California has been quite successful at encouraging the development of (1) large utility-scale renewables through the renewables portfolio standard (RPS) and other measures and (2) small-scale, single structure solar generation through the California Solar Initiative (CSI) and measures such as net energy metering (NEM).  However, there have been numerous market and regulatory barriers to developing and deploying the “in-between” community-scale and neighborhood-scale renewables that hold substantial promise.

Community-scale and neighborhood-scale distributed generation (DG) includes some technologies that simply are not cost-effective at the small scale of a single house or business, but are not large enough to justify the transaction costs of participating in the larger wholesale electricity market.  These resources, such as “community solar gardens”, can meet the demands of many customers who cannot take advantage of adding renewables at their location and can also reduce investment in expensive new transmission projects. Examples of these types of projects are parking structure-scale solar photovoltaics, solar-thermal generation and space cooling, and biogas and biomass projects, some of which could provide district heating.  Technology costs are falling so rapidly that these mid-scale projects are becoming competitive with utility-scale resources when transmission cost savings are factored in. SB 43 (Wolk 2013) recognizes that the promise of mid-scale renewables has not been realized.

In response to SB 43, each of the large investor-owned utilities–PG&E, SCE and SDG&E–have filed proposed tariffs with names such as Enhanced Community Renewables Program or Share the Sun. I filed testimony in the PG&E and SCE cases on behalf of the Sierra Club addressing shortcomings in those programs that would inhibit development of community solar gardens. SDG&E’s proposal, while not perfect, better meets the law’s objectives. After the hearings, the CPUC postponed a proposed decision from the July 1 deadline to October.

SB 43’s requirement that the investor-owned utilities “provide support for enhanced community renewables programs” is a critical step forward for California’s distributed energy goals.  The CSI is the state’s premier distributed generation program.  In SB 43 the Legislature expressed its intent that the “green tariff shared renewables program seeks to build on the success of the California Solar Initiative by expanding access to all eligible renewable energy resources to all ratepayers who are currently unable to access the benefits of onsite generation.”  SB 43 advances the success of the CSI into the area of multifamily residential and multitenant commercial properties and introduces all types of renewable energy resources.  Customers who, for various reasons, cannot benefit from the current net metering programs, will be able to benefit through SB 43.

The Legislature clearly intends for this program to lead to a transformation in the energy market akin to the success for single customers of the CSI. This necessary market transformation extends to multifamily and commercial lease properties that are currently beyond the CSI and Self Generation Incentive Programs (SGIP). The Commission should ensure that utilities’ programs under SB 43 provides the market transformation that is necessary for this underserved segment.

State regulations calls for all new residential dwellings to consume zero-net energy (ZNE) by 2020, and all new commercial properties by 2030.  Fully implementing the market transformation identified in SB 43 is one of the obvious means to achieve this target.  The CSI option has already facilitated many examples of feasible ZNE single-family homes using renewables well ahead of the 2020 deadline.  There are several market barriers to integrating renewables in a similar manner on multifamily and commercial leased properties and on single-family that are not favorably located or that have other impediments.

A properly-designed community solar garden program should provide a critical work-around for the split-incentive problem that has plagued local renewable development in California.  The split-incentive problem arises from the fact that multi-tenant structures, both commercial and residential, may not be able to implement solar or other renewable resources due to the fact that lessees are not the owners of the shared space where renewables could be sited.  The problem of split-incentives between landlords and tenants has long been recognized, and has been the focus of energy efficiency programs.

As a corollary, the Commission should provide individual developers and property owners the opportunity to integrate energy efficiency and DG measures to achieve the best mix for meeting environmental and economic goals. Each project is unique so that a “one size fits all” approach that requires sale of all output into the wholesale market with buyback from customers who may have no connection with the project will only discourage enhanced development.

For distributed generation to expand in California there must be a cost-effective path for residential and commercial tenants, as well as not-well-situated buildings, to install solar and other renewables and share the costs among other customers. The focus to date has been on either utility-scale or single-building scale projects, but the most promise may be in mid-scale projects that can serve a community or a neighborhood cost-effectively through a combination of scale economies and avoided transmission and distribution investment.  But to achieve this objective requires changes from current utility practices.

An update: Here’s the link to the decision on this CPUC case issued in January. And here’s the link to scoping memo for the phase of this proceeding.