STATE OF NEW
JERSEY
BOARD OF PUBLIC UTILITIES
IN
THE MATTER OF THE FILING OF THE
) |
BPU
Docket Nos. |
COMPREHENSIVE
RESOURCE ANALYSIS
) |
EX99050347,
EO99050348, |
OF
ENERGY PROGRAMS PURSUANT TO
) |
EO99050349,
EO99050350, |
SECTION
12 OF THE ELECTRIC DISCOUNT
) |
EO99050351,
GO99050352, |
AND
ENERGY COMPETITION ACT OF 1999
) |
GO99050353,
GO99050354 |
COMMENTS ON THE
UTILITIES’ PROPOSALS TO THE BOARD OF PUBLIC UTILITIES TO CHANGE THE CLEAN
ENERGY PROGRAM, MAY 6 AND JULY 10, 2002
Seema M.
Singh, Esq.
Acting Director and Ratepayer Advocate
31 Clinton
Street, 11th Floor
P.O. Box
46005
Newark, New
Jersey 07101
Dated: July 19, 2002
COMMENTS ON THE
UTILITIES’ PROPOSALS TO CHANGE THE CLEAN ENERGY PROGRAM
Prepared
by Dr. David Nichols on Behalf of the
New Jersey Division of the Ratepayer Advocate
July 19, 2002
Overview
and Summary
The Clean Energy Program is a renewable
energy program that is being operated as part of the Comprehensive Resource
Analysis programs approved by the Board of Public Utilities. The Clean Energy
Program is administered by the New Jersey Clean Energy Collaborative (NJCEC).
The program promotes the installation of qualifying renewable electricity
generation technologies sited at the facilities of utility customers. Through
a letter to the Board of Public Utilities dated May 6, 2002, the utilities
proposed changes in the Clean Energy Program. In a second letter from the
utilities to the Board, dated July 10, 2002, one of the proposed changes
requested in the May 6 letter was further modified. These comments address
each change proposed by the utilities. There are also certain changes that
were not proposed by the utilities, but which I believe the Board should
consider concurrently with those proposed by the utilities. These further
changes are discussed here as well.
My comments are based on my continuing
review of the operation of and reported results from the CRA programs. I carry
out this review function on behalf of the Division of the Ratepayer Advocate.
As background for these comments I attach a table provided by the NJCEC which
presents the levels of projects accepted (“reserved”) in the various
components of the Clean Energy Program. Though the table is dated May 31,
Michael Ambrosio of the NJCEC informed me that it represents the current
situation.
The utilities also issued two
clarifications of how the Clean Energy Program operates. One clarification was
included as the first point in the May 6 letter. The second clarification was
contained in a separate letter to the Board dated June 26, 2002. The
clarifications do not change the program design and do not require comment
here.
Based on my review, I believe immediate
changes to the Clean Energy Program are warranted. These changes would affect
the operation of the program for the balance of the current program year only.
They are intended to improve the effectiveness of the program in causing
installation of on-site renewable energy systems in the State, particularly
systems in the small to medium size range. They do not involve any
modification to the current program year budget of the Clean Energy Program. I
suggest four changes for Board consideration. In order of importance they are:
1.
Cap the Size of Individual Projects
The utilities’ May 6 letter proposed
capping the amount of capacity from any one project that could receive Clean
Energy Program incentives. The proposal to cap project size at 1 MW (1000 kW)
is reasonable and in my view should be adopted. Large projects can promptly
use up available funds. Even though CRA program funds for renewable energy are
being committed at a slower rate than expected, it is still important to focus
those funds on small and medium size projects that cannot expect to receive
support elsewhere. The May 6 letter correctly points out that larger projects
can apply for incentives under the Grid Supply Program, a CRA program
administered by the Board. (The utilities’ June 26 letter clarified that
only projects which receive no other CRA incentives are eligible for Clean
Energy Program incentives.)
2.
Increase the Incentive for Small Projects Now
Neither the May 6 letter nor that of
July 10 proposes changes in the structure of incentives for “Tier I,” that
is, projects of 10 kW in size or less. Small PV systems such as those which
might be installed on a home or a small shop fall into this size range. At its
meeting with the Board on June 13, the NJCEC explained at length how, despite
intensive marketing, only modest progress had been made in interesting
residential homeowners in acquiring PV systems. The attached table shows that
only 151 kW of the 1000 kW for small projects in Block 1 have been reserved.
While continued marketing and education can be expected to increase interest
in small scale technologies, there is a case for a dramatic increase in
financial incentives to jump-start the market for Tier I size projects. A
specific proposal along these lines was included in my Comments on the New Jersey Clean Energy Collaborative’s Presentations
to the Board Of Public Utilities (July 8, corrected July 11).
