California’s Self-generation Incentive Program (SGIP) has had a long, strange trip and, if proposed modifications are approved, it could justify adding “storage” to the program’s title.
The proposed modifications would allocate 75% of the program’s annual $83 million in incentive awards for energy storage with the remaining 25% allocated for generation.
The higher incentive level for storage reflects the direction the program has been headed for the last couple of years, and is meant as a ceiling, not floor, said Ravi Manghani, director of energy storage at GTM Research. ”In recent years, energy storage and fuel cells have dominated SGIP funding,” he said. Storage has also been the strongest performer in terms of installed capacity.
Funding for approved SGIP storage projects in 2015 was $67 million, more than double the $33 million in funding for approved fuel cell projects last year. And in terms of reserved and interconnected capacity, storage far outstripped fuel cells in 2015, 47 MW compared with 17 MW.
The results also are indicative of what has grown into a feud between energy storage and fuel cell companies.
Fuel v. Energy storage
One media account noted that Bloom Energy, a purveyor of electric fuel cells (as opposed to combined heat and power (CHP) fuel cells), has been the single largest recipient of SGIP funds, winning $400 million of the program’s 14-year, $1.4 billion total.
More recently, storage seems to have taken a lead with a single company, energy storage provider Stem, monopolizing the online submission process on February 23, according to an analysis by GTM Media.
According to GTM, Stem was able to secure the first 56 applications in the opening minutes of the first-come, first-served application process.
That created enough of a controversy that the California Public Utilities Commission (CPUC) added changes to how the program is administered to its already proposed modifications of how the program is structured.
The PUC’s proposal would amend the existing selection process by replacing the first-come, first-served system with a lottery when applications received on the same day request more incentives than the remaining budget holds. Projects that have additional greenhouse gas or grid benefits would be given priority in the lottery.
Stem, for its part, offered to cancel half of the awards it won on February 23. Stem far outpaces other energy storage vendors in SGIP process with 175 completed projects over the life of the program.
In an email response for comment, Ted Ko, Stem's director of policy, said that given the first-come, first-served program structure, it expected a rush of applications and developed and executed “a highly successful application process in full compliance” with SGIP rules. In addition, Ko said, Stem’s results in the process were proportionate to the amount of customer applications the company submitted.
In the wake of the award process, Ko said it is disappointed that some of its customers will continue to wait for funding and “hopes to fulfill these projects in the near future.”
Ko also said it worked with the PUC to come to “an acceptable approach to put this controversy to rest and enable all stakeholders … to move forward.”
In fact, the February 23 process was for only half of the annual $83 million—the PUC having decided to hold back the other half until the proposed modifications are put in place—expected in the second half of the year.
The PUC does not use a straightforward competitive bidding process for SGIP because the program is intended to incentivize emerging technologies and encourage small vendors. The thinking is that competitive bidding would give larger, established players an unfair advantage.
In addition to putting a 75% cap in place for storage awards, the PUC is also looking to even the playing field in terms of award distributions. Under the proposed modifications each participating project developer would be capped at a total of 20% of the incentive budget on a statewide basis, replacing the previous 40% cap.
Stem is not the only focal point of SGIP controversy. According to the CPUC's SGIP worksheet, electric fuel cell manufacturer Bloom Energy has drawn or reserved more than $400 million of the program's 14-year, $1.4 billion total.
That has prompted some critics to call Bloom’s 23% share of SGIP awards a “bloomdoggle.” The issue comes down to claims about greenhouse gas emissions. Fuel cells emit very low levels of pollutants, but if fueled by natural gas, they emit carbon dioxide.
Bloom’s spec sheet said lists its CO2 emissions of 679 lbCO2/MWh to 833 lbCO2/MWh. A typical new combined-cycle gas turbine plant emits about 913 lbCO2/MWh. But if SGIP is supposed to reduce demand and lower GHG emissions, the awarded technology would have lower CO2 emissions than grid power, and Pacific Gas & Electric’s CO2 emissions rate is about 445 lbCO2/MWh.
In November the PUC lowered the CO2 emissions ceiling for projects seeking to qualify for SGIP funding to 334 kilogramsCO2/MWh in 2016. Bloom just makes it under that ceiling with first year average emissions of 333.4 kgCO2/MWh.
But in a subsequent decision, the PUC raised the bar to 350kgCO2/MWh over the first 10 years of a project’s operation, which appeared to knock Bloom fuel cells, at 351 kgCO2/MWh, out of the running for SGIP funding.
