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Summary:

California regulators have made significant changes to a state incentive program that will impact electric customers who use technology such as fuel cells. The changes could have a big impact on Bloom Energy, which has been a major beneficiary of the SGIP.

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California regulators have made significant changes to a state incentive program that will impact electric customers who use technology such as Bloom Energy’s fuel cells. The program, called the Self Generation Incentive Program (SGIP), was created in 2001 to encourage small, onsite electricity generation by businesses and consumers in order to reduce the need for utilities to invest in transmission and distribution lines.

The California Public Utilities Commission (CPUC) gave the program a makeover Thursday, and among the key changes is a requirement that the technology used must reduce a certain amount of greenhouse gas emissions (the emissions from self generation must be lower than emissions from electricity bought from utilities). For example, energy projects that run on fossil fuels shouldn’t emit more than 379 kilograms of carbon dioxide per megawatt hour, though they can go up to 5 percent above that limit without penalty. Projects will only get half of the incentives if the extra emissions exceed 5-10 percent, and they won’t get any payments if they exceed the limit by 10 percent.

Incentives will be paid based on the electricity produced and only for the electricity used onsite, the commission said. The payments will be cut or withheld during years when the systems don’t meet emission reduction requirements.

The commission not only lowered the incentive rates but also banned the use of biogas produced outside of the California. This change will impact fuel cell development in particular. Fuel cells can run on both natural gas and biogas, and Bloom Energy’s customers have touted their use of biogas as a more eco-friendly alternative.

In addition the commission’s decision extended the program from Jan. 1, 2012 to Jan. 1, 2016. The commission suspended SGIP since January of this year so that it could save the money that was set aside for the program and use it when new rules are in place. It had to change the program to comply with a 2009 legislation (SB 412) that requires the use greenhouse gas emission reductions to determine eligibility.

The details

Eligible technologies for SGIP include fuel cells, waste heat capture, combined heat and power gas turbines, micro turbines, internal combustion engines, energy storage and wind turbines. The program once allowed solar panel installations, but the commissioners moved solar to California Solar Initiative programs in 2007.

The maximum incentives for different technologies will range from $0.50 per watt for gas turbines to internal combustion engines to $2.25 per watt for fuel cells. Wine turbines will fetch $1.25 per watt. The rates are lower than the ones available from 2007 to 2010, when fuel cells could get $2.50 per watt ($4.00 if using renewable fuels) and wind turbines at $1.50 per watt.

The program takes into account whether the fuels used to run the power generators are renewable or not, and also considers where the fuels come from.  The commission voted to ban the use of out-of-state biogas primarily because it wants to promote in-state biogas development, which it says will provide more local environmental benefit. The commission decision on the new SGIP program notes that California hasn’t seen a big increase in biogas development within the state in recent years, however. Using in-state biogas will allow electric customers to claim additional incentives.

The new SGIP also will limit the incentives for each project to $5 million, a change to ensure more electric customers can participate, said commission president Michael Peevey. The incentives come in the form of upfront rebates and payments made based on the power generated.

The program historically has included energy storage as long as it’s paired with equipment that produces electricity. The new program will now include stand-alone energy storage projects.

Impact on fuel cells & Bloom Energy

The changes to the SGIP could have a big impact on Bloom Energy, which has been a major beneficiary of the SGIP. The company and its customers were in line to get $215.8 million awarded by the commission last year, and it fought hard against a proposal to suspend the program last December.

The Commission’s latest decision not only lowered the incentives for fuel cells and cap the per-project incentive amount at $5 million, it also rules out the use of biogas that comes from out of the state. That means Bloom’s customers could get less money for the same-size fuel cells. They also won’t get the bonus for using biogas unless the fuel comes from within California.

Some of Bloom’s fuel cells run on biogas from out of the state. NTT America  installed five Bloom fuel cells at its data center in San Jose, Calif earlier this year and told us that the biogas was coming from Pennsylvania. That project would still be eligible for SGIP incentives because it was completed before the new program rules are to take effect.

The new SGIP rules won’t go into effect yet. The commission modified the criteria for the SGIP, but it will be up to program administrators to hash out the details for  implementing the changes. The administrators are Pacific Gas and Electric, Southern California Edison, Southern California Gas Co. and San Diego Gas & Electric. The utilities will have to file papers to detail how they plan to do so within a few months. They will then re-start the program and accept applications.

Commissioner Timothy Alan Simon said he was not so sure about the ban on out-of-state biogas, though he did vote “yes” for the program overhaul at the end of the hearing on Thursday. “We are in essence making it difficult for fuel cell technology that will simply revert to natural gas,” Simon said during the meeting.

  1. Ryan Stanton-Wyman Saturday, September 10, 2011

    I’m guessing this will slow Bloom’s sales in California. Good thing they’ve started to expand outside the state:
    http://www.energystorageblog.com/2011/06/20/a-win-for-utility-scale-fuel-cells/

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  2. Correction: The California Center for Sustainable Energy administers the SGIP in San Diego Gas & Electric service territory.

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