I quote the core of that proposal:
“Currently,
Tier I incentives for Blocks 1, 2, 3, and 4 are $5, $5, $4, and $3 per Watt,
respectively. Moreover, the incentives are currently limited to 60, 50, 40,
and 30% of the cost of the renewable energy system for Blocks 1, 2, 3, and 4
respectively. The need is to provide stronger incentives for the uptake of
small renewable energy systems. I suggest that for Tier 1 the incentives
should be increased to $7, $6, $5, and $4 per Watt for Blocks 1, 2, 3, and 4;
and that for Tier 1 projects only, the incentives be capped at 80, 60, 50, and
40% of system cost, respectively.”
The incentives for small systems that I
propose here deliberately aim higher than any proposals I am aware of from the
solar energy industry or from within the NJCEC. I believe a larger number of
projects need to be installed around the State in order to demonstrate the
availability of renewable technology, particularly PV technology.
In the program for 2003 and each
successive year, the incentives would decline. The NJCEC is considering many
changes to the Clean Energy Program to propose for next year. But there is
also a need for a mid-course correction relating to the Tier I program for the
current year. Something bold is needed.
3.
Increase in the Size of Block 1
One major change requested by the
utilities is an increase in the size of Block 1 for medium/large projects. The
overall Clean Energy Program is divided into four blocks. Blocks are defined
in terms of (1) a total amount of capacity, (2) the financial incentive
available to renewable energy projects, and (3) the size (in kW) of the
individual projects. There are also some restrictions on the portion of each
block which technologies of a particular type may utilize. In general, the
financial incentives are highest in Block 1, then decline in each successive
block. The original (and thus still current) size of Block 1 is 2 MW (2000
KW): 1 MW for small projects of 10 kW or less installed capacity, and 1 MW for
projects above 10 kW. The attached table was provided on July 15 by Michael
Ambrosio of the NJCEC, who stated that it represents the current state of
approved (“reserved”) projects under the program.
The May 6 letter proposed increasing
the size of Block 1 for medium/large systems (those over 10 kW) from 1 MW to
2.23 MW. This would be done to accommodate projects which were accepted by the
utilities as qualifying for Block 1 incentives. The letter does not explain
how the utilities managed to allow over-subscription of Block 1, but this
could reflect the fact that to participate in the program, application must be
made through an individual utility. Some of the over-subscription of Block 1
was due to natural gas fuel cell (NGFC) projects, whose inclusion in the Clean
Energy Program was and is opposed by the Ratepayer Advocate and which I have
opposed in my recent Comments on behalf of the Ratepayer Advocate. Some of the
over-subscription to Block 1 incentives was due to a large PV project.
While the May 6 letter was still before
the Board, the July 10 letter proposed to increase the size of Block 1 for
medium/large systems (those over 10 kW) by a further 3 MW, in addition to the
expansion to 2.23 that was requested on May 10. The additional 3 MW would only
be for PV projects. The total size of Block 1 for systems over 10 kW would
thus increase from 1 MW to 5.23 MW. The size of Block 1 for small systems
would remain at 1 MW. This further proposed expansion of Block 1 for
medium/large projects is partly based on the fact that projects were accepted
for incentives under Blocks 2 and Block 3 after Block 1 was filled. According
to Mr. Ambrosio, the developers of the projects that were accepted under Block
2 and 3 had submitted their proposals in the hope of getting Block 1
incentives. Indeed, their projects are only financially viable if they get
those incentives. Moreover, the PV industry believes that additional projects
may be proposed if they can receive Block 1 incentives. One conclusion that
can be drawn from the two proposals to increase the size of Block 1 for
systems over 10 kW -- first to 2.23 MW, then to 5.23 MW -- is that only the
highest incentives, those of Block 1, are currently effective in causing
investment in PV technologies.
There is merit in expanding Block 1 to
provide a strong impulse to the PV market. Eventually the PV market in the
State will have to become more competitive and less reliant on subsidy, if it
can. But that outcome is several years down the road. The logic of the Clean
Energy Program is to use substantial financial incentives to jump-start the
on-site renewable energy market in the State. Given that logic, plus the fact
that the overall level of renewable energy activity under the CRA is lagging
behind budgeted levels, the expansion of Block 1 should proceed -- but only
for PVs, the most innovative and most costly of the on-site technologies.
On the other hand, the portion of the
over-commitment of Block 1 reservations that is from NGFCs should not be
included in the expansion of the block. We do not know exactly what portion of
the capacity reserved under Block 1 for medium/large systems is from NGFCs.
But if it were -- for illustration -- 500 kW, then the recommendation would be
to increase Block 1 from 1 MW to 4.73 MW for medium/large systems. If
inadvertent commitments were made to NGFC projects after Block 1 was actually
subscribed, the proposers are due apologies, but not a change in program
parameters.
4.
Reduce the Incentive for Medium/Large Projects
The May 6 letter proposes to create a
new incentive Tier IV. Specifically, the incentives available for projects of
300 kW up to 1 MW in size would be reduced substantially. The objective, as
the July 10 letter explains, is to reduce the amount of incentive funding that
could be applied to large, non-PV projects, so as to make more funding
available for medium-sized projects of 100kW up to 300kW. This change should
be implemented as proposed.