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Economics Will Challenge CA's 11-Year, $3 billion Solar Incentive Program

Amid the political and regulatory euphoria over California's largest-ever solar incentive program that state regulators approved Thursday are various skeptics questioning the economics of heavily underwriting a technology that is far from being commercially competitive. These concerns caused one of the California Public Utilities Commission members to vote against the massive program that will be paid for by private-sector utility ratepayers.

Gov. Arnold Schwarzenegger, whose "million-solar-rooftops" program was stymied in the state legislature the past two years, lauded the program as did the utilities, such as Pacific Gas and Electric Co., but energy economist Severin Borenstein, director of the University of California's Energy Institute, questioned the program's costs, calling the so-called "California Solar Initiative" a public relations/feel-good coup over good policy.

"There are much better ways to spend this money," Borenstein said in a report in Friday's Los Angeles Times. Geoffrey Brown, the lone negative vote among the CPUC members, said the regulators put their "enthusiasm before prudence," as quoted in the same LA Times' report. The vote was 3-1, with one CPUC member abstaining.

Critics question whether the program will attract enough businesses. Walgreen Co., the drug store chain, plans to outfit 96 stores with rooftop solar systems in the months and years ahead, but most companies are participating because they qualify under the old subsidy amounts of the $3 to $3.50/installed watt. That number for the 10 years starting next year will drop to $2.80/watt, an amount that would be less attractive to Walgreen.

For the utilities regulated by the CPUC, the solar initiative is an expanded version of a self-generation incentive program they have been administering for several years, and in which the money was usually exhausted before all the eligible customers could be granted rebates. PG&E's utility welcomed the new program as a means of expanding its ongoing efforts, which include what the utility said is the "largest distributed solar program in the United States."

PG&E said the new initiative will "greatly expand" its self-generation incentive program, under which more than $120 million in financial incentives for more than 230 solar project, totaling 29 MW, have been awarded. PG&E also provides utility interconnection services for solar self-generation systems, and it has provided those services to 9,800 solar customers, the utility said. The CPUC-backed program's 10-year goal is 3,000 MW of installed solar capacity by 2017.

Schwarzenegger called the CPUC's action a big step toward achieving his goal of developing more "affordable, reliable and environmentally friendly" energy supplies. He thanked CPUC President Michael Peevey for his support for the solar roofs effort, and added that he looked forward "to working with the legislature to take the final steps to finish the job."

The CPUC has put together a greatly stepped up solar incentives effort in two steps -- the first being last month when it authorized an additional $300 million for this year's program, then on Thursday it added the 10-year, $2.9 billion program that officially starts next year running through 2016. Combined, the state is looking at an 11-year, $3.2 billion effort that includes 10% set-asides for low-income customers, research/development efforts, and requiring energy audits and performance measurements so the rebates are not solely based on installed capacity.

The CPUC said it wants to make sure "these solar investments are delivering clean energy as promised." Peevey said it is the regulators hope that solar will "become a major part of California's energy portfolio."

He stressed that the CPUC's intention is to offer subsidies now to push increased deployment of solar in hopes this will spark the economies of scale the industry has been searching for over recent decades, and which are reportedly beginning to be achieved in some European nations and the Far East.

CPUC Commissioner Dian Grueneich said as the largest solar program in the country she hopes California's initiative "will be a model for other states." It also is a "major tool in the state's promise to address climate change and meet the governor's goals to reduce greenhouse gas emissions," Grueneich said.

Under the new program, the CPUC will oversee a $2.5 billion program for commercial and existing residential customers, using funds collected through a surcharge on monthly natural gas and electric utility bills. A second part of the program, using $350 million, will be administered by the California Energy Commission, which will manage a program for new residential construction, inviting the residential building industry to build rooftop solar PV systems into new homes between 2007 and 2011.

Initially the program will concentrate on solar photovoltaic (PV) systems, expanding to water heating and solar heating/cooling systems after some workshops are conducted later this year, the CPUC said.

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