That is not the case, argues Asim Hussain, vice president of marketing and customer experience for Bloom Energy. “Bloom more than meets the new GHG standards set by the CPUC and meets all other SGIP eligibility requirements,” he said.
Hussain said Bloom’s latest Energy Servers deliver initial efficiencies over 65%, and “easily improve” upon the new SGIP standard of 350 kgCO2/MWh.
“We are proud of the very rapid progression of our technology on performance and cost effectiveness enabling us to positively impact California’s progressively more ambitious GHG reduction goals,” Hussain said.
Hussain also contests claims that energy storage can reduce GHGs. “We need to see a more extensive track record” for those claims, he said.
Hussain said Bloom will continue to participate in SGIP. But the company could face headwinds. The SGIP changes proposed by the PUC are more positive for storage than they are for fuel cells, said GTM’s Manghani.
“Once final decision is reached, “we will determine how best to compete and structure contracts with customers,” Hussain said.
SGIP's path to modification
SGIP has been through many modifications since its inception. It began as a peak-load reduction program in response to the energy crisis of 2001 and as a complement to the California Energy Commissions’ Emerging Renewables Program, which focused on smaller systems than envisioned in SGIP.
In its original incarnation, the program was approved by the PUC with $137.8 million of annual funding through Dec. 31, 2004, and it applied to microturbines, small gas turbines, wind turbines, photovoltaics, fuel cells and internal combustion engines installed on the customer’s side of the meter and with a maximum size of 1 MW.
Solar photovoltaic technologies were moved out of SGIP after the launch of the California Solar Initiative in 2006. And in 2009, the program objectives were expanded to include greenhouse gas reductions.
GHG have since been tightened to reflect higher renewable targets under California’s renewable portfolio standard, which is now at 50% renewables by 2030.
And in 2014, SB 861 brought about modifications now pending before the PUC. The law extends the program funding to 2019, but includes a host of other changes.
In addition to the introduction of the 75% budget bucket for energy storage, the PUC’s proposal calls for a continued move away from projects that use natural gas. Natural gas projects would still be eligible under the proposed rule but they must be at least 10% biogas fueled by 2017 and 100% by 2020.
Hussain said using biogas “is an option for all new and existing Bloom Energy customers.”
The proposed changes would also reduce incentive levels over time in a series of three steps.
The proposed modifications also decrease energy storage incentives and put them on a new footing. The would go from $1.31/Watt at the beginning of 2016 to $0.50/Watt hour and decline to $0.30/Wh over five steps.
Those incentive changes could benefit longer duration storage technologies and aid in leveling the playing field among players and technologies, Manghani said.
While the shift to a per watt-hour incentive from a per watt incentive is “reasonable,” Ko at Stem said the removal of some of the limits on project size and incentive amount is “counterproductive and may produce unintended poor outcomes.”
As an example, he cites a project could be built as a 1 MW, 10-hour storage system and by itself receive a $5 Million SGIP incentive. It would be more in keeping with the goals of the program, he said, to either institute MWh limits or a declining incentive for the duration hours after the first two hours.
Similarly, Ko believes current program limits on projects that take the federal Investment Tax Credit (ITC) when paired with solar PV should remain in place.
Removing them, as the proposed decision does, could mean that some projects could cover 100% or more of their storage costs. A more equitable approach, he said, would be to reduce the SGIP incentive by some percentage of the ITC.
All in all, though, the modifications are “great news for storage,” said Alex Morris, director of policy and regulatory affairs at the California Energy Storage Alliance.
If approved, they mean that storage would no longer compete directly with fuel cells because each would be applying for separate “budget buckets.”
The step down of the incentives also seems “reasonable,” Morris said. He said the incentives shouldn’t be permanent, but it would be hard to do without them currently.
“It is an important program,” Morris said, and getting the details right is important for California’s climate and for industry participants. Conversely, he said, getting it wrong could be bad for ratepayers.
Correction: In a previous version of an article, we said Stem had 175 awards over the SGIP process. That is incorrect. Stem had 175 completed projects. We also said Bloom Energy's spec sheet said they list their CO2 emissions at 735lbCO2/MWh to 849lbCO2/MWh, which is incorrect. Also, a chart in the article initially showed Advanced Microgrid Solutions had zero projects in the SGIP process, but that is incorrect. AMS has one project in the SGIP process, but the chart only reflects manufactors and not developers.