric system that, through a voluntary program, provides power and/or financial benefit to, or is owned by multiple community members (NREL 2010). 2 Background on Community Solar Community solar programs are expanding across the country as interest in solar continues to trend upward. Community solar programs offer customers a relatively easy and economical way to support clean, solar energy. They provide customers who can t or choose not to install their own rooftop solar PV system for one or more reasons because they don t own the home, they live in a multifamily building, their roof isn t suitable (e.g., shading, orientation or roof age), or they have financial limitations with a new option for supporting and benefiting from solar. As shown in Figure 3, electricity generated from one or more utility community solar arrays would be fed into PWP s distribution grid. PWP customers that sign up to participate in the program would pay for the community solar array(s), either through an upfront payment (panel lease) or through a monthly subscription. In return, PWP would issue regular credits to each participant on their electricity bill based on the amount of energy generated by their share of the system. 2 NREL (2010). A Guide to Community Solar: Utility, Private and Non-profit Project Development.

7 Page 7 Figure 3 How Community Solar Works Source: Smart Electric Power Association, 2015 Given the number of different program design options, PWP formed a stakeholder group to engage interested community members in the design of the program. Two stakeholder meetings have been held since December 2015 to discuss potential program design options, including location of the community solar system and program offer to customers. Feedback from community members has indicated support for building the community solar system in Pasadena as opposed to a utility scale project outside the City. A local project brings benefits to the community by helping to build interest in and awareness of the project among potential participants and the community at large. Local projects can also provide additional electrical benefits, including reduced distribution system loading and transmission losses. However, project cost was also very important to stakeholders and will need to be further considered as the energy cost for local solar projects can be substantially higher than remotely located utility scale solar projects. PWP is collecting feedback on location preferences and program design options through an online survey that is available on PWP s community solar webpage. Following approval of the community solar program by the City Council, PWP will build or procure a new solar PV system to supply the energy and manage the community solar program. PWP is planning to build or procure a system between 500 kw and 1,000 kw and has been evaluating several potential sites, including a parking garage and other City facilities, to host this project. PWP is in discussion with the Rose Bowl Operating

8 Page 8 Company ( RBOC ) on building a new solar carport at Parking Lot D, which was identified as the most viable location at the Rose Bowl. PWP has sought Pasadena community input and feedback to help shape this new program. As the project moves forward with the Rose Bowl as the preferred site, PWP will develop an outreach plan to engage the Rose Bowl neighborhood residents on this project, along with receiving support and necessary approvals from the City Council and the RBOC Board for the project. The community solar program is contingent upon City Council approvals. Next steps include: Seeking City Council approval for 1) solar system location and PWP s procurement of a PV system; 2) a new rate structure for community solar through an amendment to the Light and Power Rate ordinance; and 3) any contracts or budget necessary to modify the billing system and recognize the expenses and revenues associated with the program. Finalizing community solar program design and rules. Launch and market community solar program to enroll participants Build and interconnect the community solar PV system during PWP anticipates presenting necessary recommendations to the MSC and City Council in the first half of calendar year 2017.